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Tapiwa Maswera Correspondent
There was a time, just after independence in 1980, when Zimbabwe’s financial services industry promised and delivered.

Policyholders and pension fund participants looked forward to a future filled with hope.

The iconic Paul Mkondo’s baritone voice boomed every Sunday morning as he advertised the products of Southampton Insurance Company.

The strength of Mkondo’s voice came to represent the strong and decisive black transformational leadership required in the non-banking financial services sector.

Zimbabwe’s economy was booming and a younger Thomas Mapfumo was singing about busy employed Zimbabweans.

That was then.

Paul Mkondo and Southampton Insurance Company, which he advertised are no more.

People who bought financial products from him, and saved for decades may be among the many whose savings “disappeared” during hyper-inflation.

The role of the financial services industry

The financial services industry plays four roles in the economy.

It facilitates payments so that people can access their salaries and businesses and people can pay each other.

It sources capital within the economy from those who have excess and allocates it to those who can use it more profitably. It assists people and businesses to manage risk. And it helps people plan consumption over their lifetimes.

Benchmarking Zimbabwe

The country is currently plagued with cash shortages. That means banks are not lending enough to oil the economy. No one is saving. Zimbabwe is actually experiencing a dis-saving at a rate of around eight percent.

The life insurance and pensions sector which is supposed to help our society manage risk and plan consumption over our lifetimes is broken.

According to a Presidential Commission of Inquiry, the industry absconded with the assets that survived hyperinflation.

Zimbabwe lags behind fellow African countries when it comes to saving. And Africa as a whole is so far behind Asian countries.

Financial Governance

So what went wrong? In short, it was a failure of financial governance.

Financial governance can be broken down into three parts, namely financial leadership, financial structure and risk management. Without proper financial governance, we cannot have a viable non-banking financial services sector. It’s just as simple as that.

Financial leadership

Financial leadership refers to the human element. The country lacks the higher practical financial skills that are required to build a sophisticated non-banking financial services industry. And our non-banking financial services industry needs a major overhaul, not the tinkering that we have witnessed so far. The skills required go beyond the mere common sense which has dominated the discourse in the past.

Within the Government, this means the ability to develop an all embracing vision for the industry. To design and implement policies that will drive the industry.

Government needs higher financial skills to competently execute this function. It has to design the over-arching financial framework. This financial framework will have a very profound impact on the way in which the industry will develop.

To implement Government policy, leadership is required within the regulators. They must enforce the law and ensure that Government policy is implemented correctly.

Institutions and financial markets must operate in terms of the laws of the country and the policies set up by Government. This requires leadership and competence.

Leadership within the private sector means designing viable financial business models, products and above all ensuring profitability. Charity is not scalable.

Industry should be led by competent people who should be able to assess and move in line with the environment. Business models and financial products must be appropriate to the times.

Consumer protection leadership is also critical.

Financial structures and governance

Financial structures and governance refer to how the industry organises itself. How will collective decisions be taken, and what types of financial services players will operate in this market?

It also includes what kind of ownership models and shareholding are acceptable, what is the link between monetary, economic and fiscal policies and the operation of the non-banking financial services industry and what systems and processes will define the way in which financial organisations go about their business.

How companies go about organising themselves to operate the systems and processes that keep the industry viable, are also other considerations.

In the context of Zimbabwe, the overarching structural issue that drove all other issues was hyperinflation.

The consequences of the failure to understand its impact on the sound operation and performance of the non-banking financial services industry are still with us.

Risk management and knowledge management

The non-banking financial services industry is a skills intensive industry. The most important input of the industry is not money, but risk management. And it takes a lot of skill to manage risk and to manage the skills required.

Risk management describes the design of good financial products, the management of the financial services institutions, the systems they use and the processes that they follow.

The operation of the financial services industry is underpinned by risk management.

Good risk management leads to good outcomes, while poor risk management leads to poor outcomes.

Conclusion

The collapse of Zimbabwe’s non-banking financial services industry was because of the failure of financial governance and the deterioration continues unabated.

There hasn’t been any concrete measures taken to stop it. Instead, an atmosphere of fear and suspicion seems to prevail. Restoring glory to the once flourishing sector requires a comprehensive financial plan and a charter that binds all stakeholders.

The longer we delay, the greater the damage, and therefore, the greater the effort that will be required to restore it. We do not have a choice!

Tapiwa Maswera is an Executive Director and founder of Global Worldview, a company dedicated to the development of world class leadership. He can be contacted at [email protected].