Tapiwanashe Mangwiro
THE Reserve Bank of Zimbabwe (RBZ) has introduced a Targeted Finance Facility (TFF) aimed at addressing liquidity challenges plaguing the banking sector and supporting struggling productive sectors of the economy.
This facility, which will be distributed through commercial banks, seeks to ensure adequate funding for working capital without increasing money supply, a move that has drawn both praise and scepticism from experts.
In a communique, the RBZ emphasised the importance of the facility, arguing, “The Targeted Finance Facility is specifically being set up to finance working capital requirements of the borrowers to increase and improve productivity. It will be availed through normal banking channels, with banks responsible for vetting and assessing the viability of the ultimate borrowers.”
Zimbabwe’s financial sector has faced significant liquidity challenges, particularly in the local currency (ZiG). Raymond Madziva, a banker, underscored the urgency of the RBZ’s intervention, stating, “Banks are struggling with local currency liquidity. The TFF is a necessary intervention to bridge the funding gap, especially as banks cannot meet the funding needs of businesses in the productive sectors.”
Madziva explained that the current shortage of local currency liquidity has constrained banks’ ability to lend, which in turn has stifled economic activity. He noted that the facility could unlock much-needed funding for industries critical to achieving the Government’s projected 6 percent economic growth in 2025. While the TFF is widely seen as a step in the right direction, its potential implications for the economy have sparked debate among economists.
Dr Misheck Nzou, a monetary economist, cautioned that the facility could exert pressure on the local currency in the short term.
“We are likely to see depreciation of the ZiG as companies rush to access the facility,” Dr Nzou said.
He explained that the increased demand for foreign currency to meet working capital requirements might weaken the local currency. However, Dr Nzou believes the facility could yield long-term benefits if it is used for capital expenditure.
“If the funds are channelled toward productive investments, we could see a more stable economy in the second half of the year,” he added.
Local economist, Gladys Shumbambiri-Mutsopotsi, offered a different perspective, highlighting the facility’s potential to free up funds for banks holding local currency Treasury Bills (TBs). “Many banks have local currency Treasury Bills that were likely to be restructured following Treasury’s pronouncements during the budget presentation.
The TFF provides these banks with an alternative liquidity source, which could stabilise their operations,” she explained. The TFF is structured with stringent terms to ensure responsible lending and borrowing. Banks will borrow from the RBZ at an interest rate of 20 percent per annum and on-lend to businesses at a maximum rate of 30 percent.
Loans will be fully collateralised, with acceptable securities including gold-backed digital tokens, foreign currency and Treasury Bills.
The RBZ has also set a maximum loan tenure of 270 days, with repayments to be made in ZiG or foreign currency at the prevailing exchange rate. Banks will bear the full credit risk, making thorough due diligence a prerequisite for loan approvals.
The RBZ stressed the importance of monitoring loan utilisation, warning that “If funds are used for purposes other than those approved, the full loan amount becomes immediately due and payable, with penalties imposed.”
The private sector has welcomed the TFF as a much-needed intervention, though concerns remain about its implementation and potential unintended consequences. Business leaders have expressed hope that the facility will help address the working capital shortages that have hampered productivity in recent months.
However, some stakeholders are sceptical about the RBZ’s ability to enforce compliance and prevent abuse of the facility. The central bank has pledged to monitor the performance of borrowers and impose penalties on banks that fail to ensure proper use of the funds.
The introduction of the TFF has been met with widespread approval from the industrial sector, which has long called for affordable financing to address working capital shortages.
The concessional rates of 20 percent for borrowing banks and a capped 30 percent for on-lending are seen as a much-needed reprieve for businesses grappling with high borrowing costs of 40-46 percent.
Industry players believe these rates will ease the financial burden on companies, enabling them to focus on scaling production and boosting output.
A source close to the Confederation of Zimbabwe Industries (CZI), who is not authorised to speak publicly, hailed the facility as a timely intervention.
“The concessional rates are a relief for businesses that have struggled to access affordable credit. This is something we have been discussing with the central bank for some time, and it is encouraging to see it come to fruition. If implemented well, this facility could significantly improve productivity and competitiveness in key sectors,” the source said.
The facility’s capped rates are expected to enable businesses to plan more effectively, reducing the unpredictability associated with fluctuating borrowing costs. Industrial players are optimistic that this intervention will create a more conducive environment for growth, particularly in manufacturing and agriculture, which are pivotal to Zimbabwe’s economic recovery.
The TFF represents a delicate balancing act for the RBZ, which must navigate the competing priorities of stimulating economic growth and maintaining monetary stability. Through ensuring that the facility does not lead to an increase in money supply, the central bank hopes to avoid inflationary pressures that could undermine its objectives.
As Dr Nzou pointed out, the success of the TFF will ultimately depend on how the funds are utilised. “This facility has the potential to transform the productive sectors if it is implemented effectively. The key lies in ensuring that the funds are directed toward projects that generate sustainable economic growth,” he said.
With the Government targeting 6 percent economic growth this year, the TFF could play a pivotal role in achieving that goal. However, its success will hinge on the ability of banks and businesses to utilise the facility responsibly and productively.
As Shumbambiri – Mutsopotsi noted: “This facility could be a game-changer for banks and businesses alike, but only if it is managed with discipline and foresight.”
As the TFF rolls out, all eyes will be on the RBZ and its partner banks to ensure that the facility delivers on its promise of revitalising Zimbabwe’s productive sectors and setting the stage for sustained economic growth.
