The BankersInstitute of Bankers of Zimbabwe

December 2020 Issue

DECEMBER 2020 ISSUE

Contents

This year’s edition is being published amid a cloud of uncertainty brought about by the Covid-19 outbreak.World over, the impact has been devastating but fortunately for Zimbabwe it has not been as severe as had been predicted.Nevertheless, many lives have been lost and our daily routines have been turned upside down.The pandemic has caused a great deal of change. Masks, sanitisers and maintaining social distance have become our way of life.Even the way we do business is no longer the same as we have all been rocked from our comfort zones and forced to adapt to change.The pandemic has been disruptive but it has also pushed the rapid uptake of tech.The once lofty concept of working from home is now a widely accepted idea. Those endless boardroom gatherings have now been replaced by virtual meetings.A great number of banking transactions can now actually be conducted on the phone or the computer without the need for physical interaction. That is why in this edition we have decided to explore aspects of electronic banking and cyber security as we open up critical discourse around the digital sphere. We have an interesting analysis looking at the country’s banking legal framework and how that can be improved to cater for electronic banking.As uptake of digital products increases, we hope that our understanding of this space can only get better as we work to rebuild trust and confidence in the banking sector. In this edition we also carry a special on Zimswicth which was this year designated a national payment switch by the RBZ.Apart from the rapid digital developments, the sector has also been undergoing extensive reforms as authorities institute policies to rein in the parallel market for foreign currency and tame inflation, which was raging in triple digits.Changes included capping mobile money transactions to a daily limit of $5 000 and the launch of a weekly foreign currency auction to allow the market to determine the value of the local currency.Since the launch of the auction platform, the domestic unit has maintained its rate at around $81 to the US dollar, bringing some semblance of stability and predictability to the once volatile financial system.

Happy Reading!

Kuda Chideme

Editor’s note02 Uphold KYC guidelines - RBZ

06 We have to adapt or die

10 Zim’s digital banking booms

12 We are driving innovation - Zimswitch

16 Open banking the future of banking using technology

18 Africa’s Top 100 Banks

20 Recognising and understanding fraudulent

investment schemes

26 Surviving mental health In the workplace during

Covid-19

28 Re-alignment of Zim’s e-banking legislative framework

30 Covid-19 could undo Africa’s recent progress

32 Understanding the Warehouse Receipts Act and

Regulations

Editor:Kuda Chideme

Revise Editor: Chris Gumunyu

Photographer: Freedom Mashava

Production Coordinator:Kudzai Rushambwa

Production Team:Linda TitoGodfrey Wozhele

Sales and MarketingTeam Leader: Edwin Vengesa

Sales Executives:Susan MapiningaEdreck MudzinganyamaChristinah MachakaShingirai Chirikuutsi

Publisher:The Financial Gazette 2nd Floor Green Bridge,Eastgate, Harare.

Tel: +263 242 781 571-7

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Staff Writer THE Reserve Bank of Zimbabwe (RBZ) has urged local banks to uphold and enforce the know-your-customer (KYC) and customer-due-diligence (CDD) guidelines to safeguard the industry’s integrity. Speaking at the Institute of Bankers of Zimbabwe’s 2020 Summer School in Harare, RBZ governor John Mangudya said the industry should comply with international best practices. “We need to adhere to KYC principles and CDD without fear or favour. I have noticed that these are now lower than before in certain banks,” the governor said. “How can you compromise on KYC when you are giving someone a digital platform, it is dangerous… you do not see the customer, you have not done your KYC and diligence, you only see money flowing into the accounts and you do not even know where it comes from. “Today we can get a customer transacting $10 million, but the banker cannot even tell us what line of business the customer is in… we have some who come to the auction asking for US$500 000 on behalf of their clients, but they do not even know the profile of that client,” Mangudya said. He said banks risk bringing weaknesses into the economy through poor KYC and CDD. “Banks need to attend to these issues as a matter of urgency to ensure the integrity of the financial system,” he said. Zimbabwe is currently on the Financial Action Task Force (FATF)’s grey list. Like the blacklist, countries on the grey list represent a much higher risk of money laundering and terrorism financing but have formally committed to working with the FATF to develop action plans that will address their

Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) deficiencies. Mangudya said improvements in banks’ KYC and CDD would put Zimbabwe in a good position to move up from the grey list. “We also need to improve on knowing the ultimate beneficial owners of all the funds we transfer as banks,” he said. Speaking at the same event, Ralph Watungwa, the president of the Bankers Association of Zimbabwe (BAZ) and chairman of the IOBZ, said it is important that the financial sector spearheads the delisting of Zimbabwe from the FAFT’s grey list. “Issues of money laundering and combating terrorism financing directly affect access to international lines of credit, as well as our relationship with corresponding banks,” Watungwa said. On his part, Webster Rusere, BAZ’s immediate past-president, said the country’s grey listing is down to standards. “What exactly are we doing, are our systems porous, allowing illicit money to flow through? Those are the issues, so we need to get ourselves to a certain level in terms of the standards, to make sure that whoever is dealing with us knows that we can match any internationally recognised standards. This comes as Zimbabwe has continued to lose millions of dollars through illicit financial flows, with a 2019 Financial Intelligence Unit report indicating that nearly $1 billion per year was laundered between 2014 and 2018. Earlier this year, the Zimbabwe Anti-Corruption Commission said it had identified over US$7 billion in cash and properties stashed outside the country by former and current senior government officials and captains of industry.

