20 August 2017

Zimbabwe: Zim Microfinanciers Accept Livestock As Collateral

Some microfinance institutions are now accepting livestock as collateral to help rural-based and young entrepreneurs access project financing, Standardbusiness has learnt.

Since the start of the year, Lions Finance Zimbabwe and Virl Rural and Social Financial Services have been accepting livestock as collateral. This emerged during a visit to several USAID-backed projects under the Zimbabwe: Works programme.

The programme supports about 30 000 young Zimbabwean entrepreneurs who have so far this year generated about $19 million through their various business ventures around the country.

One of the beneficiaries of the project, Lucia Mukwamiri, said she got a $1 200 loan from Virl Rural and Social Financial Services using her husband's cattle as collateral. The loan was to finance a poultry project.

"What happened for me to get the loan was that my husband deals in livestock. He does projects in dairy and that is where he was able to establish his business. He also received training from the Zimbabwe: Works programme which helped him set up his livestock business. So he now holds a card which certifies him as a livestock farmer," she said.

"So that card is the one I used as collateral to get the loan with my husband acting as my guarantor, which is what Virl Rural and Social Financial Services had asked for. So I took that card, photocopied and gave it to them."

Before the loan, she was selling 50 chickens per cycle (about six weeks) but when she got the loan she managed to grow her business to 200 chickens per cycle.

Lions Finance Zimbabwe and Virl Rural and Social Financial Services are now stepping up efforts to sign many rural-based entrepreneurs since the Movable Property Security Interests Bill was passed by Parliament and Senate in the second quarter of 2017.

Virl Rural and Social Financial Services co-founder and CEO Virginia Sibanda said while they accepted livestock as collateral, particularly cattle, the granting of loans depended on the viability of the project.

"What is important for us is to understand what activity they [borrowers] are doing. So we normally want security cover of at least 1,5 times. It depends where the business cycle is, so you find that people have got different enterprises or different income generating activities. So what we do is we want to understand their ability to repay the loan. Everything is driven by what they are actually doing right now," she said.

"Our maximum loan is $15 000 but it is very rare for the people to come and get $15 000 from the onset unless they would be running a business that is already established, so our approach is very gradual."

Sibanda said their average initial loan size was around $500.

"We go and see the livestock but right now that is one of our major challenges because we were thinking that maybe the security registry would help to say that it can then be registered and that will also help these youths with assets so that it can be looked at as security," she said.

"But, for now, we take a photocopy of the cattle book to the headman and they confirm it belongs to the youth directly or his guarantor and we keep the copy of the book."

Similarly, Lions Finance Zimbabwe has also been accepting livestock.

At the moment, Lions Finance Zimbabwe only accepts cattle and has received over a thousand loan seekers wanting to use livestock as collateral since January.

Lions Finance Zimbabwe MD Lynn Mukonoweshuro said what they did was to consider livestock as equivalent to assets in the urban setting.

"When you get to the rural areas, their most prized possession arguably is the cattle that they have, so those are their assets. So, we then ensure that those assets are what we work with as a bank as we do financial interventions with them in the rural settings," she said.

"Basically, you can bank on them quite meaningfully in that first they must have a book for their cattle and that is number one.

"Number two, the cattle must also be registered with the local area veterinary office as ordinarily before someone slaughters a beast or sells it they have to go and register that."

She said once registered, they confirm with the village headman that the cattle belong to the borrower and they then use a photocopy of the cattle book as collateral for the loan.

"We do not take the cattle away from them [borrower], they keep their cattle there. We fund them and ensure they have got a market so the cattle are only a fall-back position. So this is only to allow them to be included in financial solutions in the banking sector," Mukonoweshuro said.

On average, Lions Finance Zimbabwe gives between $500 and $3 000 loans but they have sometimes gone way higher.

Another microfinance institution that may soon follow suit is Zambuko Trust. Zambuko Trust, currently does not ask for collateral but requires loan seekers to use "a group based model" when getting loans.

Basically, a loan seeker must be part of a group wherein the other members act as guarantors to the loan being taken out by the borrower.

Zambuko Trust representative, Nevison Ushe, said they could accept the guarantee from the other group members even if they had livestock.

On average, they give out loans of between $400 and $2 000.

Zimbabwe Association of Microfinance Institutions executive director Godfrey Chitambo did not respond to enquiries by Standardbusiness on how many microfinance institutions were accepting livestock collateral.

However, in April, he said "there is still some work to be done in refining the use of livestock but it is not entirely a new idea. The cattle bank, which was once mooted was a feasible way of unlocking value in livestock".

In his mid-term monetary policy review, central bank governor John Mangudya said they were making preparations for establishment of the collateral registry.

He said the bank, in collaboration with banking institutions and microfinance institutions, would engage stakeholders through outreach programmes to educate them on using the registry.

Once it becomes fully functional, it is envisioned that livestock, among other movable assets, will be registered under this collateral registry to verify that a borrower does indeed own the livestock.

This would make the process of granting loans less cumbersome for financial institutions. While there is acceptance among microfinance institutions for livestock collateral, banks have remained reluctant, with only CBZ Bank showing support for the practice.

The Commercial Farmer's Union of Zimbabwe has pegged the country's cattle herd at 5,5 million, valued at $2,2 billion as at 2015.

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