eBusiness Weekly
Tinashe Makichi and Chris Chenga
Newly launched Empower Bank intends to seek viable ventures and introduce best lending practices as part of the financial institution’s risk mitigation strategy. Government through the Ministry of Youth, Indigenisation and Economic Empowerment capitalised the bank to the tune of $2,5 million. A further $10million capitalization is expected in the near term. About 39 385 youths are possible recipients of loans from the bank.
In an interview, Empower Bank chairman Raymond Njanike revealed the strategic plans for the financial services venture. He said the newly launched financial institution is looking at introducing best practices in lending to youths and is cautious of what happened to other youth funding initiatives that were introduced in the past. Twinstock Capital, a newly registered credit-only microfinance institution is spearheading the processes.
Njanike responded to criticism that targeted lending to youths has been an unmitigated risk factor costing the economy. He denounced the narrative.
“Look, one cannot deny that whatever youth facilities were there before, defaults were extremely high. What doesn’t add up with this stigma is that why segment your evaluation?
“Youth loans defaults occurred at the similar time that Non-performing loans across the banking sector were high. There is two more precise explanations to high defaults than this superficial finger pointing. First, high non-performing loans across the banks warranted RBZ intervention through ZAMCO. That means defaults were more pervasive than just youths. Even if looked at in absolute terms, the figures of loans taken up by ZAMCO are vastly greater than whatever youth facilities defaulted,” said Njanike.
“Secondly, and what Twinstock will intentionally work to improve, is that lending practices in general may have not been of best practice throughout the banking sector. We are going to be diligent in promoting best practices in lending.”
As its lending strategy, Twinstock Capital intends on working in collaboration with the National Indigenisation and Economic Empowerment Board (NIEEB) through what is called a ZimCHEER program. The ZimCHEER program identifies young entrepreneurs who have been involved in various sectors of business and potentially have bankable ventures. Njanike further suggested that what the banking sector as whole lacked, which could become a competitive advantage for Twinstock is the idea of linking credit lines with business people whom have acquired sound technical development for their businesses.
“With relatively adequate education and technical skills, the missing link becomes the financial component that allows entrepreneurs to contribute meaningfully to the growth of our balance sheet.
“Vocational Training Centres managed by the Ministry of Youth have steadily enhanced that education and technical skill base. A lot more young people are now pursuing business ventures on the strength of real competence that perhaps wasn’t as widespread as before. Therefore, Twinstock having direct linkages with these vocational training centres is a competitive edge,” said Njanike.
“It is all risk mitigation but also enhancing the profitability of our credit lines. Not many banks are doing that. Most are focusing on risk mitigation but forget that lending has to also be profitable without a moral hazard.”
Njanike remains adamant that Twinstock is not a charity venture and he said it has to be sustainable. He is confident that starting from first principles of banking, Twinstock is entering the market with the benefit of avoiding legacy traits that retain inefficiencies.
“Sometimes starting from first principles is actually advantageous. You are relieved from legacy traits that exist in a sector, or old ways of doing business. For Twinstock, it is very important to ensure that cost of funds and those of maintaining bank accounts are made affordable through embracing ICT innovation.
“Most banks are still relying on the brick and mortar model as distribution channels for their products and services. This model is costly due to the high operating costs associated with it. For example, the minimum manning level for one branch is about 7 employees,” said Njanike.
“To mitigate this we intend to leverage on technology platforms and ensure that anyone with a smart phone is able to transact without visiting the branch.”
Whether his strategy will prove sustainable and profitable, time will tell. What is presently clear is that there is a lot of expectation from diverse stakeholders.
“The bank is founded on a well elaborated agenda of socio-economic empowerment. So we are going to balance typical enterprise metrics with the agenda conscious themes of socio-economic empowerment. That means improvement in the livelihoods of people through business, particularly through our financial services. We have a lot of stakeholders, public and private, but all of their vested interests converge in this agenda of socio-economic empowerment.”
