I HAVE followed with some interest recent developments in Zimbabwe’s financial sector, in particular the severe challenges faced by Renaissance Bank.
There are two observations to be made. First, the collapse of Renaissance has been presented as a failure of corporate governance. That is probably correct, but what seems to me to be more significant is that it was a failure of regulation.
Regulators in the financial sector exist principally because those who handle other people’s money cannot be fully trusted to do the right thing all the time. There has to be someone to keep an eye over them. They are the gatekeepers, ensuring that only those with the resources – both financial and skills can be permitted to run banks.
If there were failures of corporate governance, one wonders why and how it took so long for regulators to pick that up. And indeed, one is compelled to ask: how many such failures of corporate governance are there but have not yet been identified?
The problem of ‘corporate incest’ – where related parties deal with and lend to each other and that of insider loans that have been cited in the Renaissance saga are not new to Zimbabwe’s financial sector. Neither is the problem that these insider loans were often non-performing loans. They were prevalent in the 2004 banking crisis.
Similarly, the shareholder-manager problem and the attendant risks such as the high levels of insider loans and non-performing loans were identified in many of the new financial firms at the time. The regulator needs to keep an eye on the ball.
On the Renaissance case, it seems to have been too late again – the proverbial farmer shutting the gates when the horses have already bolted. And you would hope there is not more of the same coming. There is clearly need for major overhaul in the country’s financial regulatory framework.
Then we have the issue of the so-called ‘loan sharks’ – basically men who have been giving loans to ailing corporations at ridiculously high interest rates. Yet it seems to me the term ‘loan sharks’ is being misused in this context, especially as it connotes that the borrowers are in some ways victims of circumstances beyond their control.
Surely the businessmen and corporations who were borrowing money from these lenders were often professional business executives who knew exactly what they were doing? They are not like the desperate worker who borrows money from a lender at extortionate rates on the basis that he will pay it back on pay day – so-called “Pay-day Loans” which need proper consumer regulation.
These businesses accessing these loans are not desperate consumers in need of similar protection. They have at their disposal advisors of all sorts who can provide proper counsel and protective mechanisms.
Indeed, one wonders if the borrowings in some cases were made to fund lifestyles as opposed to funding business. There is a problem in the corporate sector generally – aptly captured by that cliché: “Keeping Up with the Jones’”. Too many people try to keep up with the Jones’ – even if they lack the means to fund the lifestyle. People think they are wealthy, they feel wealthy and they end up trying to fulfil that belief by foolishly but willingly entering into transactions that they cannot afford. They don’t grow the business; they grow the lifestyle. When the lender wants their money back, they will of course come after you.
To my mind, to heap blame on the so-called ‘loan sharks’ is to pay a blind eye to the failings of individuals and a business culture that encourages profligacy. It is that which has to change.
Stories like this have become common. After reading the story, you will probably raise both eyebrows at the interest rate on the US$1,5 million loan, which at 15% is ridiculously high.
But you have to ask: Can grown professional men really say they did not know what they were signing for in a US$1,5 million deal? I mean, how does one put a signature on papers relating to a US$1,5 million loan and claim not to have known what it was for? And these people were (and still are) bank directors? And all along, I thought a regulator’s due diligence checks include the ‘Proper Person Test’ to gauge whether a person meets the requirements to handle other people’s money!
Essentially, the businessmen knew what they were getting into, as did others who were lent huge sums of money by so-called ‘loan sharks’. If these were cases of desperate men and women in Mabvuku or Magwegwe trying to put a plate of food on the table for their children, I would understand the ‘loan shark’ argument. Here, I think, the label is least deserved. They are business deals that went terribly wrong and the borrowers are far from being victims of manipulative lenders. It’s a culture of profligacy that is at the centre of most of these challenges.
Writing Chapter 3 (The Pitfalls of National Consciousness) in his seminal work, The Wretched of the Earth, Franz Fanon had long foreseen this circumstance when he said, “ … in under-developed countries … there is only a sort of little greedy caste, avid and voracious, with the mind of a huckster … [it] tries to hide [its] mediocrity by buildings which have prestige value at the individual level, by chromium plating on big American cars, by holidays on the Riviera and weekends in neon-lit night clubs …”