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The Zimbabwean Banking Sector: Solutions to The Common Challenges

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Home Page > Finance > The Zimbabwean Banking Sector: Solutions to The Common Challenges

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The Zimbabwean Banking Sector: Solutions to The Common Challenges

By: Bonga Wellington Garikai
Posted: Dec 22, 2010
Views: 238

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An Overview of the Zimbabwean Banking Sector

At independence (1980) Zimbabwe had a sophisticated banking and financial market, with commercial banks mostly foreign owned, Makoni (2010). A central bank had been inherited from the Central Bank of Rhodesia and Nyasaland at the winding up of the Federation. For years the government did not interfere with the banking industry and there was neither nationalisation of foreign banks nor restrictive legislative interference on which sectors to fund or the interest rates to charge, despite the socialistic national ideology. However, the government later purchased some shareholding in two banks. It acquired Nedbank’s 62% of Rhobank at a fair price when the bank withdrew from the country, now known as Zimbank. The decision may have been motivated by the desire to stabilise the banking system. The State in 1981 also partnered with Bank of Credit and Commerce International (BCCI) as a 49% shareholder in a new commercial bank, Bank of Credit and Commerce Zimbabwe (BCCZ). This was taken over and converted to Commercial Bank of Zimbabwe (CBZ) when BCCI collapsed in 1991 over allegations of unethical business practices. In the first decade, no indigenous bank was licensed and there is no evidence that the government had any financial reform plan, Makoni (2010). Later on as part of financial reforms aided by ESAP the Registrar of Banks in the Ministry of Finance, in liaison with the RBZ, started issuing licences to new players as the financial sector opened up.

To date the Zimbabwean banking sector comprises of the Reserve Bank of Zimbabwe (RBZ), various Commercial Banks, Merchant Banks and the Post Office Savings Bank. The RBZ is the Central Bank for the nation and is the Supervisor of all other banks, it guides and maintain discipline through its monitoring and policy set ups. Zimbabwe has 15 commercial banks, five merchant banks, four building societies and one savings bank. There are 16 asset management companies and 95 micro-finance institutions.

Extent of Challenges currently faced by Banks

Banking institutions are still struggling after the economy restoration. 10 out of 25 financial institutions have recorded losses in the first quarter of 2010 ending 31 March. The recorded losses were mainly caused partly by high non-interest expenses in the form of salaries, employment benefits and general administration expenses against that there is low income generation capacity. Despite banks like CBZ, CABS and Standard Chartered recording profits in excess of US million during the first quarter, they also continue to face challenges, in actual fact they should be earning more than this if challenges are not as tough as they are.

According to Zimbabwe Banks and Allied Workers Union, as at 15 July 2010, banks that retrenched staff in the past year (2009) include Metropolitan (120 employees), People’s Own Savings Bank (160), Standard Chartered (98, through voluntary retrenchment) Barclays and FBC (200 on voluntary retrenchment), Renaissance (5) and Tetrad (16). NMB also axed 75 non- managerial staff while CFX retrenched 61 non- managerial and 39 managerial staff. CBZ and Premier have also retrenched employees.

Challenges Zimbabwean Banks are Commonly Facing

Financial Challenges

The Zimbabwean banks are currently failing to get enough finance to enable them to run its business operations at the full capacity. The banks are struggling to meet the minimum capital requirement set by the RBZ, even under a phased plan given by the central bank. The plan was to pay half by September 30 last year and by March 31 to meet the fully prescribed capital levels. 15 out of 25 banking institutions had complied by end May. Paid-up capital requirements were set as US,5 million for commercial banks and US million for merchant banks and building societies and more than 10 banks failed to pay up according to the phased plan. Low level of capitalization has also been identified by Brownbridge (1998), as a common challenge that is always faced by banks in developing nation especially locally owned banks.

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Liquidity challenges

To expand operations banks need adequate cash, and this can be found through many ways and it is these ways that are currently unavailable. Getting loans from other banks, foreign companies, the Central bank and deposits from individuals and institutions are possible ways to raise finance. Foreign currency is very scarce in the economy due to poor export performance and lack of international capital flows. Even solvent banks may not survive a run on deposits as they are also struggling to mobilise “less liquid assets to meet liquidity needs”.

Volatility of deposits

The deposits to banks are very volatile and hence low profits out of them. This is mainly caused by a very high marginal propensity to consume of various economic agents who are earning low salaries and hence unable to save, this causes people not having money staying in their bank accounts except minimum balances. This has left banks having no money to invest and earn a profit. Major deposits are done by companies as salaries and wages of their employees who will then withdraw almost all of their salaries. The majority of workers are earning far less than the Poverty Datum Line especially those in the Public Service, making it difficult for them to save.

