MICRO-FINANCE institutions stand to lose the money they lend out to the public along with the interest accruing to them should they fail to operate within the law, a Cabinet minister has said. Finance Minister Tendai Biti said all the associated companies of a financial institution or bank would face the axe should a bank or any financial institution be found to have operated outside the stipulations of the law.
He said this would take effect once the Micro-Finance Bill that sailed through the House of Assembly on Tuesday becomes law and when amendments to the Banking Act are brought to Parliament.
The Micro-Finance Bill now awaits transmission to the Senate.
Minister Biti said there has been a tendency among shareholders of financial institutions to resurrect themselves in other sectors when their banking licences have been cancelled.
"When illegal lending has taken place, like for example when you lend money when you are not registered, the transaction becomes void. You will lose your money and the interest, if you don't take their money, matsotsi, vanoramba vachidzoka mugame," said Minister Biti during the Second Reading Stage of the Bill on Tuesday.
He said according to the proposed legislation, if a bank loses its licence, all its subsidiary companies should meet the same fate.
"If a bank collapses, and if it was operating a micro-finance, it should not be left out," he said. "It must affect every other associated companies otherwise shareholders continue to reproduce themselves in other businesses."
Amendments to the Banking Act, which he said were due to be brought to Parliament soon, would lift the corporate veil where owners of companies should be known.
He gave the example of business tycoon Nicholas van Hoogstraten, who held shares in Renaissance Bank, and had equity in several other companies that were not related to the bank yet his name never appeared in those firms.
Minister Biti defended the proposed US$5 million capital requirement for micro-finance banks saying one should demonstrate that he has financial muscle before being allowed to operate a financial institution.
Making his contribution to the Micro-Finance Bill, Uzumba MP Mr Simba Mudarikwa (Zanu-PF) said the Reserve Bank of Zimbabwe should not be allowed to have multiple roles in the financial sector as part of efforts to rebuild confidence in the area.
"Zimbabweans have no confidence in the banks and the RBZ. The RBZ issues licences, does the evaluation, does the monitoring of the micro-finance (institutions). There is a need for another player to register the micro-finance (institution) and the RBZ does the monitoring," said Mr Mudarikwa.
He said some micro-finance were charging a corterie of charges so much that the net effect was that a person was levied 1 000 percent per annum.
In a related matter, the Zimbabwe Association of Micro-Finance Institutions has okayed the US$5 million proposed capital requirements after seeking clarification from RBZ Governor Dr Gideon Gono.
"According to clarification from the RBZ, there will be no change in minimum capital requirements for ordinary credit-only micro-finance institutions (MFIs).
"What the governor had said was that the proposed new US$5 million minimum capital requirement was meant for a new kind of animal that lies between an MFI and a bank - the Micro Finance Bank," said Zamfi chief executive officer Mr Godfrey Chitambo.
This means that the credit-only MFIs will continue with the prevailing US$25 000 minimum capital requirement while the micro-finance bank is required to have US$5 million as the latter would now take deposits from the public hence the need to protect depositors.