Devolution of power as a strategic imperative for banking


Debate around the issue of devolution of power has shifted to a higher gear, especially after its inclusion in the draft constitution under Chapter 5 titled Devolution and Spheres of Government.

It is however, not a new issue, it has for a long time been a bone of contention with people from provinces outside Harare feeling neurotic about what they consider to be prolonged concentration of both political and economic power in the seat of the government to the detriment of equitable national development.

Beyond the political rhetoric, what are the practical implications on economic governance? As they say, political rhetoric rarely survives whole once the heat of campaigning gives way to the reality of governance.

In the 2012 Budget statement Finance minister Biti broached the subject.

Mr Speaker Sir, concerns raised by stakeholders during Budget consultations necessitate the decentralisation of the provision of a range of both public and private services away from the capital, Harare.

Examples include acquiring of national identity documents, processing of tender documents and approval of loan applications, among others.

Hence, as the government we need to develop strategies to decentralise service provision to provinces and districts. With regards to financial services, I will be working with the financial sector to have meaningful decentralisation of financial services beyond Harare, he said.

Earlier, the seven-member inter-ministerial Cabinet task-force set up to consider ways of arresting the de-industrialisation of Bulawayo had identified the decentralisation of service provision as one of the ways in which Matabelelands fortunes could be turned around.

The current policy structure and framework that centralise service provision which includes banking (decision- making is centralised in Harare), liquor licensing , issuance of passports, is not sustainable as it adds significantly to the cost of doing business in the region, said the Task Force.

One of the Task Forces policy recommendations was that funding of a long-term nature and at affordable rates must be provided to industries in Bulawayo.

It also recommended that banks with subsidiaries in Bulawayo be directed to devolve power to disburse funds to clients without reverting to head office.

So there you are, the writing is on the wall for banks.
For the governments part, instead of simply seeking to direct banks to devolve power, it should lead the way and make critical services available where they are needed.

That is what creates an enabling environment for banks to devolve power without being told to do so. The government must also stimulate growth in markets outside Harare in order to encourage the expansion of financial services into those areas.

Banks track the spoor of liquidity and the more liquidity flows out of Harare into other provinces, the better it becomes for banks to justify the deployment of substantial infrastructural and structural capacity in credit assessment and risk management as a response to increased volumes of business.

The Matabeleland Business Association estimates that in excess of $1 billion is required to revive Bulawayos industries, and if the government makes it a priority to have more of that funding gap filled, it can have the luxury of using facilities such as DIMAF and ZETREF to encourage devolvement by insisting only banks with adequate local decision-making capacity for fast turnaround of loan applications can disburse funds.

One way of encouraging the devolvement of power in banking is to hasten the adoption of the growth cluster approach, which was alluded to in the 2012 Budget.

The subsequent establishment of strategic companies at provincial level will require critical supporting business activities and infrastructure.

As I indicated in a previous article titled Budgetary Implications for the Financial Sector, this cluster concept should be of significant interest to banks because it can hasten and smoothen their adoption of the value-chain approach to financing.

Devolvement also comes with a cost, it must be remembered. For instance, one of the ways in which efficiency of the local economy of a province such as Matabeleland can be enhanced would be to ensure the Reserve Bank of Zimbabwe (RBZ) can approve exchange control applications for import payments at its Bulawayo branch instead of them being sent to Harare through the overnight bag.

For the RBZ the cost of devolvement would show up in additional human resources and infrastructural requirements. Accordingly, if the government would have banks devolve power from their head offices in Harare, it must also think of how it will capacitate the RBZ to effectively carry out both its regulatory and developmental mandates through which it creates an enabling environment for banks.

While the strategic intent is manifestly there, availability of resources may yet be a formidable constraint to devolvement of economic power.

Banks, on the other hand, have to put in place measures to ensure country branches, at least the major ones, have the capacity to not only process loans, but have access to infrastructure such as SWIFT for international payments in order to avoid the current situation whereby requests for payments are first sent to Harare.

Such layers of bureaucracy must be peeled off, but while the process increases convenience and efficiency, it amplifies key risks, placing upon banks the requirement to enhance both risk management practices and physical infrastructural capacity.

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Omen N Muza writes in his personal capacity. He is a banker and managing director of TFC Capital (Zimbabwe) (Pvt) Ltd, a Harare-based financial advisory company with interests in banking and agriculture as well as the convergence area between them.