The loan space in Zimbabwe has been pretty rough for the common man for a while now. Whilst bankers and formally employed individuals with healthy bank statements could have loans availed to them, it’s not the case with the majority of either self-employed or informally employed citizens. The RBZ wants to come in and change that with Collateral Registry. Let’s get the Collateral side of things out of the way.
What is collateral?
something pledged as security for repayment of a loan, to be forfeited in the event of a default.Oxford Languages Dictrionary
Whenever you wish to take a loan, the lender which is usually a financial institution like a bank will need a guarantee that they can recover their money back with the interest as per your agreement with it. This guarantee is usually in the form of immovable assets like a house, office, factory, school, etc.
But herein lies the problem. These are big assets that a majority of people do not have or own. However, there was still a way to get loans even if you didn’t have these assets. You had to be formally employed or a civil servant. That way, the bank can easily get its loan repayments via direct debits from your bank account whenever you get your salary.
For the rest of those informally employed it meant ensuring your bank account has a healthy cash flow statement. This is easy if you are dealing with electronic money but a number of SMEs are now cash businesses and rarely bank the cash. The RBZ feels this section of the population should not be left out. They can submit details of their assets to the Collateral Registry and be able to grab loans.
How does the RBZ Collateral Registry work?
It’s a database where movable assets are going to be listed for purposes of collateral. That said collateral will be used to work out the size of the loan you are eligible for. The general public can also access the registry to see if an asset they are about to purchase is not currently being used as collateral for a loan that’s being serviced.
The Collateral Registry is a publicly available database of interests in or ownership of movable assets tendered to secure loans. The Registry facilitates secured creditors or to lenders to register security interest in movable assets such as livestock, household goods, crops, business stock and accounts receivable while providing the public with a notice of the existence of such security interest.RBZ Collateral Registry Pamflet
- Use of someone else’s assets as collateral for a loan is possible. There just had to be written and signed consent by the owner of the asset and the borrower to the lender of the arrangement.
- Pooling of assets by multiple individuals is possible so as to obtain a higher-value loan. Again these assets can either be individually owned by each participating party or co-owned by multiple parties.
To be clear, it is not the RBZ that will be issuing out the loans. This will be the duty of the lending institution. The RBZ will only be managing aspects of the Collateral Registry. Terms of loans will be dictated by the lending institution which can be banking institutions, deposit-taking microfinance institutions, credit-only microfinance institutions, savings, and credit cooperative societies
and other secured creditors.
Who can have access to this registry?
Access to the Collateral registry is classified into 3 groups. The borrower, the lender, and the general public. And here are the available rights as stated by the RBZ. You can view the full document by clicking here.
- Increased access to credit
- Enable MSMEs to leverage their movable assets to obtain credit for growth.
- Reduced cost of credit in the long run.
- Legal protection on property accepted as collateral.
- Continued use and employment of collateral to realise value.
- Allows borrowers to prove their creditworthiness.
- Springboard to move from informal to formal financing
- Remote access to the system
- Reduced costs of loan administration.
- Enhanced access to information on borrowers thereby reducing information asymmetry.
- Reduced scope of over-borrowing by clients.
- Enhanced lender confidence.
- Diversification of lending portfolio.
- Increased non-bank financial intermediation.
- Clear rules of priority.
- Promotes prudent lending and risk management.
The General Public
- Can search the registry before buying goods to ensure that they are free from prior interests and are safe from being repossessed.
- Development of industries.
- Boost production and create employment: increased access to credit will increase productive capacity and generate employment.