Lending in Zimbabwe: Are Banks Using Enough Sources of Information to Make Lending Decisions?

Abstract

The Central bank ofZimbabwe governor in his monetary policy statement of January, 2012 lamentedthat the deterioration in asset quality was of much concern to the monetaryauthorities. As a consequence of this statement this paper sought toinvestigate the adequacy of the sources of information used by Zimbabwean banksto make lending decisions. A qualitative research design was employed to enablethe researcher to analyse the data using SPSS statistical packages. The dataused in the study were collected from small to medium enterprises (SMEs),Commercial banks, and companies. The population sample of the study was 10Commercial banks in Zimbabwe, 50 SMEs from 5 major cities of Zimbabwe and 10companies listed on the stock exchange. The study evaluated the sources ofinformation currently used by banks and came up with the following findings:the majority of financial statements the banks use are not audited and most ofthese unaudited statements are prone to manipulation, the clearance reportsfrom the financial clearing bureau do not show any positive credit history, thebank reports are not adequate. The client may be tempted not to reveal wherehe/she has a bad name. In view of these shortcomings it is thereforerecommended that financial institutions join together to form a creditreferencing bureau which keeps all the borrowing records of all customers ofthe lending institutions. This will motivate the borrowers to perform better asthey know that their history is readily available on the market. Even lendersthemselves will shorten their turn around period as they will get the client’scomprehensive and up to date borrowing history within a short time.Keywords:Monetary Policy Statement, Non-Performing Loans, Microfinance Institutions,Small to Medium Enterprises, Financial Clearing Bureau.