The Zimbabwe Investment and Development Agency (ZIDA) has encouraged investors to seek funding from their banks through the Targeted Finance Facility (TFF) to enhance exports and improve the competitiveness of locally produced goods.
Introduced by the Reserve Bank of Zimbabwe (RBZ) in December, the TFF offers banks borrowing from the central bank an interest rate of 20%, with a maximum of 30% for loans to clients. This concessional funding aims to increase production, capacity utilization, and economic growth by lowering production costs, thereby making local products more competitive.
The initiative was launched in response to the recognition that commercial banks lacked the capacity to adequately finance productive sectors, which could impede economic growth. The maximum interest rate of 30% is notably lower than the average corporate lending rate of 43% per annum.
In its latest investor bulletin, ZIDA highlighted that this affordable funding could enhance profit margins for local companies. The TFF loans have a maximum maturity of 270 days and must be repaid in full by the due date or earlier. Borrowers can access funds in Zimbabwe Gold (ZiG), with the option to repay in either the same currency or a foreign currency at the current exchange rate.
The TFF comes with strict collateral requirements, allowing banks to secure loans with a variety of assets. Acceptable forms of collateral include foreign currency, gold-backed digital tokens, foreign currency-denominated treasury bills with less than a year to maturity, local currency treasury bills of the same duration, and any other collateral approved by the RBZ.
The industry is facing liquidity challenges in both US dollars and ZiG, which have limited credit availability and driven US dollar interest rates to approximately 20%. The increase in interest rates is attributed to a worsening liquidity situation, rising credit risk, and a difficult economic environment, prompting banks to revise their lending strategies.
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Mr. Lawrence Nyazema, president of the Bankers Association of Zimbabwe (BAZ), acknowledged that liquidity constraints are a significant factor behind the rising rates. Analysts indicate that the central bank’s tight monetary policy has further intensified the liquidity crunch by limiting the money supply available for lending.
Despite concerns from some economic players about the liquidity situation, the government has expressed confidence in its liquidity management program, which aims to maintain macroeconomic stability. Finance, Economic Development, and Investment Promotion Minister Mthuli Ncube stated that the program’s primary goal is to protect the domestic currency by controlling excessive liquidity growth, a major contributor to currency volatility and inflation.
Ncube emphasized that the current situation is being effectively managed, while Dr. Mushayavanhu pointed out that the inactive interbank market poses a significant challenge, as banks are hesitant to lend to one another. He noted that daily liquidity surpluses have been ongoing since September, with the central bank managing this excess by issuing Non-Negotiable Certificates of Deposit (NCDs) at zero interest.
Under the TFF, sterilized funds are made available for lending to banks. Dr. Mushayavanhu remarked that liquidity tends to be concentrated within a few banks, which hampers efficient resource allocation in the sector. In a typical money market, banks with excess funds would lend to those in need, yet some banks prefer to let the RBZ manage their surplus funds through NCDs, even at no interest.
