Entrepreneurs build their business within the

Entrepreneurs build their business within the context of an environment which they sometimes may not be able to control. The robustness of an gumptiouspioneering, up-and-coming venture is tried and tested by the vicissitudes of the environment. Within the environment happen to be forces that may serve as great chances or menacing threats to the your survival of the entrepreneurial venture. Entrepreneurs have to understand the environment within which they function so as to exploit emerging opportunities and mitigate against potential threats.

This article serves to create an understanding of the causes at play and their effect on bank entrepreneurs in Zimbabwe. A brief historic overview of banking in Zimbabwe is without a doubt carried out. The impact of the regulatory in addition to economic environment on the sector is evaluated. An analysis of the structure from the banking sector facilitates an thankfulness of the underlying forces in the industry.

Past Background

At independence (1980) Mvuma, zimbabwe had a sophisticated banking and financial market, with commercial banks primarily foreign owned. The country had a fundamental bank inherited from the Central Commercial lender of Rhodesia and Nyasaland at the winding up of the Federation.

To the first few years of independence, the government associated with Zimbabwe did not interfere with the bank industry. There was neither nationalisation associated with foreign banks nor restrictive legal interference on which sectors to fund or maybe the interest rates to charge, despite the socialistic national ideology. However, the government acquired some shareholding in two bankers. It acquired Nedbank's 62% associated with Rhobank at a fair price if the bank withdrew from the country. The choice may have been motivated by the desire to secure the banking system. The bank had been re-branded as Zimbank. The state did not interfere much in the operations of your bank. The State in 1981 likewise partnered with Bank of Credit rating and Commerce International (BCCI) being a 49% shareholder in a new business bank, Bank of Credit plus Commerce Zimbabwe (BCCZ). This was absorbed and converted to Commercial Bank regarding Zimbabwe (CBZ) when BCCI collapsed in 1991 over allegations of dishonest business practices.

This should not be seen as nationalisation but in line with express policy to prevent company closures. The particular shareholdings in both Zimbank and CBZ were later diluted to underneath 25% each.

In the first decade, no indigenous bank was registered and there is no evidence that the authorities had any financial reform package. Harvey (n. d., page 6) cites the following as evidence of deficiency of a coherent financial reform approach in those years:

- In 1981 the government stated that it would certainly encourage rural banking services, however the plan was not implemented.

- More than 20 years ago and 1983 a Money plus Finance Commission was proposed yet never constituted.

- By 1986 there was no mention of any economic reform agenda in the Five Year National Development Plan.

Harvey states that the reticence of government to get involved in the financial sector could be explained by the fact that it did not want to jeopardise the interests of the white populace, of which banking was an integral part. The land was vulnerable to this sector in the population as it controlled agriculture plus manufacturing, which were the mainstay belonging to the economy. The State adopted a traditional approach to indigenisation as it had learnt a lesson from other African nations, whose economies nearly collapsed as a result of forceful eviction of the white local community without first developing a mechanism involving skills transfer and capacity developing into the black community. The economic cost of inappropriate intervention was considered to be too high. Another plausible basis for the non- intervention policy was that the State, at independence, inherited a highly controlled economic policy, with restricted exchange control mechanisms, from its predecessor. Since control of foreign currency affected control over credit, the government by default, had a robust control of the sector for the two economic and political purposes; consequently it did not need to interfere.

Economic Reforms

However, after 1987 the federal government, at the behest of multilateral loan companies, embarked on an Economic and Structural Realignment Programme (ESAP). As part of this plan the Reserve Bank of Zimbabwe (RBZ) started advocating financial reforms through liberalisation and deregulation. That contended that the oligopoly in financial and lack of competition, deprived typically the sector of choice and quality in service, innovation and efficiency. Consequently, as early as 1994 the RBZ Annual Review indicates the desire for greater competitors and efficiency in the banking sector, leading to banking reforms and fresh legislation that would:

- allow for the execute of prudential supervision of financial institutions along international best practice

instant allow for both off-and on-site lender inspections to increase RBZ's Banking Supervision function and

- enhance opposition, innovation and improve service to the general public from banks.

Subsequently the Archivar of Banks in the Ministry involving Finance, in liaison with the RBZ, started issuing licences to fresh players as the financial sector opened up. From the mid-1990s up to December 2003, there was a flurry of pioneeringup-and-coming activity in the financial sector like indigenous owned banks were setup. The graph below depicts the trend in the numbers of financial institutions by category, operating since 1994. The trend reveals an initial increase in merchant banks and discount houses, followed by decline. The rise in commercial banks was initially slowly, gathering momentum around 1999. The decline in merchant banks and even discount houses was due to their transformation, mostly into commercial banks.

