Micro Loan financiers swindling desperate Zimbabweans

With the Zimbabwean economy getting more dire and the formal sector dying a slow natural death, Zimbabweans are resorting to informal sector trading and incidentally falling prey to several con artists masquerading as Micro Loan Finance house.

In a revelation made to Bulawayo24 news, it emerged that people running these loan schemes are making very rich pickings from unsuspecting desperate entrepreneurs. The finance house are reported to be charging applicants non refundable administration and application fees ranging from $5 up to $50 dependent on the loan amount being applied for. shockingly, most of these loans are never approved and the money goes begging.

A Bulawayo24 reporter recently went to a finance house along Fort Street in Bulawayo and purported to be applying for a $500 short term business loan and discovered shocking tendencies in their operations.

The finance house first demanded a $2 fee for application forms and 10% of the amount being applied for as administration fee before the loan is approved. While in the office "processing" the application, in a space of about two hours the office had received and receipt about 15 applications with each person paying on average $32.

If the observation is anything to go by the finance house could be easily receiving about 60 applications a day on a average of $30 per application which means on a single day the finance house makes about $2000 from non refundable application fees. Further to that, the application must be accompanied by a project proposal and the finance house purports to have templates of the business proposals at an extra $10.

After applying the applicants for small business loans are given a week or two to wait for their applications to be processed in Harare. After the two week waiting period some loan applications are rejected or are returned to the applicants to "correct" several things to buy time while the money paid is being turned around.

In that scenario, if say on a single day the company receives $2000 in application fees and only approve $1000 worth of loans payable in 14 to 30 days at about 37% interest its really abnormal profits.

One woman who was at the finance house and identified herself as Angelina Dube told Bulawayo24 that she had applied for a loan of $600 about three weeks back and paid $72 in fees but had only got the loan approval a day ago. At the time that she was in the office she was waiting for the cash which was being collected from the new applicants.

"This means that these people collect our money to invest it amongst us and make a killing from the interests we pay, this is outrageous and easy money for them," she said.

Also amongst the people in the office was one Jonathan Machivenyika who claimed that he had taken a loan of $500 and pledged the entire furniture in his lounge when he needed to buy stock of solar panels from South Africa. The worst happened for him when a cross border carrier trailer overturned and damaged all his stock. Machivenyika failed to pay back the loan within the time stated and was being charged an extra 10% penalty per week for the amount due.

"When I got the loan I was meant to pay back $685 in 6 weeks paying $230 every two weeks which if I was in business was workable. When my stock got damaged and I couldn't claim from the Malayitsha they started charging me an extra 10% every week until the amount was over $1000 and they came and took all my furniture worth four times what I owed them," said the devastated man who was at the office to try and make a payment arrangement before his furniture was auctioned.

In an interview an employee of another finance house in Bulawayo explained that their business is operated from Harare and they bank all the cash into the business account in Harare where all the loan applications are processed.

"We just handle papers in our Bulawayo office and send everything to Harare where it is processed. We don't know how the loans are approved or rejected we are just advised when they are done and told to raise the money for the approved loans," he said.

"Its very true that very few applications are approved compared to the application fees collected. Sometimes some applicants end up getting angry and demanding their application fees and only then do they get their loans approved after a long time of up and down movements," he added.

According to the employee the debt collection is very intensive and people have lost lots of property which they will have pledged as collateral.

"Once a person defaults payment we are ordered to collect the pledged assets very quickly and if the person fails to pay within seven days we are furthered ordered to put the goods on Swift and send to Harare where they are auctioned or put in a second hand furniture shop the bosses are operating in Harare."

On the personal loan side, Zimbabwean civil servants are virtually working for the loan sharks who put bank debit orders on the workers' little salaries. A teacher at a Bulawayo primary school who was also at the finance house indicated that 90% of her salary goes to finance houses every month and she survives on further renewed borrowings.

"I have been owing these guys money for the last 18 months or more. Every month they deduct $280 dollars from my account and soon as it is deducted I am back to apply for another $230 loan so I literally pay them $50 every month from my salary and I can't help it," she said. Up to about 80% of Zimbabwe's business is operated in the informal sector which government and banks have failed to finance and regularise. The informal traders who government is in the process of registering for tax collection purposes have always been up in arms against government for failing to regulate and finance. The informal traders claim that their operations are at the moment the real wheel of the ailing Zimbabwean economy as the formal sector disintegrates.

An official from the Small Enterprises Development Corporation (SEDCO) in Bulawayo who would not give his name confirmed that for a long time now the government run SME finance house has not had any money to finance the informal traders owing to the harsh economic situation in the country. He however was also quick to question the legality and credibility of the continuously sprouting finance houses in the country.

"I am really not going to comment much as my office is not allowed to talk to the press but I really doubt that all these finance houses are registered money lenders because some of the interest rates and administration fees charged are outrageous and illegal," said the officer.