Uphold KYC guidelines - RBZ

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IoBZ Chairman Mr Ralph Watungwa with RBZ Governor Dr J.P MangudyaIoBZ Council Member Dr Sibongile Moyo with Polycup Osero of Fintech International

IOBZ 2020 SUMMER BANKING SCHOOL IN PICTURES. THE EVENT WAS HELD AT MANNA RESORTS IN HARARE

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Meet Mr Ralph Watungwa (RW), the Bankers Association of Zimbabwe (BAZ) president and chairman of the Institute of Bankers of Zimbabwe (IOBZ). Mr Watungwa’s tenure as IOBZ chairman has just been extended by a year and Dephine Mazambani (DM) interviewed him to find out his strategy as both BAZ president and IOBZ chairman.

DM: Congratulations on your election as BAZ president. Please tell us the key issues that you are going to be focusing on during your presidency.

I am very excited by this opportunity to serve the banking industry at this level. Firstly, I would like to acknowledge the work that was done by my predecessors. We have a strong association that has served its members and its customers for many years. As you are aware, I took over leadership of BAZ during one of the most difficult times characterised by historically weak economic fundamentals which have been exacerbated by the impact of the Covid-19 pandemic. The Banking sector plays a key role in any economy. My immediate task is to minimise the financial impact of the pandemic and to work closely with all stakeholders for the resuscitation of the economy, leading to rapid growth. I believe that this can be achieved if we as bankers demonstrate leadership by;

1. Working together2. Being bold3. Being agile4. Building resilience5. Building trust6. Building empathy

My legacy must be defined by the sector’s ability to work with key stakeholders, especially our regulators, our clients and indeed society in general to re-examine the banking sector offering and plan on how we as a sector can emerge successfully in the shortest possible time. I would like to lead the industry in the creation of a new meaning, questioning what we have learnt over the last 8 to 10 months, and most importantly, what can be improved going forward. This means leading a renewal rather that a return to our old ways. For example, the Covid-19 pandemic has resulted in an urgent need for the sector to digitise. In most cases this was done in a rush to resolve

the challenges we were facing from Covid-19. It is now time for us to build sustainable infrastructure around our digital platforms for the convenience of our customers, to support economic growth and to meet regulatory expectations. As leaders we have been forced into the frontline as part of managing the crisis, it is now time for us to move to the balcony focusing on emotional wellbeing of our teams and customers and overseeing a return to “normality” while thinking towards a long-term strategy. I would like to work with my colleagues to build a solid banking system that will anchor the growth of the economy by providing financial and advisory services that will propel the growth of the Zimbabwe economy going forward. This will be done by taking advantage of digital opportunities, supporting key industries such as agriculture, mining, tourism, manufacturing, commerce and many others. I would like the banking sector, under my leadership, to become financially stronger to be able to successfully take on risk. We should also play our part to manage financial crime to make our country and indeed the world safer for all. We have just reviewed the Banking Sector Code of Conduct which will ensure that we maintain high levels of compliance while treating our customers fairly.

DM: You assumed the presidency at a time when the whole world is grappling with the impact of the Covid-19 pandemic. How can the banking sector adapt to cope with this new normal?

RW: This month I’ve uttered the phrase, “sorry, I was on mute” a thousand or so times; I’ve worked a little too late several evenings; In the absence of a 30-minute to one-hour drive home, I have found myself “opening the fridge and taking out a drink”; and I’ve also realised that my internet connectivity is not that great after all! Certainly, not as amazing as the service provider promised it would be.

All that said, I spend more time with my family, which I rarely used to do in the past, and I’m taking more walks; I haven’t gotten on a plane for a meeting since early February, nor have I printed a single Power Point presentation during this time, but the work is getting done; I’ve experienced more experimentation, shared problem solving, unlearning and re-learning this year than I have at any other point in my career, but I think we’ll be net

Ralph Watungwa speaks on the need to innovate and move with the times.

We have to adapt or die

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positive through this.

Whilst uncertainty remains, it’s time to think seriously about how we want our organisations to run going forward, how we want to serve our clients, and how we want to work ourselves. This is a time of renewal not return, and an opportunity to re-think the old orthodoxies that needed to change. One property consultant friend of mine said recently that his team aren’t just designing the offices of the future, they’re now defining what the office of the future is for. That’s a pretty fundamental problem to solve, but it’s the right one! I’m wondering what questions you’re asking about your own operations?

DM: How has the banking sector performed since the beginning of the year?

