What the Affirmative Action Group fails to understand about banks

The Affirmative Action Group is a 'pressure group' for 'economic empowerment.' As such, a big part of their reason for existence is just to be provocative, to make various parts of what can be considered 'the establishment' (government, banks, industry, etc) squirm. At this rabble-rousing role the AAG is very effective. As the claimed representatives of a section of aspiring entrepreneurs, they more broadly seek to make the general operating environment more favorable for up-and-coming businesspeople. That necessarily means a big part of the AAG's focus is on access to finance. Their expressed thoughts on this matter suggest that they may have completely unrealistic expectations about this issue.



According to an article in the Sunday Mail, 'the Affirmative Action Group has called on Reserve Bank of Zimbabwe Governor Dr Gideon Gono to come down hard on banks that appear to be disregarding his directive to cut interest rates and set up funding facilities for indigenous businesspeople.'

In some respects there is nothing particularly radical or unusual about this statement. As Zimbabwean companies big and small flounder, there are daily lamentations about the 'liquidity crunch' and how banks should ease it by lending more to companies that say their main problem is that they are 'under-capitalized.'

So in a way the AAG's statement represents the current economic/business dogma in Zimbabwe. No one is interested in examining if perhaps the real problem is that many companies are holding on to business models that may have been fine for the economic environment of 10 or 20 years ago, but are completely out of step for that of 2012. Is the 'liquidity crunch' the problem, or is it merely a symptom of the real problem (wrong business activities for the times, low productivity?) Which is the chicken, and which is the egg?

But apart from that, the AAG attitude about what the banks 'should' do suggests a misunderstanding of their role that is quite widespread in Zimbabwe, and perhaps around the world for that matter.

Banks are deeply risk-averse, while entrepreneurs live with all kinds of risk every second of their business existence. How a bank looks at/sees/evaluates your sure-fire blockbuster business idea may be vastly different from how you see it.

A bank often declines to extend credit for many other reasons than whether a business is a good idea, or whether it will eventually succeed or not.

Many banking clients are under the naive, mistaken impression that their financial institution must also be their 'friend.' Those clients go to their banks with this childish outlook, hoping to be easily extended credit.

Nothing could be further from the truth and more ridiculous. Admittedly the banks partly cultivate this wrong impression-when they are seducing the public for deposits. But once they get your account, that is often when the 'friendship' ends. From them on you are little more than an account number, the main things the bank concerned about being how much money flows through your account and how much stays in it for them to invest (gamble?) for their own benefit. It's a little concept called business-for-maximum-profit-at-minimum risk.

There is so much negative public and regulatory pressure on Zimbabwean banks today that there are likely to be reforms (imposed and/or voluntary) in some of the ways they do business. But the fundamental risk-averse model of attracting as many deposits as possible while lending as little and as selectively as possible is not going to change.

Actually, the assumption that because banks have (or rather sit on) large pools of money they must be good businesses is fundamentally flawed, as many recent examples from around the world have shown. Banks are not particularly gifted at evaluating business ideas. For one thing, very few bankers are businesspeople (in the sense of being personally risk-taking entrepreneurs) in their own right. Just on this basis alone, let alone many others, the finance-seeking entrepreneur and the credit-granting banker often speak fundamentally different languages from the word 'go.'

Businesspeople, aspiring or long established, should accept the reality that increasingly, a bank is 'good' if it can just keep whatever money you have in it secure and accessible to you whenever you want it. Even by this low minimum standard, as many recent examples in Zimbabwe and beyond have shown, not all banks are able to successfully fulfill even this most basic of banking services. Despite the veneer of a profitable edifice banks present to the public, many of them are struggling with issues of viability as much as their customers.

Certainly lack of access to credit is a problem that plagues almost all Zimbabwean enterprises (including many of the banks themselves.) But if entrepreneurs are going to put most of the weight of whether they are going to start, survive or die on the 'generosity' of banks, perhaps they are better off not being in business at all.

AAG, banks don't feel they owe you the client anything in particular. You might find that there may actually be aspects in which you are better off in your early business development by not seeking to owe the banks anything either. AAG, as you should know by now, credit-lending institutions love you when they perceive you to be 'up,' not when you scream to the world that you are down. It takes money to get money. That rule will never change, regardless of how much you scream or threaten.

AAG, advise your aspiring businesspeople members to think outside the box, both in getting started and in accessing finance. Zimbabwe needs plenty of business start-ups, but hoping to change the entrenched culture and realities of banking is naive, unrealistic and a waste of time and energy.

Entrepreneur, continue to fight for your business and seek the finance you need, but also think outside the box to achieve your dreams.

The Zimbabwe Review