Using livestock as collateral requires sophisticated institutions - Economist

The Movable Property Security Interest Bill, brought before lawmakers by Zimbabwean Finance Minister Patrick Chinamasa on Tuesday, hopes to ease Zimbabwe's burgeoning informal sector to access funding from banks.

It is reported that entrepreneurs in Zimbabwe may use movable assets including livestock and vehicles to secure loans from banks, according to the bill.

Economist and head of research at Nascence Advisory and Research, Xhanti Payi and Gugu Mhlungu (standing in for Eusebius McKaizer) analyse how this method works.

Gugu Mhlungu: When we begin to talk about movable assets as security, to secure loans from the bank, a lot of people are saying surely this is a bad thing when an economy begins to have to use livestock to secure funding, but this is a practice that has been in place for a while.

It is something that has been done before. We do it also when we buy cars. The bank will give you money to buy a car and then they say the car is security for the loan. So that if you don't pay back the loan then they can take the car.

Xhanti Payi, Economist and head of research at Nascence Advisory and Research

There are obviously some important provisions to that because the bank has effective ownership of the car until such time that you are done paying it.

Xhanti Payi, Economist and head of research at Nascence Advisory and Research

When you say you are using something as collateral, the person whose security it is, has to have access to it and that access has to be secured. And with livestock its a difficult thing to do, given that livestock could get stolen or it could get sick and die.

Xhanti Payi, Economist and head of research at Nascence Advisory and Research

Gugu Mhlungu: In South Africa we know that farmers are able to use their cattle as collateral and some of the big banks in the country allow it. How do secure movable asset like livestock?

The system has to be sophisticated. And what you may find is that many institutions will say they don't understand the system. It requires institutions that have very specialised services and experts who are able to conduct that work. And then of course it requires trust.

Xhanti Payi, Economist and head of research at Nascence Advisory and Research

The proposal itself is interesting and one that is important given that we actually have a huge problem in terms of collateral and people not being able to access funding because they don't have collateral.

Xhanti Payi, Economist and head of research at Nascence Advisory and Research

Also read: Zim banks to accept sheep, goats and TVs as collateral

For the full interview listen to the audio below:

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