THE cattle banking project spearheaded by a unit of Lifestyle Holdings could be affected by lack of legitimacy and low confidence as there was no legislative framework or regulatory oversight guiding it, the African Development Bank (AfDB) has said.
REPORT BY BUSINESS REPORTER
TN Livestock Trust (TNLT) takes cattle deposits and as of June 2013 had 265 head of cattle compared to 56 in the same period last year.
Under the plan, farmers deposit their cattle and get a certificate of deposits which will be used as collateral when they borrow money from banks.
“A possible challenge in this scheme is that there is no legislative framework and regulatory oversight for cattle banking in Zimbabwe, which could affect the legitimacy of the scheme and confidence of potential investors,” AfDB warned in a July report on Zimbabwe.
“Another challenge is that there is no mechanism that guarantees financially illiterate farmers from being unfairly remunerated on their cattle deposits.”
It said the implications of the scheme for the monetary authorities were that “they should come up with proactive measures for dealing with potential challenges in determining the interest rates”.
The AfDB noted that the successful implementation of the scheme might increase the demand for cash on the market.
Farmers have been failing to access funding from financial institutions due to lack of collateral.
Most farmers in the 2012-13 farming season produced few crops due to the bad weather and low liquidity levels.
According to the report, demand deposits as of May 2013 were almost half while savings and short-term deposits and long-term deposits were occupying the other half.
“In the banking system in Zimbabwe, wide concern has been expressed about the predominantly short-term and transient nature of the bank deposits.
“While ideally, banks can transform short-term deposits into long-term loans, the transformation in the case of Zimbabwe has so far been limited,” the regional bank reported.
The total banking deposits in June this year declined to $3,7 billion from $4,2 billion due to liquidity constraints resulting in the cost of funds being expensive.