RW: The sector has proved beyond doubt that it is resilient. Despite the litany of economic, social and political challenges, the industry has been able to discharge its key role of intermediation. We have been able to balance divergent interests from stakeholders and believe that we will be able to support the recovery process. Let me draw your attention to a few key headwinds which we faced. The Covid-19 pandemic has impacted the global economy in unprecedented ways. Zimbabwe has not been spared. The banking sector has been at the centre of facilitating the importation of various PPEs (personal protective equipment) for use in this unprecedented fight. The sector had to change its FX prioritisation processes to ensure that as much FX was allocated to support the health sector. The banking sector has also contributed money and other resources under various CSR activities which we believe are higher than any single sector in Zimbabwe. The general economic downturn has impacted the business sector and our industry was on hand to ensure that customers are able to recover through provision of moratoriums, advisory and other facility re-structures during the recovery phase. The industry continues to do business within the tariff limits as agreed by the regulator and avails lending facilities at way below economic interest rates as the economy goes through hyper-inflation. In 2020 alone, our regulators issued in excess of 30 new regulations which had an impact on bank operations, most of them at short notice. The industry demonstrated its agility by implementing the changes in time to support initiatives to turn around the economy. As you will appreciate, the banking sector is nearly 130 years old in Zimbabwe. During that period, it has been at the centre of economic and social development, driving commerce and prosperity for the people of Zimbabwe. The sector is expanding its participation in the finance of agriculture with the recent changes to channel more funding through banks. This is a welcome development which will no doubt mean that lending is more commercial and sustainable and benefits more creditworthy and productive farmers. Agriculture will be at the centre of any sustainable recovery for our country and the sector is happy to assume this central role. The public must be aware of the recent crackdown on financial crime in Zimbabwe, resulting in many policy changes to stabilise the exchange rate, inflation and many other economic indicators. A clear finding from the root cause analysis of financial crime was the exclusion of banks from customer due diligence and financial intermediation. Therefore, monetary authorities have sought to curtail some key financial activities outside the banking sector. We have successfully operated during many economic and political cycles and have proved that we play an important role in national development. The banking sector is excited to face the future and most importantly to be part of the solutions for Zimbabwe’s challenges. DM: What challenges is the banking sector currently facing and how can they be addressed to optimise the sector’s performance under the circumstances?

RW: The sector is facing many challenges as it is a barometer of the level and volatility in economic activity in the country. The following are some of the challenges the sector is facing.

• The hyper-inflationary environment is eroding the sector’s ability to grow, with sector capitalisation levels reducing. This has an impact on our ability to support industry, especially now when borrowing requirements are increasing rapidly due to inflation.

• The tightening of ZWL liquidity aimed at managing the exchange rate has also impacted the sector. Measures to reduce money supply have successfully curtained the rapid depreciation of the local currency. However, there is no liquidity to increase lending. Therefore, banks will find it difficult to implement the ZWL 18 billion government guaranteed stimulus package.

• Zimbabwe’s high country risk has made it almost impossible to raise foreign currency lines of credit to finance strategic initiatives. Several socio, political and economic issues need to be addressed to reduce country risk which should facilitate capital raising at lower interest rates.

• A key foundation of banking systems is trust and confidence. One of the key challenges of the Zimbabwe banking system has been policy inconsistency. The rate at which policies are changing affects the level of confidence that the public has in the sector. The more rapid the changes without adequate consultation, the lower the confidence levels and the less the public are willing to participate in the formal banking system. This is unfortunately the case even when the policies are good. Regrettably, the Zimbabwe banking sector continues to struggle with the speed of policy changes and their implications on internal processes and technology development.

• The deterioration in credit culture is also yet another challenge. Historically Zimbabwe has had advanced credit systems and processes, being one of the very first Sub-Saharan markets to have a fully developed financial market with full-fledged mortgage, personal and corporate banking offerings. However, the credit culture has weakened over the decades, with many customers enjoying credit facilities where repayment was not reinforced, especially in the last two decades. The sector is working hard to educate the market, the small enterprise sectors, on the need for customer repayment discipline if the credibility of the industry is to be restored, leading to credit growth.

DM: Is Zimbabwe syncing well with international banking trends and best practices?

RW: International banking practices are becoming more globalised and I believe that Zimbabwe is well tuned to international trends on many fronts. The fight against financial crime is now globalised. Anti-bribery and corruption initiatives have been heightened, especially in Africa where our ratings are unfortunately pathetically low. We have embraced a code of conduct that is very aligned to global standards especially as it relates to “Treating Customers Fairly.” I do believe that Zimbabwe has not lagged behind on this front. Digitisation on the back of the Covid-19 pandemic has made some of our banking practices better than global leaders in some respects.

DM: How do you reconcile the banking sector’s training needs with the current training programmes being offered by local institutions? To what extent are these needs being met?

RW: As you may be aware, the Institute of Bankers Diploma is recognised both locally and internationally. We continue to find ways of enhancing its offering. We will shortly introduce new diplomas such as digital banking and

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banking technology in line with trends in banking practice. Another of our priorities is to resuscitate partnerships with other institutes both regionally

DM: How do you reconcile the banking sector’s training needs with the current training programmes being offered by local institutions? To what extent are these needs being met?