High Overhead Costs

Due to the low-income generation ability of the banking institutions, their earnings cannot match the overhead costs they are facing, especially salaries and wages given that they are not operating at full capacity. The cost of paying workers salaries that are in line with the cost of living is too heavy for the banks as they are not operating at full capacity and level of profitability is low. Even if they opt for retrenchment, the packages to be given to the retrenched workforce will be a challenge.

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Cash-based Transactions Prevailing

Due to the foreign currency shortages in the economy, and the unavailability of alternative payments to business transactions, a lot of cash is in the hands of economic agents and they are not willing to have it banked. Every trade taking place is on cash basis and generally no credit transactions are preferable currently. Alternative methods for business transactions include credit transfers, cheques, direct debits and payment cards (debit, credit, prepaid, ATMs and POS networks).

Lack of lines of Credit

As banks like any other companies are willing to borrow elsewhere so that they expand business, the lines of credit are not available. The few that are there are of short term nature and hence very costly. The supply then cannot meet the demand. Small banks are the most affected as they cant meet the requirements for getting credit even in the foreign market.

Central Banker not Performing all its roles- Lender of last resort

Due to the fact that Zimbabwe has no currency of its own, it has adopted the multicurrency use and mainly South African rands and the United States dollars are used for transactions, the Central bank can nolonger perform all its roles especially being a lender of last resort. This gives banks a hard time to find sources of finance. RBZ’s problems also meant that banks would not be able to obtain a refund of their statutory reserves for which they are entitled in case of a possible decline in their deposits because these reserves are not backed by international reserves. In normal environment, if liquidity tightens banks approach the RBZ for accommodation, then RBZ reserves the right

by infomatique

ISSUES AND CHALLENGES OF EMPLOYMENT IN

UNORGANIZED SECTORS

Abstract:

Informal sector is referred to as the unorganized sector. This sector broadly corresponds to the household sector including private unincorporated enterprises. The unorganized sector also includes some formal activities on which there is no regular system of data availability. However, contribution of these formal activities in the unorganized sector is quite small he term informal sector was coined by the British economist Keith Hart in 1971, the fact remains that it has emerged as a dynamic and vibrant sector, representing a growing proportion of economic activity, particularly in the developing countries. This sector broadly corresponds to the household sector including private unincorporated enterprises. The unorganized sector also includes some formal activities on which there is no regular system of data availability. The Government of India set-up a  ‘National Commission on Enterprises in the Unorganized/Informal Sector’ through a resolution dated 20th September, 2004 as an advisory body and watchdog for the informal sector.   This paper is based on Issues and Challenges of employment in unorganized sectors, and it is explain about introduction of unorganized sector, Status, Issues and Challenges of employment in India, and also explained about unorganized sectors details and issues and challenges details, and the conclusion of unorganized sectors details.

INTRODUCTION

The definition of informal sector as adopted by the Fifteenth International Conference of Labour Statisticians in 1993, is regarded as a group of household enterprises or unincorporated enterprises owned by households that includes informal own-account enterprises, which may employ contributing family workers and employees on an occasional basis; and enterprises of informal employers, which employ one or more employees on a continuous basis. Although various conceptualizations of the informal sector have been debated ever since the term “informal sector” was coined by the British economist Keith Hart in 1971, the fact remains that it has emerged as a dynamic and vibrant sector, representing a growing proportion of economic activity, particularly in the developing countries.

In the informal sector is referred to as the unorganised sector. This sector broadly corresponds to the household sector including private unincorporated enterprises. The unorganised sector also includes some formal activities on which there is no regular system of data availability. However, contribution of these formal activities in the unorganized sector is quite small.

The Government of India set-up a ‘National Commission on Enterprises in the Unorganized/Informal Sector’ through a resolution dated 20th September, 2004 as an advisory body and watchdog for the informal sector.  The terms of reference of the Commission included (i) the status of unorganized/informal sector in India including the nature of enterprises, their size, spread and scope, and magnitude of employment; (ii) the existing arrangements for estimating employment and unemployment in the informal sector  (iii) suggest elements of an employment strategy focussing on the informal sector; (i) identify constraints faced by small enterprises with regard to freedom of carrying out the enterprise, access to raw materials, finance, skills, entrepreneurship development, infrastructure, technology and markets and suggest measures to provide institutional support and linkages to facilitate easy access to them, etc.  As the Commission started functioning, the adoption of a uniform definition of un-organized/informal sector, based on the characteristics of the enterprises, became an absolute necessity for the completion of its tasks.

