TN Bank is preparing to launch a livestock banking product in early 2012 and was part of a pantheon of livestock-centric stakeholders who converged recently in Bulawayo for the Livestock Stakeholder Symposium (LSS) organised by the USaid-funded Zimbabwe Agricultural Competitiveness Programme in partnership with the Zimbabwe Commercial Farmers’ Union (ZCFU) and TFC Capital.
As a follow-up to his presentation on livestock as collateral security and source of liquidity, Financial Sector Spotlight (FSS) requested Never Zirobwa (NZ), the CEO of TN Bank Limited, to shed some light on key aspects of the livestock banking product.
FSS: Can you explain what the cattle banking product you are preparing to launch in 2012 is all about?
NZ: TN Bank currently accepts deposits in the form of cash and gold bullion.
We intend to extend the scope of asset classes that we may accept as deposits from the public to include livestock. The bank will set up paddocks on farms under its control.
These farms will be the TN Bank livestock banking branches.
Farmers will be invited to deposit their cattle at the livestock banking branches and they will be issued with certificates of deposit (CDs) evidencing the deposit, the breed, sex, age, weight and variable value of cattle deposited.
Farmers will be able to use these certificates as collateral when applying for loans at TN Bank and will also be able to use the certificates and the daily prices that will be displayed at TN Cattle Banks to calculate the value of their wealth.
FSS: Your presentation at the LSS appeared to focus mainly on cattle. Are you considering small stock such as sheep and goats?
NZ: We have chosen to start with cattle. We are not considering sheep and goats at this stage.
FSS: If the livestock banking product is to be viable and sustainable, TN Bank will have to pass on the cost of managing the livestock to the customers.
Will it be possible to recover the full cost of managing the cattle while maintaining affordability, considering that the profile of the targeted farmers happens to be typically that of resource-poor rural farmers who tend to be rather price sensitive?
NZ: TN Bank will indeed incur costs from setting up the livestock banking branches, looking after the livestock head, supplementary feed, medicines and insurance.
TN Bank will defray these costs and its charges from the expected growth of the head before paying out the value of such growth to the livestock depositors.
FSS: Since the cattle will be concentrated in specific areas, how are you going to manage the risk of possible outbreak of diseases?
NZ: We will follow strict disease control measures as per recommendations by specialists in the livestock area.
This project recognises and appreciates the role our livestock management regulatory authorities play and we will ensure that we abide by and respect all the regulations regarding cattle movement for example and any other regulations in place.
Our cattle banks will be manned by highly qualified veterinary experts who will ensure that diseases are cured as and when they occur. Where the assessed risk is beyond the risk TN Bank is prepared to carry on its balance sheet, insurers will be engaged to carry the additional risk.
FSS: The Cattle Ownership Society is pushing the same line of creating liquidity out of cattle by converting “cattle into cash at any time”.
Do you view them as competition, and if not, how do you see yourselves working with them, if at all?
NZ: We do not yet fully understand the model used by the Cattle Ownership Society. Therefore, we are unable to comment on what they are doing, but we consider our role to be pioneering.
Any competitors who can create value for the rural livestock owners in the same manner we seek to do will be welcome.
FSS: At the LSS, you mentioned the possibility of CDs for cattle being used to meet other payment obligations? Can you elaborate on the nature of such other payment obligations?
NZ: When paying lobola for instance, a certificate holder can choose to complete a livestock transfer certificate to discharge lobola obligations. Some loans to TN Bank will also be payable using the certificates.
We will make arrangements with schools to accept these certificates in lieu of school fees on the basis that the schools will claim payment of cash from TN Bank.
Arrangements will also be made with hardware shops that sell agricultural inputs such as fertiliser and seed.
FSS: Given the sentimental value of cattle to most communal farmers typically manifested by the fact that they are given names and play a fundamental role in socio-cultural practices, how are you going to address the issue of co-mingling of livestock in your cattle banks, which at face value can be a real concern for communal farmers?
NZ: We encourage farmers to only deposit those beasts that have no cultural or sentimental significance.
So yes, cattle kept for sentimental value for example bhuru rasekuru/inkunzi kababa mukhuku (father’s bull) or mombe yeumai/inkomo kamama (mother’s dowry beast) will be kept out of the scheme.
Farmers will not be able to withdraw the exact beast that they would have deposited and will be given an equivalent as stated in the grade on the certificate of deposit.
FSS: You tout the benefits of the project to the cattle farmer as the transfer of all the risks associated with accidents and cattle rustling to TN Cattle Bank, the acceptance of the value of banked cattle as collateral and the creation of liquidity for the farmer in the process. What is in it for the bank?
NZ: We will earn fee income from looking after the livestock and growing the livestock herd. We will also earn interest income from those who borrow on the security of the livestock.
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Omen N Muza is a banker and managing director of TFC Capital (Zimbabwe) (Pvt) Ltd who writes in his personal capacity.