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Credit — the new buzzword


The gradual appeasement of the hyperinflation demon that haunted the economy three years back has seen several businesses realising rich pickings, especially following the adoption of the multiple currency regime.

The easing of the liquidity crunch has seen most retailers reintroducing credit systems which had been shelved to evade hyperinflation.

Several businesses, ranging from retail furniture to clothing shops, had shelved the use of credit cards as a means of evading inflation.

Business was conducted strictly on a cash basis, after which the monies would be converted into US dollars as value storage.

Leading retail shops such as Edgars Stores Ltd, Topics and Express had stopped selling goods on credit.

People who spoke to NewsDay said reintroduction of the credit system was a welcome development as it enabled people to purchase goods without being financially crippled.

Sophia Mutanga of Greencroft said at the height of the country’s economic woes, when most leading shops put a lid on credit facilities, she had stopped purchasing clothing items on credit.

What that meant, she said, was she had to buy clothes at small shops dotted around town that were not expensive.

“I think the reintroduction of credit is a good development,” she said. “Because we have too many responsibilities that require finances, we don’t always have the cash to buy clothes and such other things at the full cost, but we can only pay off such purchases in instalments.”

Last month, Edgars recorded a 94% increase in retail sales for the year ended July 2011 to
$19,6 million from $10,1 million for the same period last year. The firm’s trading profit grew 1 028% to
$2,3 million in the first six months of the year.

In a statement accompanying the group’s financial results, Edgars chairperson Thembinkosi Sibanda said despite the Express chain having faced stiff competition from both formal and informal traders, it achieved growth of 26,2%.

“While this growth is modest against the results in the credit chain, it was well above inflation and GDP (gross domestic product) growth, indicating a slight improvement in market share,” he said.

The number of debtors’ accounts grew to 133 598 from 111 199 at the year end. Debt collection rate averaged 25% for the period peaking to 29% in June.
“We will continue to monitor and evaluate creditworthiness in the face of increased competition from financial institutions,” added Sibanda.

Companies that sell electronic gadgets such as laptops, cameras, mobile phones, television and radio sets have also been expanding their customer base through credit facilities.

Jeffrey Maredzo, who runs a computer company, said they decided to sell merchandise on credit to create “a win-win” situation between customers and themselves.

“The decision to sell on credit came out of the realisation that our customers do not always have disposable income and, when they had it, they also had other responsibilities that would make it insane for them to buy a laptop worth $1 000 or more on cash basis,” he said.

He added they introduced the credit facility after dollarisation of the economy given the US dollar was not prone to inflation.

Traditionally, credit facilities had always been extended to customers who wanted to purchase expensive goods that, under normal circumstances, could not be secured with a once-off payment.

The use of credit has seen many businesses recording huge volumes of business as most customers prefer that arrangement compared to the use of cash.

Casper Mariva, who has several accounts with different shops, said without credit facilities, it would have been impossible to acquire certain gadgets.

“As a husband and father, I have financial responsibilities that I have to meet. So, if I didn’t have credit accounts, it would mean that after fulfilling those responsibilities, I would not have been able to buy anything else because the money is not enough,” he said.

Many people are not able to pay cash for goods like a new car or a major household appliance so they open credit accounts with shops where they can buy goods and pay later or in instalments they can afford. The instalments are, more often than not, paid with interest.

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