ECONOMIST Chibamba Kanyama says government should avoid lending money directly to individuals or institutions but use outsourced creditors to avoid non-repayments.
In an interview, Wednesday, Kanyama said government should outsource lending, through private entities which already had platforms and mechanisms for lending money and getting it back.
“I am against government itself directly lending money to people. I am for the idea that the CEEC should only focus on creating empowerment mechanisms, for example enhancing the participation of Zambians in procurement and joint ventures. That is where it should be limited to. But the financing side of it should be removed and outsourced. Every government platform that lends money to the people, it should be cancelled. Government should outsource lending through a private sector that already has a platform, it already has the competencies, it already has the ICT platforms and the mechanisms for lending money and getting it back,” he said.
Kanyama proposed that government should adopt a system like the one used by the Bank of Zambia in disbursing the COVID-19 stimulus package where it only regulated the interest rates and stipulated who should access the money.
He said a government entity should never be allowed to directly lend money to avoid non-repayment of the loans.
“If there is any learning we can get from here is Bank of Zambia. Bank of Zambia introduced the COVID fund stimulus package for SMEs that were going through difficulties but never lent to these SMEs. I know many of them who accessed the money. Bank of Zambia never lent to any single business, they outsourced the lending through commercial banks and other micro financial institutions. These are the ones who accessed that money for own lending. So Bank of Zambia only did three things; number one Bank of Zambia regulated the interest rates to be charged. That’s why they say they charge for example at monetary policy, plus five or base rate plus five, no more than what is regulated. So it was capped, the interest rate was capped at much lower than ordinary commercial lending rates,” Kanyama said.
“Number two, the Bank of Zambia stipulated who should access this money. So it was deliberate to a certain people, organisations that should access the money. And number three, the Bank of Zambia gave the money, it gave the K10 billion for lending. We can follow that pattern for government lending to support SMEs in this country. We should never allow a government entity whether Ministry of SMEs or CEEC to directly lend money because the moral hazard factor is very big. Moral hazard is this belief that ‘after all, it is government money I won’t pay back, they won’t take me to court; they won’t do anything after all it’s government’s money’.”
Kanyama insisted that there was a lot of abuse and political influence if government was directly involved.
“It’s open for abuse, we saw what happened to CEEC. 90% of the borrowers were linked to politics. I can assure you if you are to investigate people that borrowed money, how lending was done, it was politically influenced. And much of that money won’t be paid back and I think the loss factor is about 90%. The same applies to DBZ, much of the money won’t be paid back,” stated Kanyama.
“That’s what happens when government itself is lending money, the moral hazard is too strong, the borrowers think that this is government money I won’t pay back and then government itself influences, politicians influence, who should borrow money and they lend money to themselves. So the only mechanism is government should outsource creditors, outsource the lending organisation to be the one which gets money from government, it gets its commission and it lends to the private sector.”