Resource: RBZ Reports

Different entrepreneurs utilized varied methods to penetrate the financial services sector. Some started advisory expert services and then upgraded into merchant finance institutions, while others started stockbroking firms, that were elevated into discount houses.

From the beginning of the liberalisation of the financial services up to about 1997 there was a important absence of locally owned commercial loan providers. Some of the reasons for this were:

- Conservative licensing policy by the Deliberar of Financial Institutions since it was high-risk to licence indigenous owned commercial banks without an enabling legislature and even banking supervision experience.

- Financial entrepreneurs opted for non-banking financial institutions because these were less costly in terms of both preliminary capital requirements and working capital. By way of example a merchant bank would demand less staff, would not need banking halls, and would have no need to handle costly small retail deposits, which could reduce overheads and reduce the time to enroll profits. There was thus a rapid System.Drawing.Bitmap non-banking financial institutions at this time, e. grams. by 1995 five of the 12 merchant banks had commenced within the previous two years. This became an entry route of choice into commercial banking for some, e. g. Empire Bank, NMB Bank and Trust Bank.

It was expected that various foreign banks would also your market after the financial reforms although this did not occur, probably as a result of restriction of having a minimum 30% nearby shareholding. The stringent foreign currency equipment could also have played a part, plus the cautious approach adopted by the license authorities. Existing foreign banks were not required to shed part of their shareholding although Barclay's Bank did, by means of listing on the local stock exchange.

Harvey argues that financial liberalisation takes on that removing direction on loaning presupposes that banks would quickly be able to lend on commercial lands. But he contends that companies may not have this capacity as they are afflicted with the borrowers' inability to service loans due to foreign exchange or price control restrictions. Similarly, having confident real interest rates would normally maximize bank deposits and increase economic intermediation but this logic falsely assumes that banks will always bring more efficiently. He further argues that licensing new banks does not imply increased competition as it assumes that the new banks will be able to attract certified management and that legislation and traditional bank supervision will be adequate to prevent fraud and thus prevent bank collapse as well as the resultant financial crisis. Sadly his problems do not seem to have been addressed within the Zimbabwean financial sector reform, towards the detriment of the national economy.

The Operating Environment

Any entrepreneurial activity is constrained or aided by its operating environment. This section analyses the prevailing environment in Mvuma, zimbabwe that could have an effect on the banking market.

Politico-legislative

The political environment in the 1990s was stable but transformed volatile after 1998, mainly due to the following factors:

- an unbudgeted pay out to war veterans once they mounted an assault on the Express in November 1997. This applied a heavy strain on the economy, creating a run on the dollar. Resultantly typically the Zimbabwean dollar depreciated by 74% as the market foresaw the consequences within the government's decision. That day is actually recognised as the beginning of serious decline of the country's economy and it has been dubbed "Black Friday". This particular depreciation became a catalyst for additional inflation. It was followed a month subsequently by violent food riots.

aid a poorly planned Agrarian Area Reform launched in 1998, where white commercial farmers were ostensibly evicted and replaced by blacks without having due regard to land legal rights or compensation systems. This resulted in a significant reduction in the productivity of this country, which is mostly dependent on farming. The way the land redistribution was handled angered the international community, of which alleges it is racially and politically motivated. International donors withdrew support for the programme.

- an ill- advised military incursion, named Procedure Sovereign Legitimacy, to defend the Democratic Republic of Congo in 1998, saw the country incur massive costs without having apparent benefit to itself plus

- elections which the international local community alleged were rigged in 2k, 2003 and 2008.

These factors led to international isolation, significantly lowering foreign currency and foreign direct investment flow into the country. Investor confidence was severely eroded. Agriculture and even tourism, which traditionally, are large foreign currency earners crumbled.

For the to begin with post independence decade the Bank Act (1965) was the main legislative framework. Since this was enacted the moment most commercial banks where overseas owned, there were no directions on prudential lending, insider loans, proportion of shareholder funds that could be given to one borrower, definition of risk belongings, and no provision for bank examination.

The Banking Act (24: 01), which came into effect in Sept. 2010 1999, was the culmination of the RBZ's desire to liberalise and deregulate the financial services. This Act regulates business banks, merchant banks, and cheap houses. Entry barriers were taken away leading to increased competition. The deregulation also allowed banks some lat. to operate in non-core services. It seems that this latitude was not well delimited and hence presented opportunities for threat taking entrepreneurs. The RBZ advocated this deregulation as a way to de-segment the financial sector as well as improve efficiencies. (RBZ, 2000: 4. ) Both of these factors presented opportunities to enterprising native bankers to establish their own businesses in the business. The Act was further modified and reissued as Chapter twenty-four: 20 in August 2000. The enhanced competition resulted in the introduction of new products and even services e. g. e-banking plus in-store banking. This entrepreneurial activity resulted in the "deepening and class of the financial sector" (RBZ, 2150: 5).

