Martin Kadzere
Analysts and economic players have expressed reservations about the loan tenure of the Reserve Bank of Zimbabwe’s Targeted Finance Facility (TFF), suggesting that the 270-day term may lead to rapid loan repayments that could deplete working capital and cause liquidity constraints.
Concerns have also been raised that the 30 percent interest rate charged by banks is “punitive,” especially with moderated exchange rate volatility and easing inflationary pressures.
The Reserve Bank of Zimbabwe (RBZ) established a concessional loan facility after recognising that banks lacked sufficient capacity to meet the funding needs of productive sectors.
The ZiG 600 million facility aims to finance working capital requirements to boost productivity. Banks are borrowing at 20 percent and on-lending at a maximum of 30 percent.Banks have already disbursed nearly ZiG161 million to productive sectors, with beneficiaries primarily in the agriculture, manufacturing, and retail sectors.
On the remaining balance, a significant portion has already been approved and is awaiting disbursement pending completion of due processes, central bank governor Dr. John Mushayavanhu said recently.The National Competitiveness Commission (NCC), a statutory body responsible for fostering a competitive environment for businesses, said a 270-day loan maturity, significantly less than a year, could force rapid repayments and, as a result, deplete working capital and cause liquidity issues.
“The maturity period is short and inconsistent with business turnaround times,” the NCC said.The NCC said the short loan maturity period of the facility, coupled with a penalty interest rate tied to the overnight accommodation rate for overdue loans, may also deter potential borrowers.
“Accordingly, there are high chances that businesses may be reluctant to lock themselves into this tight debt,” said the NCC.Economist and FBC research analyst Enoch Rukarwa acknowledged the Targeted Finance Facility as a positive response to business challenges, but suggested refinements to better address those issues.“One key aspect is the minimum lending rate, which is above 30 percent for this facility.
On the backdrop that exchange rate volatility and inflationary pressures are moderate, an interest rate of this magnitude is punitive to business organizations and aggregate investment. Month-on-month ZiG inflation and exchange rate movements have been oscillating within 10 percent since September 2024, when the ZiG was devalued by 44 percent. An efficient interest rate should be within a band of 4 percent to 8 percent to incentivise prudent investment in the economy with the current relative stability,” said Rukarwa.
Dr. Mushayavanhu recently advised businesses to leverage their size and transaction volume to negotiate lower rates with banks.Carlos Tadya, a Harare-based economist, said while the TFF was a well-intentioned initiative, the short loan tenure demonstrates a lack of understanding of the operational realities businesses face.A more extended repayment period, he said, was essential for the facility to achieve its intended goals.
“The pressure for quick repayment will force businesses to prioritise debt servicing over reinvestment, ultimately hindering growth,” said Tadya.The NCC noted that, given the economy’s largely dollarised nature, it was important for the facility to also be denominated in US dollars.“The loans under this facility are denominated in ZiG only, even though the economy is almost fully dollarised. There is therefore a low probability that these loans will be relevant in a dollarised economy.”
Sensing that, the RBZ has since said loans acquired through the facility can now be allowed to buy foreign currency on the interbank market.The central bank is providing ZiG-denominated, collateralised loans to banks, which will then on-lend to productive sectors.
Working capital is essential for a firm’s daily operations, ensuring liquidity, growth, and stability. Its absence leads to operational disruptions, supply chain bottlenecks, reduced market responsiveness, loss of customer trust, and increased financial costs. Ultimately, working capital shortages hinder investment, erode competitiveness, and can lead to insolvency.