RW: As you may be aware the Institute of Bankers Diploma is recognised both locally and internationally. We continue to find ways of enhancing its offering. We will shortly introduce new diplomas such as digital banking and banking technology in line with trends in banking practice. Another of our priorities is to resuscitate partnerships with other institutes both regionally and internationally. On the local front, we believe that greater cooperation with other professional bodies such as the Institute of Directors, Association of Chartered Accountants and Association of Insurers, among many others, will optimise educational resources and strengthen our offering. We are also excited that the Banking Summer School will proceed this year despite the Covid-19 challenges. This is a key platform where bankers take time to review what has been going on in the industry, our challenges and the opportunities that lie ahead. I have no doubt that our training platforms are equipping our staff both for the present and for the future.

DM: Is the local banking sector under-regulated or over-regulated? Do you see a gap between the status quo and the ideal scenario? And how can we get there?

RW: The issue of whether we are over or under-regulated is a function of the conditions prevailing at any point in time. I believe that current regulations are appropriate for the conditions we have. I however believe that there is room for improvement as far as consultation and consistency of new regulation is concerned. We have had many regulations that in my view should have been socialised with stakeholders before they were fully rolled out. Therefore “new” regulations have had to be revised several times immediately after announcement. This is not good for market confidence, something we need at this stage of our economic evolution. I am also pleased to note that the need for enhanced regulation for mobile network operators has been acknowledged, leading to the recent demarcations of what can or cannot be done by banks, Mobile network operators and bureaux de change. This recent development has stabilised the market, especially the exchange rate and inflation. DM: What is your take on the local currency’s performance so far?

RW: I am happy that more market forces are being allowed to determine the fate of the ZWL.

DM: What is the role of banks to ensure stability of the exchange rate? What can be done to improve the Foreign Currency Auction system?

RW: As a financial sector, we have been at the centre of implementing the auction system by collating bids and screening qualification for bids. We have also been trading foreign currency between auctions. There is no doubt that the FX auction system has stabilised both the exchange rate and inflation. This is a welcome development and is a pre-requisite for economic growth. Going forward it is important to promote the supply of FX on the auction to ensure that as much volume of foreign currency is traded on the official market. We have seen as much as US$26 million being traded on a weekly basis, which suggests that more and more volumes are being traded on the official market.

Reserve Bank of Zimbabwe governor John Mangudya says the Covid-19 pandemic has boosted Zimbabwe’s digital banking.

Speaking at the IOBZ’s 2020 Summer School in Harare last week, Mangudya said the value of digital transactions had grown from $15 billion in January 2020 to $70 billion by the end of October.

“Zimbabwe has moved significantly on the digital banking platform during Covid-19, and this shows that banks did not forget about their customers during the lockdowns, they continued to assist them through the digital platforms,” the governor said.

He said the number of point-of-sale machines in Zimbabwe grew by 7 000 to 129 000.

Mobile payment points increased from 29 925 to 31 801, while 800 000 new debit cards were issued, according to Mangudya.

Credit cards moved from 18 000 to 327 000, and 10 000 prepaid cards were issued during the period, he said.

“While these achievements are worth celebrating, it is essential that digital platforms are readily available to customers. It benefits no one to have a system with a downtime of 90 percent.

“These also need to be continuously upgraded to satisfy the needs of our customers. The systems that you employ need to be scalable, agile and efficient,” the governor told the bankers’ meeting.

Zim’s digital banking booms

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ZIMSWITCH - recent developments & innovationZimswitch’s corporate philosophy is centred on driving innovation to provide best-in-class technology payments solutions in Zimbabwe. Our primary goal is to connect and power an inclusive digital economy that benefits everyone, everywhere by making transactions safe, simple, smart and accessible. Year to date, the company has undertaken various developments and innovations to meet the ever-changing dynamics in the payments industry.

ZIPIT SmartThe product was virtually launched on September 08 2020 following successful controlled live tests conducted from July 2020. ZIPIT Smart is a P2B product within the ZIPIT transaction suite that enables the initiation of merchant payments via a mobile phone. It allows a provider of goods and services (merchant) to receive payment from a customer via a merchant code into their bank account. The payment solution is bringing a plethora of benefits among them, broad accessibility of financial services across all communities.

This innovation is set to complement the efforts of financial institutions towards digitalisation with no requirements for heavy investments in payments infrastructure. It will further support the government’s long standing vision of promoting socio-economic development of the country through financial inclusion. In the near future, the payment solution will include the QR code functionality.

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ZEEPAYZimswitch is working on introducing a new Electronic Funds Transfer (EFT) system called ZEEPAY (Zimswitch Enhanced Electronic Payments). The solution was first developed in October 2012, in an effort for Zimswitch to become a fully Automated Clearing House. Adoption of the solution by financial institutions was delayed due to system architecture challenges, which have since been revised in the new framework of the solution.

The new EFT payments platform will support the interchange of credits

and debits (single or bulk) in batch or real-time modes by Zimswitch participants.

From the customer’s side, ZIMRA has successfully integrated into ZEEPAY and is waiting for all banks to go live. An integration project has been initiated with NSSA and we are targeting to complete the integration by end of year.

