'High interest rates cripple economy'

A MAJORITY of company closures in Zimbabwe are a result of overcharging on interest rates on loans that firms would have borrowed from banks, an official said yesterday.

Following the adoption of a multicurrency system in February 2009, a number of companies have failed to service their loans forcing creditors to take the litigation route that has resulted in loss of valuable assets while some have been placed under judicial management or liquidation.

Speaking during a breakfast meeting organised by the Directors Protection Council of Zimbabwe in Bulawayo, Interest Research Bureau managing director Mr Jani Jani said they have since established that an overcharge on interest rates had a crippling effect on the economy.

"Maintaining a loan or a current account at the bank doesn't cost much but when you're being charged at any rate beyond 10 percent, it's too high. You can't survive with such interest rates and moreover within that interest rate, which is too high, the banks do make mistakes," he told delegates.

"Mistakes are common, sometimes they're human factors . . . sometimes it's the software and sometimes it's deliberate in the sense that the system would have gone haywire.

"All we're saying is when we work out the interest, the possibility of a company being charged 25 percent as a penalty are high and that's why we've most companies closing down."

Mr Jani said his organisation has come up with a programme to assist the companies to re-compute the loan from day one up to the end of the loan's tenure before presenting to the bank a report showing that there is either an overcharge or violation of the in duplum rule.

The in duplum rule is a common law rule that provides that arrear interest ceases to accrue once the sum of the unpaid (accrued) interest equals the amount of capital outstanding at the time (and not the amount of capital originally advanced).

"And because most of you are very busy people you can't determine whether this month l've been charged $50,000 and in the next month they charge you $45,000 . . . and when you work out those anomalies over a period of time, you will find that the overcharges are quite high and interest being an expense it would have hindered certain operations within the company so at the end of the day companies close," said Mr Jani.

He said over the years interest rates have been and are still too high because of the cost of funding despite other anomalies presently prevailing in the economy.

"We've come up with a programme where we do the calculations on a success base because we're guaranteed accuracy and we've learnt how the banks make mistakes.

"After negotiating with the bank, you then give us a certain commission to cover our costs. That exercise we started it in Harare and l'm hopeful very soon we'll be starting it here (Bulawayo) so that at least we come up with the true position of the account.

"And if you're to transfer it to the Zimbabwe Asset Management Company (ZAMCO), you're transferring a position that you're happy with," he said.

Mr Jani urged companies to ensure their Non-Performing Loans (NPLs) are transferred to ZAMCO after verification as transferring the balance without verification has negative repercussions.

In an interview, DPCZ chief executive officer Mr Reggies Sibanda said the meeting was fruitful.