2 June 2012

Zimbabwe: Workers Caught in Debt Trap

THE general shortage of cash on the domestic market has forced many Zimbabweans into a spiraling debt trap. Many are heavily borrowing from banks as well as micro-finance institutions to keep going.

Some people have taken credit facilities, for cash, clothing or household products effectively becoming ensnared in a debt trap as they run multiple accounts, which they find difficult to service.

Henry Shirichena, a young man employed at a local milling company, said he took up loan facilities from various financial institutions to make ends meet but was struggling to service them.

"It all seemed reasonable at the time considering the unavailability of such facilities before 2009. However, the effects of the loan on me and the family are largely negative," he said. "Yes I can repay part of the loan, but with the present financial difficulties, we are left with hardly anything to live on."

A government worker who requested anonymity, said he had been driven to take up a bank loan by the need to settle issues that had arisen.

"Quite frankly I felt I had no choice but to take a loan. I had an important family business to attend to, but had no money at the time. I couldn't wait for month end to access cash," he said. "I am presently repaying the loan but the deductions are taking their toll on my salary. Fortunately I will be through repaying the loan by the end of the year."

Prior to the use of multi-currencies in February 2009, credit facilities had become non-existent, as hyperinflation ravaged the local currency.

But with the coming in of the multi-currency regime, various companies and banks have consequently been forced to revisit their business models, as the macro-economic scenario dictates the devising of the best methods of tapping into the scarce cash circulating in the economy.

Some clothing stores have over the past financial quarters reported solid performance results against the background of increased credit accounts

Last year, Truworths recorded a 204% mid-year operating profit increase buoyed by an increase in credit time periods extended to customers while Edgars this year recorded a US$3,3 million profit as the number of debtors accounts jumped by 43%.

Consumer Council of Zimbabwe (CCZ) executive director, Rosemary Siyachitema, said economic hardships were forcing people into debt.

She said businesses have found themselves with products that are not being bought so they offer seemingly attractive payment terms and periods to customers. She however urged people to exercise due diligence before executing a credit transaction.

"It becomes difficult when month-end comes, as people have rentals, food, school fees and other expenses to meet. It ultimately becomes a debt trap," said Siyachitema.

The problem is more evident among civil servants who earn salaries below the US$500 Poverty Datum Line.

Tendai Chikowore, president of the Apex Council which represents all civil servants, acknowledged the chronic debt trap that has engulfed a considerable number of government workers.

"There are two sides to the coin. When civil servants began receiving allowances (in 2009), there was an outcry that they were not deemed creditworthy, but now that the business community considers them as fertile ground, the deductions are really serious," she said.

The government-endorsed survey is a research tool which shows how individuals source their incomes, and how they manage their financial lives.

Few borrowed from formal institutions

However, a 2011 Zimbabwe FinScope consumer survey, focusing on financial inclusion indicates that only a small percentage of people actually had loans from formal financial institutions or banks.

The findings also indicate that Zimbabwe largely remains a cash-based economy and the rising cost of living due to economic instability is perceived to be the biggest risk and the main reason why people save or borrow.

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