It is important to analyse and evaluate the banking structure in Zimbabwe for us to appreciation how IT will really fit in. The Zimbabwe’s Banking sector is relatively sophisticated, consisting of the Reserve Bank of Zimbabwe, Discount Houses, Commercial Banks, Merchant Banks, Finance Houses, Building Societies and The Post Office Savings Bank. The development of the Zimbabwean banking sector can be analysed within three separate periods, which the banking industry went through different development phases.
PRIOR 1991 PERIOD
The financial system in Zimbabwe inherited a regulated environment and it has for years pursued segmented or specialised funding. For instance merchant banks were restricted on export finance while commercial banks were restricted to the service of taking deposits and advancing loans. There was also specialisation within each class of financial institutions. For example, Barclays Bank mainly financed the agricultural sector while First Merchant Bank was concentrating on financing the mining sector. Building societies concentrating on mortgages and Discount houses on commercial and RBZ intermediation. The government had put some boundaries that separated institutions and gave them almost guarantee of core business segments. There were restrictions to entry into the financial market, a situation that enabled banks to form some cartels. A cartel is a combination of firms whose aim is to limit the scope of competitive forces within the market. The firms usually enter into agreements pertaining to interest rates.
Furthermore they did not go out to the market to solicit clients. There was no need for them to be innovative since they were cushioned from competition. They rarely ventured into risk management. They often required security from the would be borrowers before advancing any funds to them. One writer pointed out that in general the financial system was lacking in the shaping business ambition, attitude and aptitude. Financial institutions were not development formatting and customer oriented. One commentator pointed out that banks went to sleep during that period. The bank manager was more important than the client. The client had to visit the bank and begging for service.
Banks took a relaxed approach they pursued a demand following approach whereby they only provide services when those services are needed. They concentrated on towns at the expense of rural areas. This discourages a large segment of potential servers from depositing their money into these financial institutions.
There were also some directives on banks concerning the sector they would finance. For example the government would also give directives to fiancé ZISCO and AMA. Thus denying resources to other competitive and more lucrative ventures in the economy.
In general the financial system was highly repressed and this limited the growth of the financial sector. Financial repression includes any control that limits the growth of the financial sector. That is controls on interest rates, foreign exchange holdings, impediments in terms of savings mobilisation and excessive bank regulation.
The level of financial repression is measured by the ration of financial assets to gross domestic product. The higher the ratio the less repression there is in the system. However when the ratio is lower as the case in Zimbabwe in the 1980s then the greater the level of repression. This financial repression led to “financial dualism” (Myint 1971. Financial dualism refers to the coexistence of heterogeneous interest rates in the organised and unorganised markets.
1991 to 2003 PERIOD
This is the period when the Zimbabwean financial sector was liberalized. The deregulation of the financial sector led to the mushrooming of several banks. For instance by 2003 there were 17 commercial banks from 5, six merchant banks, 6 building societies and 6 merchant banks emerged.