Multicurrency Switching.Following the Reserve Bank of Zimbabwe Exchange Control Circular No.3 of 2020 which authorised individuals to pay for goods and services chargeable in Zimbabwe dollars in foreign currency using free funds and civil servants USD allowances, banks and payment providers had to ensure that payment infrastructures and systems were configured to handle the new payment arrangement.

The development created an opportunity for switching nostro interbank transactions. To that end Zimswitch advised member banks to enable their system for processing of USD transactions and ensure full industry interoperability.

The multicurrency and nostro processing went live on August 16,2020. To date members are at various stages of certifying for issuing and acquiring and making collateral payments.

Intraday SettlementThis project was initiated to manage the settlement risk from banks failing to meet their obligations arising from interbank settlement. The project went live on August 28, 2020. Two (2) settlement cycles were introduced, which are being conducted at 8am and 11am respectively and the settlement is done every Friday. This new initiative has allowed banks to effectively manage their liquidity as well as reduce the merchant settlement cycle.

The Zimswitch Training HubZimswitch is in its final stages of deploying a training hub solution targeting all the member financial institutions. The platform will offer a wide variety of training courses to foster the goal of harnessing global technology and expertise for the betterment of the financial industry and electronic payments in Zimbabwe.

Through working with various payments industry players, the Zimswitch Training Hub seeks to break down the complexities of electronic payments into easy to understand topics. Industry best practice in issuance of cards, technical aspects of cashless transactions, workshops to address issues that are important to stakeholders in the payments industry including, EMV migration, data security standards, customer service trends and retailer best practices are among the many training

We are driving innovation - Zimswitch

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courses the Hub will offer.

Current courses available include Zimswitch 101, QDMS and ZIPIT Product Suite

Zimswitch Analytics PortalThe company is also working at deploying an analytics portal, a solution which will provide member banks with upper hand information regarding various transaction statistics.

The portal stores data generated internally by Zimswitch which enables financial institutions and the regulator to input requested data in a predefined format. Current data sources include card data generated from postilion, It provides predefined reports and dashboards. It enables users to build custom reports and has the capability to apply statistical tools to data to enable the determination of data relationships. This solution will be offered to member banks at a fee.

Modernisation of Systems and Payments InfrastructureRecently, Zimswitch has partnered with Mastercard, a global technology company in the payments industry to modernise the national payments infrastructure. Utilising Mastercard’s global network and technology, Zimswitch will launch a co-branded contactless card programme that features EMV technology to enable safer, smarter and more secure transactions.

The company will also introduce Mastercard’s digital payment solutions, a loyalty platform and a national fraud and risk management solution to protect consumers, financial institutions and merchants against criminal activity. From an e-commerce platform perspective, Zimswitch will leverage Mastercard Payments Gateway Services to support small

businesses, as well as the private and public sectors. The platform will process all payments from all major international card schemes, enabling international visitors and locals to book and pay for their travel, visas and government services online.

New Data CentreZimswitch continuously invests in modern payment technology systems and infrastructure to support the influx of transaction volumes and other new service offerings. The company successfully migrated all systems into new data centre in July 2020. This development saw the Zimswitch systems hosted on a state-of-the-art platform which is more robust, modern and scalable to support the Zimswitch transactions growth trajectory.

Postilion System Upgrade.The company also successfully completed upgrading the Postilion System in July 2020. The Postilion System is the environment that handles the switching of all transactions that come through Zimswitch. This is the core system in which Zimswitch is built upon and its enhancement to the latest version brings more functionality, stability and enhanced security.

Industry Standards Regulatory ComplianceIn cognisance of the international requirements governing data security standards, Zimswitch is in the process of implementing the PCI DSS standards to match international industry standards. The Payment Card Industry Data Security Standard (PCI DSS v3.2.1) compliance is mandatory for all entities that store, process or transmit cardholder data like Zimswitch Technologies. Guidance for maintaining payment security is provided in PCI security standards.

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FOR a long time, banking institutions have faced the challenge of the evolution of the technology age and fourth industrial revolution. In addition, they must accommodate new prospective clients in banking who are technology reliant. Customer engagement and financial literacy, among other issues, also present a challenge and an opportunity for businesses to increase their clientele base and market share. Thus, assessing the financial behaviour of the existing customers and case study surveys for future customers has presented an opportunity for banks to provide technology enabled services. It has led to the banks working with third party financial technology service providers to understand customer experience and improve customer engagement and financial service access.Innovatively, open banking services where a customer is involved in accessing financial services and engaging with the bank without using traditional approaches has emerged. Theraditional approach refers to physical appearance at the brick and mortar branches to access financial services. The traditional banking services are therefore regarded as closed banking services. To be part of the fourth industrial revolution and attract future banking customers, banks are slowly adapting to open banking services. Slowly it is becoming the norm in developed economies and tricking down to developing economies as it increases outreach to customers and lowers operational costs.