As part of the financial reforms push, the Reserve Bank Act (22: 15) was enacted in Sept 1999.

Its main purpose was to strengthen the supervisory role of this Bank through:

- setting prudential standards within which banks use

- conducting both on and off site surveillance of banks

- enforcing sanctions and where necessary location under curatorship and

- examining banking institutions wherever necessary.

This Act still had deficiencies as Dr Tsumba, the then RBZ governor, argued that there was need for the RBZ to be responsible for both licensing and supervision as "the fantastic sanction available to a banking supervisor is the knowledge by the banking market that the license issued will be cancelled for flagrant violation of functioning rules". However the government seemed to experience resisted this until January 2004. It can be argued that this deficiency perhaps have given some bankers the effect that nothing would happen to their licences. Dr Tsumba, in observing typically the role of the RBZ in possessing bank management, directors and investors responsible for banks viability, stated it turned out neither the role nor intention of the RBZ to "micromanage loan companies and direct their day to day experditions. "

It appears though as if the view of his successor differed significantly from this orthodox view, hence the evidence of micromanaging that has been observed in the particular sector since December 2003.

Within November 2001 the Troubled together with Insolvent Banks Policy, which had been drafted over the previous few years, started to be operational. One of its intended goals was that, "the policy enhances regulatory visibility, accountability and ensures that regulatory replies will be applied in a fair together with consistent manner" The prevailing view on the market is that this policy when it appeared to be implemented post 2003 is definitely lacking as measured against these beliefs. It is contestable how transparent the inclusion and exclusion of vulnerable banks into ZABG was.

A fresh governor of the RBZ was fitted in December 2003 when the economy was basically on a free-fall. He made significant becomes the monetary policy, which brought on tremors in the banking sector. Typically the RBZ was finally authorised to behave as both the licensing and regulatory authority for financial institutions in The month of january 2004. The regulatory environment had been reviewed and significant amendments were created to the laws governing the monetary sector.

The Troubled Financial Institutions Resolution Act, (2004) was enacted. As a result of the new regulatory environment, a number of finance institutions were distressed. The RBZ set seven institutions under curatorship while one was closed and a second was placed under liquidation.

In January 2005 three of the distressed financial institutions were amalgamated on the authority from the Troubled Financial Institutions Act to form a fresh institution, Zimbabwe Allied Banking Party (ZABG). These banks allegedly failed to repay funds advanced to them by RBZ. The affected institutions had been Trust Bank, Royal Bank and Barbican Bank. The shareholders appealed and won the appeal up against the seizure of their assets with the Great Court ruling that ZABG appeared to be trading in illegally acquired possessions. These bankers appealed to the Minister of Finance and lost their own appeal. Subsequently in late 2006 they will appealed to the Courts as provided by the law. Finally as at September 2010 the RBZ finally agreed to return the "stolen assets".

Another measure taken by the new governor was to force management changes in the financial sector, which resulted in most entrepreneurial bank or investment company founders being forced out of their own organizations under varying pretexts. Some ultimately fled the country under threat involving arrest. Boards of Directors associated with banks were restructured.

Economic Environment

Monetarily, the country was stable up to the mid 1990s, but a downturn began around 1997-1998, mostly due to personal decisions taken at that time, as previously discussed. Economic policy was powered by political considerations. Consequently, there is a withdrawal of multi- nationwide donors and the country was separated. At the same time, a drought hit the country in the season 2001-2002, exacerbating the particular injurious effect of farm evictions upon crop production. This reduced development had an adverse impact on banks of which funded agriculture. The interruptions in commercial farming and the concomitant reduction in food production resulted in a dodgy food security position. In the last a dozen years the country has been forced to importance maize, further straining the tenuous foreign currency resources of the country.

An additional impact of the agrarian reform plan was that most farmers who had borrowed money from banks could not system the loans yet the government, which took over their businesses, refused in order to assume responsibility for the loans. By concurrently failing to recompense the farmers promptly and fairly, it probably is impractical for the farmers to provider the loans. Banks were as a result exposed to these bad loans.

The web result was spiralling inflation, organization closures resulting in high unemployment, money shortages as international sources of cash dried up, and food shortages. The other currency shortages led to fuel shortages, which in turn reduced industrial production. Subsequently, the Gross Domestic Product (GDP) has been on the decline since 1997. This particular negative economic environment meant reduced banking activity as industrial activity declined and banking services were motivated onto the parallel rather than the official market.

