Why Zimbabwe's govt stopped banks from lending or offering credit lines to businesses, individuals

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  • Sugar processor Tongaat Hulett stopped offering advance payments to contract farmers.
  • Some firms in Zimbabwe stopped offering credit facilities in the local dollar.
  • Industry watchers fear 50% of banking incomes could be affected by governments banning banks from lending.

Some companies operating in the agro-business sector in Zimbabwe have stopped offering credit facilities and advance payments, opting to work on a cash basis, after the government stopped banks from their core business of lending.

Last weekend, President Emmerson Mnangagwa ordered banks to stop lending or offering credit lines to businesses and individuals. This, he said, was meant to stop speculation against the failing Zimbabwean dollar.

Reserve Bank of Zimbabwe governor, John Mangudya, called it painful, but a "temporary, necessary measure to ensure that there is sanity in terms of taming inflation".

A few days later, businesses have started notifying their suppliers and clients that their operations have been crippled.

South Africa-owned sugar processor Tongaat Hulett, in a statement to contract farmers, said the company couldn't offer advance payments.

The company's chief operating officer, James Bowmaker, said:

It is with regret that the millers advise of the immediate suspension of advance payments until further notice. We normally fund the advances from loan proceeds that we access from the banks. Following the recent suspension of lending by banks, we find ourselves unable to continue offering advances.

Five, a company that deals in animal health products, stopped offering credit to clients who pay in the local currency because of its volatility. 

"The rapid depreciation of our local currency has necessitated a realignment of our terms of trade with our customers.

"Given the current reality, with immediate effect, we will no longer be able to offer credit terms for any purchase made in the Zimbabwean dollar," the company's finance director, Jaene Ellis, said.

Surrey Group, one of the country's largest, privately owned, integrated beef and chicken abattoirs with a food processing operation, called on all its creditors to pay their debts in the local dollar as soon as possible.

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"We kindly request that all outstanding balances be cleared before the end of day, Monday, 16th, 2022," the company's finance director, Michael Zihumo, said.

The government and banks have been playing cat and mouse since Mnangagwa announced he would cancel the licences of those he suspected of working with foreign governments to undermine the Zimbabwe dollar.

Some financial services firms, who chose not to be mentioned, lamented that the current measures put in place by the government were likely to wipe out up to 50% of banking incomes because lending is the core business of financial institutions.

The official bank rate of the Zimbabwe dollar on Monday was Z$275.79 per American dollar, up from Z$165.99 on Friday. On the parallel market, US$1 ranges between Z$400-$420.

The News24 Africa Desk is supported by the Hanns Seidel Foundation. The stories produced through the Africa Desk and the opinions and statements that may be contained herein do not reflect those of the Hanns Seidel Foundation.

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