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Youths defaulting on Empower Bank loans

By Stanford Madombwe

THE Government-owned financial institution Empower Bank has been making losses for the past five years due to, among other things, the high loan default rate by the youths who the bank mainly seeks to empower.

The Ministry of Finance and Economic Development has been also urged to appoint a substantive Chief Executive Officer and Chairperson of the Board of Directors to strengthen operations of the Empower Bank which has been under an acting CEO, Shadreck Mhembere, for five years.

The revelations were made in Parliament yesterday by Zanu-PF Chivi North MP Major Mathias Tongofa (Retired) when presenting a report by the Portfolio Committee on Youth, Sport, Arts and Recreation and Thematic Committee on Indigenisation and Empowerment.

Empower Bank is a deposit taking micro-finance institution wholly owned by the Government of Zimbabwe. President Mnangagwa launched the Bank as part of Gov­ernment’s thrust to empower young people through a financial institution sensitive to their needs.

The bank provides social and financial solutions to the financially excluded population with greater focus on the youth, particularly focusing on youth-led businesses and agriculture projects, asset finance, guarantees and savings accounts cutting across urban, peri-urban and rural Zimbabwe.

“Since 2020, the newly-established bank has lent over $9 million, with 1 500 youths benefiting from the loan facility. The interest rate is 5 to 7 percent depending on the nature of business,” Tongofa said.

Tongofa said Empower Bank has operated for more than five years without a substantive Chief Executive Officer which undermines its efficiency and effectiveness.

“The Committee established that Empower Bank was being run by an Acting Chief Executive Officer for the past five years and that its Board of Directors lacked a substantive Chairperson which affected its efficiency and effectiveness.

“It was still in a loss position due to start-up costs, payment defaults and constrained business owing to hyperinflation and the COVID-19 pandemic effects,” said Tongofa.

The Committee found that a US$5 million capital injection was required to meet business growth and new minimum capital requirements for the microfinance bank.

He added that although Empower Bank aims to provide loan facilities to youths across the country, its services are currently accessed in Harare and Bulawayo and not yet decentralised to rural provinces of the country.

“Empower Bank services were centralised in Harare and Bulawayo only. A proposal was made for the bank to conduct community reach-out programmes in order to raise awareness to young people in rural areas on its services,” Tongofa told Parliament.

However, Tongofa’s information seemed not up to date as Empower Bank recently opened new branches in Masvingo and Mutare.

To address the challenges raised, the Portfolio Committee recommended that the Ministry of Finance and Economic Development should appoint a substantive Chief Executive Officer and Chairperson of the Board of Directors to strengthen operations of the Empower Bank by 31 June 2021.

The Empower Bank was also ordered to decentralise its services to district level and conduct awareness campaigns to ensure that all eligible beneficiaries access its services, including youths in rural areas and students in Vocational Training Centres (VCTs) across the country by 31st December 2021.

Youth, Sport, Arts and Recreation Minister Kirsty Coventry recently said whil Empower Bank’s medium to long term plan is to have physical presence in all the 10 provinces of the country to fulfil its financial inclusion mandate, its balance sheet was still weak.

“Physical branches come with a heavy financial burden to the microfinance bank whose balance sheet is still weak.  Therefore, Empower Bank is currently consolidating its current position in the market before opening more physical branches.

“The bank is in the process of recruiting bank agents across the country with a view of having at least an agent in all the districts of the country. The agents will allow Empower Bank customers to easily access its products across the country.”

She added: “Currently, Empower Bank services can be accessed through its outreach programmes wherein bank staff visit districts in collaboration with the Ministry of Youth, Sport, Arts and Recreation officials, ZimSwitch enabled Debit card on POS Machines and mobile banking.”

The bank’s acting CEO Mhembere last year told State-owned media that the bank was flexible on collateral.

“The topical issue has been collateral. We require some form of comfort. Our requirements for security are not rigid; we don’t look for tradi­tional forms of security. We accept any assets that you have as security,” he said.

“If you have a car you can make a pledge. You sign what we call a pledge document. You give us the registration book, but you remain with your car. If you fail to pay the loan we will take the car to recover the money.

“The value of money we give is determined by the project that one wants to do. Standard loans are US$5 000-US$10 000 equivalent. Those are the common applications that we accept,” said Mhembere.

For one to access a loan, Mhem­bere said applicants should come up with a business proposal and a pro­jected cashflow.

“To get a loan, we basically want your business proposal, which details what you want to do, and how much you want in terms of the funding and your projected cashflows,” he said. — Zimbabwe Voice 🔺

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