As depicted in the chart below, inflation spiralled and climbed to a peak of 630% throughout January 2003. After a brief liberation the upward trend continued growing to 1729% by February 2007. Thereafter the country entered a period of hyperinflation unheard of in a peace time frame. Inflation stresses banks. Some argue that the rate of inflation rose since the devaluation of the currency had not been along with a reduction in the budget deficit. Hyperinflation results in interest rates to soar while the associated with collateral security falls, resulting in asset-liability mismatches. It also increases non-performing financial loans as more people fail to service their very own loans.

Effectively, by 2001 many banks had adopted a old-fashioned lending strategy e. g. together with total advances for the banking industry being only 21. 7% involving total industry assets compared to 23. 1% in the previous year. Banks resorted to volatile non- interest income. Some began to trade in the seite an seite foreign currency market, at times colluding while using RBZ.

In the last half of 2003 there seemed to be a severe cash shortage. Men and women stopped using banks as intermediaries as they were not sure they would be able to access their cash whenever they necessary it. This reduced the advance payment base for banks. Due to the short term maturity profile of the deposit basic, banks are normally not able to invest significant portions of their funds in longer term assets and thus were highly liquid up to mid-2003. However in 2003, because of the demand by clients to have profits matching inflation, most indigenous finance institutions resorted to speculative investments, which yielded higher returns.

These risky activities, mostly on non-core bank activities, drove an exponential expansion within the financial sector. For example one bank had its asset bottom grow from Z$200 billion (USD50 million) to Z$800 billion (USD200 million) within one year.

However brokers have argued that what the chief of the servants calls speculative non-core business is regarded best practice in most advanced financial systems worldwide. They argue that it's not necessarily unusual for banks to take fairness positions in non-banking institutions they may have loaned money to safeguard their investment strategies. Examples were given of banks such as Nedbank (RSA) and J S Morgan (USA) which control huge real estate investments in their portfolios. Brokers argue convincingly that these investments are sometimes used to hedge against inflation.

Typically the instruction by the new governor from the RBZ for banks to unwind their particular positions overnight, and the immediate withdrawal of an overnight accommodation support with regard to banks by the RBZ, stimulated an emergency which led to significant asset-liability mismatches and a liquidity crunch for most loan providers. The prices of properties and the Zimbabwe Stock Exchange collapsed simultaneously, due to the considerable selling by banks that were looking to cover their positions. The loss of benefit on the equities market meant losing value of the collateral, which most banks held in lieu of the loans they had advanced.

During this period Zimbabwe continued to be in a debt crunch as most from the foreign debts were either un-serviced or under-serviced. The consequent deteriorating of the balance of payments (BOP) put pressure on the foreign exchange reserves and the overvalued currency. Total government domestic debt rose from Z$7. 2 billion (1990) to Z$2. 8 trillion (2004). This expansion in domestic debt emanates from great budgetary deficits and decline throughout international funding.

Socio-cultural

Due to the risky economy after the 1990s, the population became fairly mobile with a significant volume of professionals emigrating for economic factors. The Internet and Satellite television made the world truly a global village. Customers required the same level of service excellence we were holding exposed to globally. This made company quality a differential advantage. There was also a demand for banks to invest heavily in technological systems.

The maximizing cost of doing business in a hyperinflationary environment led to high unemployment and a concomitant collapse of real income. Because Zimbabwe Independent (2005: B14) hence keenly observed, a direct outcome of hyperinflationary environment is, "that currency substitution is rife, implying that the Mvuma, zimbabwe dollar is relinquishing its function as a store of value, unit of credit account and medium of exchange" to be able to more stable foreign currencies.

During this period a great affluent indigenous segment of modern culture emerged, which was cash rich nevertheless avoided patronising banks. The appearing Hedge Fund Index parallel market for foreign currency as well as for cash during the cash crisis tough this. Effectively, this reduced the consumer base for banks while even more banks were coming onto the marketplace. There was thus aggressive competition inside a dwindling market.

Socio-economic costs associated with hyperinflation include: erosion of purchasing power parity, increased uncertainty in business planning plus budgeting, reduced disposable income, risky activities that divert resources through productive activities, pressure on the household exchange rate due to increased transfer demand and poor returns on savings. During this period, to augment income there is increased cross border trading and commodity broking by people who imported from China, Malaysia and Dubai. This effectively meant that imported substitutes pertaining to local products intensified competition, detrimentally affecting local industries.

As more loan companies entered the market, which had experienced a major brain drain for fiscal reasons, it stood to explanation that many inexperienced bankers were thrown into the deep end. For example the starting directors of ENG Asset Managing had less than five years experience in financial services and yet ENG was the fastest growing financial institution by the year 2003. It has been suggested that its failing in December 2003 was due to younger zeal, greed and lack of expertise. The collapse of ENG afflicted some financial institutions that were financially exposed to it, as well as eliciting depositor flight leading to the collapse of numerous indigenous banks.