While banks in Zimbabwe are strapped for cash, the country is rich in cattle. Its national herd stands at roughly 5,5 million, according to the industry lobby group The Commercial Farmers Union of Zimbabwe. And so it made sense in April 2017 when the government proposed that livestock such as goats, cattle and sheep be used as ‘legal tender’ by citizens to pay their school fees or settle debts.
One such beneficiary is Lucia Mukwamiri, who said she received US$1 200 from VIRL Financial Services, using her husband’s cattle as collateral. It also helped that Ms Mukwamiri is a member of one of several projects backed by the US Agency for International Development (USAID) and conducted under the Zimbabwe Works programme. These projects support about 300 young Zimbabwean entrepreneurs and have sunk US$19 million into various initiatives.
“My husband is a dairy farmer,” said Mukwamiri. “The USAID initiatives helped him set up his business too, so he has a card that certifies him as a dairy farmer. I used that card as the guarantee for the loan.”
In the past she used to sell 50 chickens every six weeks. After obtaining the loan, she increased her sales to 200 chickens every six weeks.
Not Just Livestock
Founder of VIRL Rural and Social Financial Services, Virginia Sibanda, said they were comfortable with livestock as collateral for loans, especially cattle. However, the final decision still depended on the viability of the project.
“We interrogate borrowers to gain a sense of their projected future earnings, and we want security cover at 1,5 times. We look at entrepreneurs and their ability to repay the loan,” Sibanda said. “Our ceiling for loans is US$15 000 but we rarely grant an amount that high, unless the business owner is fully established. The average grant is US$500.”
Sibanda said their main drawback was the lack of a security register where borrowers can record their assets. “Right now we take a photograph of the livestock record book and ask for confirmation from tribal elders to determine ownership of the cattle.”
They consider livestock to be similar in value to assets such as houses in urban settings.
Lion Finance Zimbabwe said that since January 2017 they have received over 10 000 applications from cattle-owning young people seeking loans. Director Lynn Mukonoweshuro says they consider livestock to be similar in value to assets such as houses in urban settings.
“In rural Zimbabwe, a bull is the most prized possession. As a bank, we make interventions in rural settings,” Mukonoweshuro said. “Firstly, if they have a book in which their cattle is recorded, we can advance loans meaningfully. Secondly, the cattle must be registered with the local veterinary office to assure us of its good health.”
Cattle diseases, such as foot-and-mouth, are debilitating in Zimbabwe. The country had its beef sales to the lucrative European Union market stopped in 2001 after an outbreak.
To assure entrepreneurs, the micro-financiers do not take the cattle from their owners. “Entrepreneurs remain with their livestock as a fallback in repaying the loan,” Mukonoweshuro said. “We also facilitate their access to beef or dairy markets.”
Lion Finance Zimbabwe offers loans between US$500 and US$3 000, but Mukonoweshuro added that the institution could provide more in exceptional circumstances.
A Totally Different Approach
While the enthusiasm for accepting cattle as collateral for loans is growing among Zimbabwe´s financiers, traditional banks have largely shunned the practice. Only one bank, The Commercial Bank of Zimbabwe, which is the largest in the country, has adopted the initiative.
Other microfinance institutions in Zimbabwe are accepting cattle but adopt totally different approaches. One such institution is Zambuko Trust, a non-profit organisation, which currently does not seek collateral but uses what they call a ‘group-based model’. It means that a loan-seeker must be part of a group of two or more entrepreneurs who can act as guarantors for the borrower.
“We accept group loan guarantees for a single borrower – even in the form of cattle. Our loans begin at US$400 and end at US$2 000,” said Nevison Ushe, a representative of Zambuko Trust.
Godfrey Chitambo, executive director of the Zimbabwe Association of Microfinance Institutions, says it is impossible to measure how many microfinance institutions in Zimbabwe are using livestock as collateral.
“We once mooted the idea that Zimbabwe should establish a cattle bank to unlock the value in livestock.” – Godfrey Chitambo
“There is still some work to be done in refining the use of livestock, but it is not an entirely new idea,” Chitambo said. “We once mooted the idea that Zimbabwe should establish a cattle bank to unlock the value in livestock.”
While it will not exactly be a cattle bank, the governor of Zimbabwe’s central bank, John Mangudya, said the government was on track to establish what he called a “collateral registry”. According to Mangudya, this would make the process of granting loans less bureaucratic.
“It would be a digital database that united cattle owners, entrepreneurs, tribal elders and financiers to determine if borrowers did indeed own the livestock they wanted to use as collateral,” he said.