Zimbabwe’s central bank has instructed banks throughout the country to visit clients who have acquired loans to make sure the money is being utilised as intended, as well as other measures.

Governor of the Reserve Bank of Zimbabwe (RBZ) John Mangudya said its Financial Intelligence Unit has finalised studies on the potential abuse of loan facilities by 15 entities: “They make significant profit margins by borrowing at concessionary terms, stocking and then selling their products in United States Dollars or in Zimbabwe (ZW) Dollars at inflated parallel market exchange rates, thus enabling them to easily pay off the loans from a portion of the proceeds, and start the borrowing cycle again,” the governor stated.

“Most of these entities generate significant revenues, in either Zimbabwe Dollars or U.S. Dollars or both, which are sufficient to cater for their working capital requirements. Instead of using own revenues, they opt to fund most of their working capital requirements from the concessionary loans.”

He added: “Some of the entities investigated abuse their access to loans by ‘multi-dipping’ across several banks. In one example, an entity concurrently accessed ZW$6.5 billion worth of loan facilities from 12 of the 16 banks. Many other entities would have loan facilities running simultaneously at five or more banks”.

The Financial Intelligence Unit highlighted cases where banks would access loans, seemingly for working capital, but that were allocated to third party entities, NewsDay reports. In addition, there were cases of holding entities borrowing from subsidiaries, who would access cheaper loan facilities directly from banks.

“Such arrangements are a form of abuse of the financial system for material benefit through taking advantage of cheaper borrowing and repaying when exchange rates have been depreciated,” the governor stated.

“In some cases, loans were accessed as working capital, but diverted to third party entities for purposes of funding purchases of foreign exchange on the auction on behalf of the funding entities,” he said.

As from 1st July, the central bank governor said banks can no longer provide loans to businesses or individuals at an interest rate below the current bank policy rate.