Businesses urged to tap into RBZ’s concessional loans

THE Zimbabwe Investment and Development Agency (ZIDA) has urged investors to approach their respective banks for funding under the Targeted Finance Facility (TFF) to boost exports and enhance competitiveness for locally produced products.

In December last year, the Reserve Bank of Zimbabwe (RBZ) introduced the TFF with interest rates set at 20 percent for banks borrowing from the central bank and a maximum of 30 percent for on-lending to clients.

The TFF is a concessional funding designed to boost production, capacity utilisation, and economic growth. Its low interest rates reduce production costs, making local products more competitive.

The initiative was established following the realisation that commercial banks were lacking capacity to adequately finance productive sectors, a situation that could hinder economic growth.

According the central bank, the 30 percent maximum is below the average corporate lending rate of 43 percent per annum.

In its latest investor bulletin, ZIDA said the cheap facility may improve margins and profitability for local companies.

Among other operational modalities, the TFF loans have a maximum 270-day maturity and should be repaid in full by the due date or earlier. Borrowers can access funds in Zimbabwe Gold (ZiG) and have the option to repay in the same currency or foreign currency at the prevailing exchange rate.

The TFF has stringent collateral requirements, demanding acceptable security from banks.

“It can be secured by a diverse range of assets and instruments, such as foreign currency, gold-backed digital tokens or any other central bank instruments, foreign currency-denominated treasury bills with less than one year to maturity, local currency treasury bills with less than one year to maturity, and any other collateral acceptable to the RBZ,” said ZIDA.

The industry has been grappling with liquidity constraints in both US dollars and ZiG, which have curtailed credit and pushed US dollar interest rates to around 20 percent, according to bankers.

The sharp rise in interest rates comes amid a worsening liquidity crunch, growing credit risk, and a challenging economic environment that is forcing banks to adjust their lending practices to stay afloat.

The Bankers Association of Zimbabwe (BAZ) president, Mr Lawrence Nyazema, confirmed last week that liquidity constraints are a major factor behind the rate hikes.

Analysts say the liquidity crunch has been exacerbated by the central bank’s tight monetary policy, which has reduced the amount of money available for lending.

Despite concerns raised by some economic players regarding liquidity crunch, the Government expressed satisfaction with the ongoing liquidity management programme designed to maintain macroeconomic stability.

In a recent interview, Finance, Economic Development and Investment Promotion Minister Mthuli Ncube said the primary objective of the liquidity management programme was to safeguard the domestic currency.

By curbing excessive liquidity growth, a key driver of currency volatility, instability, and ultimately, inflationary pressures, the programme seeks to maintain macroeconomic stability.

“The issue in terms of liquidity has been really the protection of the domestic currency, where we wanted to curtail the growth of liquidity, because any excessive growth of liquidity will impact the volatility of the currency and hence macroeconomic instability in general,” Minister Ncube said.

“At the moment, we feel that things are being managed in the right way,” he added.

Dr Mushayavanhu singled out the inactive interbank market as the primary challenge, highlighting the reluctance of banks to lend to each other.

He noted that daily liquidity surpluses have persisted since September and to manage excess liquidity, the central bank had been sterilising it daily by issuing Non-Negotiable Certificates of Deposit (NCDs) at a zero percent interest rate.

Under TFF, the central bank is taking the sterilised funds for lending to banks.

“Liquidity is concentrated within a few banks, hindering efficient resource allocation within the banking sector,” said Dr Mushayavanhu.

“In a normal money market, banks that are long should lend overnight or even over 30, 60, 90 or 180 days to banks that are short at the bank policy rate or higher against security.

“Surprisingly, instead of lending to the bank next door and getting interest income, some banks are content with RBZ taking their excess funds and parking them in NNCDs at zero interest.”-herald