Open banking is defined as the use of Application Programming Interface (APIs) that enable third party developers to build applications and services around the financial institutions. It is a system under which banks open up their APIs, allowing third parties to access financial information needed to develop new apps and services. It provides bank account holders with greater financial transparency options. This translates to banking or financial service providers providing new products that could help customers and small businesses access financial services with ease. An example of open banking applications (apps) is provision of a budget planning programme or saving programme which pulls data from a person’s bank account and credit cards.

What is Application Programming Interface?An API or Application Programming Interface enables a third-party application to use a particular interface through which it can access a common set of tools or services. This implies that a bank can offer a third-party access to its financial services and processes through dedicated APIs. Using APIs allows banks and or financial institutions to provide the desired features to their customers. There are two types of APIs i.e. a private and an open API. In the case of an open API, it is publicly available for all developers to access. Developers outside the organisation’s workforce can access backend data that can be used to enhance their own applications. Partnering

with these third-party developers allows banks to have access to improved functionality and improve the customer experience.

Why Open BankingOpen banking should result in a better experience for consumers. Banks can use services that open banking would improve upon. For example, third-party financial literacy tools to help customers track their financial behaviour through spending, saving and investment. Adopting open banking enables banks to enhance and transform current services and increase their appeal to existing and prospective customers alike. Open banking potential benefits include improved customer experience, new revenue streams and a sustainable service model for under-served markets.

To date, the financial services sector has seen the introduction of various innovative initiatives to improve financial services to the existing customers and the new unbanked market. Such services include bank to wallet / wallet to bank services, payment of utility bills using the USSD application, making payments and bank transfers on mobile platforms. These services have come up as a result of allowing open banking through third party service provision. Innovation continues to improve the banking services through open banking such that even account opening is now being offered online. Banks are also conducting electronic due diligence in providing financial service access to customers.Open banking improves digital agility in banks which then improves transparency and security, making it easier for banks to leverage their own data internally. It has the potential to create new, revenue generating API products with relative ease. In addition, it gives customers huge amounts of freedom of access to the number and scope of financial services accessible.

Open banking APIs can create an IT security threat to banks, as they enable financial technology firms to tap into the bank’s financial data. The rise in cyber threats and crime makes open banking exposure to risk very high. While APIs present a new improved financial service access, open banking is a relatively new concept. Thus, a lot of trial and error situations are yet to arise. Banks should be aware of the challenges that come with adopting open banking.

Open banking is a welcome innovation and a revolution with a plethora of opportunities for all. However, it also brings along with it a few risks that cannot be overlooked. On the other hand, it also improves security, opens new doors for collaboration and allows banks to make bigger plays with additional financial products and services of their own. The future of banking is shifting from traditional closed banking to a heavy reliance on technology banking services associated with open banking.

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How resilient are Africa’s top banks in the face of Covid-19? Our 2020 survey highlights the longer-term trends transforming banking in Africa.

This year’s survey of Africa’s Top 100 Banks looks beyond the doom and gloom of the pandemic, with a ranking based on financial results which nearly all pre-date the virus’ choking effects on individuals and economies.

The good news is that going into the pandemic the banks were on the whole better capitalised than they have been in the last 10 years. The 2020 ranking also highlights the longer-term trends transforming banking in Africa, which will reassert themselves as economies recover and some accelerate out of the pandemic.

The number of banks in Africa is declining, even as the amount of people with access to financial services and the number of financial transactions soars – it’s a good thing on the whole as you have bigger and stronger banks.

For example, Nigeria has seen the number of banks fall from 89 in 2004 to 27 in February. More consolidation is predicted – between 2016 and February 2020, Kenya saw 10 mergers or acquisitions and three bank failures. In many countries, banks with heavy fixed costs from “bricks and mortar” branches have been facing headwinds.

Competitive banks are riding the wave of innovation and digitisation and competing with fintechs, forcing the pace of change. South Africa’s TymeBank, an exclusively digital cloud-based retail bank, announced in July it had reached 2 million customers – including 18,000 small businesses – ahead of its scheduled plan for December. Only launched in February 2019, it said it was adding 6,000 customers each working day, including some 400,000 during lockdown, and had attracted R10 billion ($613 million) in deposits.

Banks retain advantage as fintech advancesAfrica’s best-known banking revolution is already a teenager. In 2007, Kenya’s Commercial Bank of Africa launched a partnership with Safaricom that gave rise to the M-Pesa and M-Shwari mobile money banking products. According to the Central Bank of Kenya, by July 2020 there were 62m mobile money accounts and 234,700 mobile money agents. During 2019 there were 1.8bn mobile money transactions totalling $42.9bn across all providers, some 45% of gross domestic product (GDP).

This year, many countries have encouraged a switch to mobile payments to avoid Covid-19 infection risks from handling cash, and mobile money operators waived charges for some during the peak months. Social welfare payments were also dispensed through digital platforms, a trend unlikely to reverse.

Despite fintech innovation, banks still hold a clear advantage and their relevance and dominant positions are not under threat just yet. Country and regional leaders continue to grow and make profits, as shown by the stability in top rankings on the tables over the years. In addition, many of the giants are accelerating their digital transformations, creating fintech labs within their organisations or working closely with fintechs to create new products.