The first Indian National Commission on Labour (1966-69) defined the ‘unorganised sector work-force’ as “those workers who have not been able to organise themselves in pursuit of their common interest due to certain constraints like casual nature of employment, ignorance and illiteracy, small and scattered size of establishments”. On the other hand, the unorganised sector refers to those enterprises whose activities and/or collection of data are not regulated under any legal provision or where any regular accounts are not maintained. Further, in the unorganised sector, in addition to the unincorporated proprieties or partnership enterprises, enterprises run by the cooperative societies, trusts, private and limited companies are also covered. The informal sector, therefore, can be considered as a sub-set of the unorganised sector.

STATUS, ISSUES AND CHALLENGES OF EMPLOYMENT IN INDIA

Division across sectors:

In the usually employed (‘all’ workers) category, 57 per cent among males and nearly 62 per cent among females were self-employed. The corresponding proportions in urban India were 44 per cent for males and 45 per cent for females. One needs to examine to what extent institutional finance has a role to play in the lives of those self-employed. In the rural areas, 67 per cent of usually employed males and 84 per cent of usually employed females were engaged in the agricultural sector. In rural India, the proportion of ‘all’ male workers engaged in the agricultural activities declined gradually from 81 per cent in 1977-78 to 67 per cent in 2004-05. (This may be pointing to increased migration to cities, among other causes). For all female workers, the decline was less – from 88 per cent in 1977-78 to 83 per cent in 2004-05.

In urban India, the tertiary sector engaged 59 per cent of male workers while secondary sector accounted for 35 per cent of the usually employed males. For females, the corresponding proportions were lower at 53 and 31 per cent.  In urban India, the ‘trade, hotel and restaurant’ sector engaged about 28 percent of the male workers while ‘manufacturing’ and ‘ser­vices’ sectors accounted for nearly 24 and 21 percent, respectively, of the usually employed males. Quality of employment in these sectors, especially trade, hotel and restaurants is an issue of concern.

Wages (gender parity)

In rural India, on an average, per day, a male casual labourer earned Rs. 56.53, Rs. 20.38 more than a female causal labourer who earned Rs.36.15. In urban India, wage difference was more prominent. A male casual labourer in the urban areas earned Rs.75.51 in a day and female, Rs. 44.28 in a day.

Rates of employment/unemployment

93 per cent of the labour force is employed in the “unorganised sector”, i.e. sectors which don’t provide with the social security and other benefits of employment in the “organised sector.”  The unemployment rate went up between 1993-94 to 2004. On the basis of current daily status (unemployed on an average in the reference week), during the reference period, unemployment rate for males increased from 5.6 per cent to 9.0 per cent in rural areas, and from 6.7 per cent to 8.1 per cent in urban areas.

Unemployment rate for females increased from 5.6 per cent in 1993-94 to 9.3 per cent in 2004 in rural areas. The gender differential in the worker population ratio (WPR) was distinct: 55 per cent for males and 33 per cent for females in the rural areas, and 55 per cent for males and 17 per cent for females in the urban areas.

The rate of growth of employment declined sharply from 2.04% per year in the period 1983-94 to only 0.98% per year in the period 19994 to 2000. This is while the labour force increases roughly by 2.5% every year.

There is substantial decline in employment elasticity (e.g. increase in employment for every unit rise in GDP) in almost all the major productive sectors, except for transport and finance. The reason for the phenomenon of jobless growth could be that growth in India has essentially been capital intensive. In any case, the share of the organized sector is too small to really make a difference. The Indian economy has also seen growth on the shoulders of a very successful services sector, which has offset slow growth in manufacturing (which could have been relied upon to generate substantial employment) and the insignificant growth rates in agriculture.

Regular employment was unavailable for many workers. This was indicated by the fact that unemployment rates on the basis of current daily status were much higher than those on the basis of usual status (unemployed on an average in the reference year).

Urban unemployment rates (current daily status) were higher than rural unemployment rates for both males and females in 1993-94. However, in 2004, rural unemployment rates for males was higher than that of urban males. Again, it is important to look at quality of employment in urban areas.  Unemployment rates varied sharply across States. States, where wages are higher than in neighbouring ones because of strong bargains or social security provisions, such as high minimum wage, had high incidence of unemployment, in general.

In the rural areas, for every 1000 households, about 17 households reported that at least one male member had got the work in public works, whereas only 8 households reported that at least one female member had got the work in public works for at least 60 days during the last 365 days. Among the social groups, the incidence is found to be highest for the STs, followed by the SCs and OBCs. This may be considered in the implementation of schemes like the NREGS.

UNORGANISED SECTORS

1. Agriculture, forestry, fishing and mining : Issues and Challenges