Kudzanai Gerede Business Correspondent
When Simbarashe Maringosi, a furniture maker operating on the outskirts of Harare’s Central Business District learnt that movable property like furniture, vehicles and other priced assets will soon be allegeable to back loans to boost businesses like his, it appeared to have struck as great sense of relief for a young entrepreneur who has endured countless setbacks in securing fresh capital to expand his operations.
“We are facing serious challenges to get loans from banks because we are told they require collateral in form of title deeds for homes, land or commercial buildings which we do not have,” he said.
Maringosi has been in business for two years but has been restricted by capital constraints to expand raw materials and acquire latest technologies to improve on efficiency.
“Many companies shun us because we cannot meet large volumes they require.
‘‘Chimbadzos (microfinance institutions) also require us to bring large scale prospective buyers of our furniture as proof that we will be able to repay but this is a tall order for us,” he added.
He says in order to be competitive he needs to acquire advanced machinery to improve on the economies of scale.
“We need to equip our operations to become more efficient as many of us around here are using simple tools. We have various assets like vehicles we can hand over as collateral while we boost operations,” he added.
Small and Medium Enterprises have been growing over the years as a result of waning opportunities in the mainstream job market but challenges in accessing capital continue to dampen growth potential in this sector.
Traditional collateral requirements such as land and buildings required by financial institutions to lend capital to businesses have complicated access to capital for players in the SMEs sector.
Government through the Ministry of Small and Medium Enterprises has come up with various packages meant to avail funds for small businesses across various sectors of the economy such as the Small and Medium Enterprises Development Cooperation (SMEDCO) having realised the potential lying within the sector.
SMEDCO has however faced similar challenges as those met by its intended beneficiaries, that of inadequate capitalization.
As part of the Ease of Doing Business Reforms, Government is considering backing movable assets as collateral to mitigate financing challenges for most businesses in the country.
Finance and Economic Planning Minister Patrick Chinamasa recently tabled the Movable Property Security Interest Bill before Parliament which will go through various stages before it comes to effect and is expected to open a new dispensation on the financial services sector.
He said the Reserve Bank Act will be amended to achieve the objectives of the bill and assets to be considered will include machinery, furniture, motor vehicles, livestock and accounts receivable.
“Banks have failed to deal adjust to the new reality. Banks are stuck in the old ways of doing things and failing to respond to the needs of our highly informalised economy,” said Minister Chinamasa.
The Reserve Bank states that bank loans to the SMEs only amounted to US$ 250 million last year out of a total of US$ 4 billion disbursed last year.
The bill is hence likely to ease access to finance with success stories having been noted elsewhere in countries like Lesotho, Malawi, Peru and Ukraine were movable assets like livestock have been used as collateral for financing various economic activities.
“This is a positive development but first we have to be cognisant to the fact that micro-finance institutions were already lending against movable assets because most of our clients are largely small businesses and small holder farmers who in most cases do not own immovable assets like buildings,” Zimbabwe Microfinance Fund director Brian Zimunhu told Post Business.
“However for the mainstream financial institutions, it is a new thing but its positive in the sense that it will guarantee that those movable assets which in the past were not acceptable will be monitored from the central data base thus giving comfort to lenders and the economy overall,’’ said Zimunhu.
To cushion lenders from being duped by borrowers, Government has managed to set up a collateral registry that is a central credit data base that will monitor all assets registered as collateral with all formally registered finance institutions in the country to detect and avoid any multiple registration of the same collateral item with different finance institutions.