The rankings can be affected by currency swings. 2019 saw less exchange-rate volatility for African countries against the US dollar than in previous years. Bank financial results and balance sheets are rebased to US dollars for ease of comparison. In particular, the rand-dollar rate strengthened slightly, after a heavy fall the year before.

Africa still great for profitsThe crown for profitability among the top 10 banks stays with #3 ranked FirstRand, with net profit up 10% to $1.6bn and return on investment (ROE) of 30%, compared with 20% for Standard Bank and 9% for Absa.

By comparison, global average ROE was 9%. Europe’s top ROE among big banks was 10.2% for ING Group in 2019, with German banks scoring less than 1%. US banks had an ROE range of 5%-10% for years after the introduction of Basel III capital requirements in 2009 and only recently broke towards 11.4%.

Africa is the world’s second most profitable banking region after Latin America, with ROE of 14.9%.

South Africa still dominantTopping our ranking of Africa’s 100 top banks for another year is South Africa’s Standard Bank Group, with operations in 20 African countries (see our methodology box for how this is calculated), despite a 7% decline in Tier 1 capital to $11.1bn, after a 10% fall the year before from $13.2bn. Total assets rose 10% to $161.9bn and profits slipped 4% to $2.2bn. Its Tier 1 capital is still nearly 90% more than its next rival, Absa, whose Tier 1 capital climbed 13% to $5.9bn (after a small decline in 2018) and total assets climbed 10% gain to $82.5bn. Net profits only edged up minimally to $561m.

The lead climber in the top 10 is government-owned National Bank of Egypt (NBE), the country’s oldest surviving bank (founded 1898) which offers retail, corporate and investment banking. It is up from last year’s #5 ranking to #4 as it pushes up Tier 1 capital by 17% to $5.4bn. Assets were up 12% to $96.7bn and another strong year of growth in net profits – up 114% to $1.2bn – gave a creditable return on equity (ROE) of 23%. The results are buoyed by a 10% rise in the Egyptian pound against the dollar in 2019. NBE accounts for 29% of total bank assets in Egypt and boosted retail lending by 61% in local currency in the year to June 2019.

Nedbank is also up, from #6 to #5 with a 14% gain in Tier 1 capital to $5.2bn, while assets are up 13% to $76bn and profits are down 4% to $717m with ROE of 14%.

Morocco’s Attijariwafa Bank slipped back from #4 to #6 with Tier 1 capital up 5% to $4.9bn, and small gains in assets to $55.6bn and profit at $726m.

Other top slots are held by Morocco’s Banque Centrale Populaire (steady at #7) and BMCE Bank (up two at #10) and two Algerian banks, Banque Nationale d’Algérie at #8 and Banque Exterieure d’Algérie at #9. The banking sector in Algeria is buoyed by the size of the oil and gas sector, but is arguably the least developed of Africa’s major economies.

Africa’s Top 100 Banks

20

Jeff Mugwagwa

OVER the last couple of weeks, the print and electronic media has been awash with news of people grappling to reconcile with the fact that two of their most “trusted investment’’ companies had suddenly stopped operating. It is assumed that thousands of individuals were duped in excess of US$20 million by these fly-by-night companies. KWD Digital Marketing operated in Gunhill, Harare and promised investors a return of double the invested amount in four weeks. Similarly, Berven Capital, which operated in Milton Park, Harare offered 50 percent of the invested amount after six weeks. To secure an investment slot, the companies demanded hard currency in the form of United State dollars as the only acceptable form of payment for one to invest. Another incentive that was also thrown into the package to entice clients was the agent or new investor fee which ranged from 3% to 5% of the invested amount.

This was allegedly the trick that perpetuated these fraudulent investment schemes as more people would recruit other investors to benefit from the “agent” fee.

The emergence of ponzi and pyramid schemes is not a new phenomenon in Zimbabwe. In 2015, a number of people were left counting their losses when the founder of Mavrodi Mondial Moneybox, known as MMM, died. MMM, was a pyramid scheme that started in the early 1990s and was introduced in Zimbabwe around 2015. MMM promised high returns to investors that averaged about 30% of their investment or even more. The scheme saw people in various countries such as Ghana, South Africa, Kenya, Brazil and some Asian countries such as China losing in excess of 80% of their invested value and not being able to withdraw their money.

History talks of such fraudsters as Bernie Madoff who was sentenced to 150 years in prison for running the biggest fraudulent scheme in US history and cheating clients out of US$65 billion. Madoff used a so-called Ponzi scheme, which lures investors by guaranteeing unusually high returns, by convincing thousands of investors to hand over their savings, falsely promising consistent profits in return. There are several other notable Ponzi schemes in history, including Allen Stanford’s which stole $8 billion and Tom Petters’ that cheated investors out of $3.7 billion. By definition, a Ponzi scheme is a fraudulent investment operation that

pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organisation running the operation. This person is normally called the “promoter.” ponzi schemes involve fake, non-existent investment schemes in which people are tricked into investing on the promise of unusually attractive returns. A ponzi scheme usually entices new investors by offering short term returns that are either abnormally high or unusually consistent than other investments.

