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Cows for collateral - how Zimbabwe has fallen

16/04/2017 00:00:00
by Forbes.com

GDP per capita in Zimbabwe, in constant dollars, is about where it was in 1960. And markedly lower than it was in the mid 1970s. But a useful measure of how far the country has fallen is this new law which states that banks should take cattle and the like as security for loans:

Zimbabwe’s bank managers, already strapped for cash for their customers may soon have to worry about where to put cattle if a new law comes into operation which would allow people to use their livestock as collateral.

Finance minister Patrick Chinamasa told parliament this week that people in the huge informal sector should be able to use their moveable assets such as cows and goats, as well equipment such as lorries and ploughs, to secure loans.

In one sense of course there's nothing odd about this at all. There are cattle ranchers all over the world who use the value of their stock as collateral with the bank. And if you try hard enough you can sell the cattle you don't even have yet for delivery forward on the futures markets. So the basic concept isn't really all that odd. But there's two things which make this not quite like that:

Commercial banks in Zimbabwe will soon be compelled to accept livestock such as cattle, goats and sheep as collateral for cash loans to informal businesses under a new law presented to parliament Tuesday.

The banks must accept the collateral. And what's more they really do mean that the guy with one cow should be able to hock it to the bank for a loan. Even that's not entirely ludicrous--you could imagine lending the guy with a dairy cow a bit to take it to the bull for example, because it's having that next calf that is going to keep the milk coming and the milk is the income stream to repay the loan. But again that's not really what they mean.

But myself I would be really worried about this:

Under legislation introduced in parliament this week, borrowers would be allowed to register “moveable” assets as collateral at a central bank registrar. The bill would require commercial banks to accept them as security for credit.


Patrick Chinamasa, the finance minister, told MPs that the assets would “include any type such as machinery, motor vehicles, livestock, and accounts receivable”.

There are two worries. But first why this shows their decline. They're doing this because there is no other source of collateral left. There's plenty of land of course, but that was all "reallocated." Taken from the original owners (most of whom were white) and handed on to new ones (most of whom were both black and connected with the government).

Except that the ownership documents, the titles to the land, are still with the original owners. They can't get access to the land but nor can the new ones pledge or mortgage the land as collateral for a loan. As a result Zimbabwe now has a 95% unemployment rate. Thus this attempt to dig up anything that can be used.

To those two worries, the first being of course that if this is a central register then the values on it are going to be those accepted by those compiling the register. And we don't have to wonder too much about bureaucracy and corruption to realise that who gets what valued at whichever is not going to be all that straightforward in Zimbabwe now, do we?

But the second is very much more cynical. Last time there was a central register of who owned what, the land register, the government used it to confiscate everything. Anyone want to take bets on this happening again?

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