Perpetuation of the high returns requires an ever-increasing flow of money from new investors to keep the scheme going. The operator of the scheme can keep it going by paying off early investors with the money from new investors until the scheme collapses under its own weight and/or the promoter vanishes with the remaining money.

As a way of avoiding early withdrawals of “profits” by the investors, the promoters of the ponzi schemes encourage investors to stay in the game and earn even more money. The “investing strategies” used are vague and/or secretive, which promoters claim is to protect their business. All they then do is to tell investors how much they will be making periodically, without providing any real returns.

Of late, affinity fraud has been manifesting as a ploy being used to defraud victims through ponzi schemes. Affinity fraud is a type of scheme that targets members of groups which share some central demographic characteristic, such as members of the same religion, ethnic community or profession. Typically, people who start these fraudulent schemes encourage investors to engage unwitting trusted members to contribute funds to the scheme, help promote it, or both. It is through this that church members, friends, work mates encourage their peers to also invest in the scheme. From a fraudster’s perspective, close-knit groups that value trust and community ties are particularly attractive targets. These groups may be slower to accept that they have been victimised by a fraudster and at times many cases go unreported because mainly close associates are involved in these schemes.

In many affinity fraud cases, the underlying mechanism is a ponzi scheme or pyramid scheme and as such, red flags will be similar to other fraud typologies, including the following:• Investment opportunities with terms presented verbally and little to

no information in writing. • Investors are pressured with a sense of urgency. The investment is

Recognising and understanding fraudulent investment schemes

To page 22

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22

presented as a “limited-time offer” or only a short window to get involved and

• The investment is presented as an “exclusive opportunity” or limited only to participation by certain individuals with demographics that match the group targeted in the affinity scam.

Some of the red flags of ponzi schemes include the following: • Investment returns that are “too good to be true”. • Investment statements that show continued growth or performance

contrary to market trends. • Unusual/absent fee structure and• Lack of substance behind the investment, such as when due diligence

reveals little information on the investment or the company or individual offering it.

• Lack of full knowledge of the recruiter where a number of issues remain unclarified including the real owners of the scheme etc.

What is the difference between a ponzi scheme and pyramid scheme?ponzi and pyramid schemes are similar but not identical. The essential difference between the two frauds is that a ponzi scheme generally only requires investment in something from its victims, with promised returns at a later date. A pyramid scheme, also called a chain referral scheme, is a fraudulent business model in which new members are recruited with promises of payment tied to their ability to enrol future members. In pyramid schemes, the promoter promises big profits to investors based on their ability to recruit other persons to join the investment opportunity and not based on sales or investment results. As the membership pool expands exponentially, further recruiting becomes impossible and the “business” becomes unsustainable. An example of this type of fraudulent scheme is network marketing schemes that usually promise returns or credits or scores or units based on the ability to recruit other members. Some possible red flags of a pyramid scheme include the following: • Recruiting of new investors or participants takes

place in an unlimited chain, with new recruits immediately recruiting others.

• Promotion or advancement to new levels of the scheme or new investment opportunities that are

dependent on recruiting others.• Excessive incentives to recruit other participants or investors. What are the potential effects of ponzi schemes?ponzi schemes result in the following detrimental effects on both the society and the individual who participates in it: -• Stress – in a country where most people are struggling to put

food on the table, one can only imagine the devastating effects of having to lose their hard-earned cash and the helplessness of not being able to do anything about it. History has proven that victims of fraudulent investment schemes are the most affected, resulting in unprecedented stress levels. In extreme cases, victims of ponzi schemes have been reported to exhibit suicidal tendencies. If reports on various social media platforms are anything to go by, we have had cases of people investing tuition fees or funds meant for critical needs in fraudulent schemes unwittingly, resulting in interrupted education, domestic violence or even death. An example is a Kwekwe woman who gulped down a poisonous substance after failing to recover thousands of United States dollars she had invested in Berven Capital.

• Theft/fraud – most individuals who invest in these schemes are tempted to engage in theft or fraud in a bid to quickly invest and get high returns. Sadly, these schemes normally collapse before the investors get their returns.

• Non-performing loans – the unusually attractive returns offered by ponzi schemes normally force or encourage individuals to borrow from banks and micro-finance institutions all with the hope of profiteering from the promised high returns. Resultantly, when the ponzi schemes collapse the investors default on their loan obligations.

• Affects genuine investment schemes – Investor confidence in genuine investment schemes is eroded by the fear

of losing hard earned money. We have witnessed instances where people become skeptical

to invest in genuine licensed scheme,s especially when ponzi schemes collapse.• Erodes savings – Many people have lost life savings, pension or retirement savings all in the hope of getting fast money. This has led many people and families into poverty with nothing to support them when their life savings disappear overnight.

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How can investment in a ponzi / pyramid schemes be avoided?The following are some key steps that can be taken to avoid investment

in a ponzi scheme:• Be skeptical - If someone tries to sell you an investment that has

huge and/or immediate returns for little or no risk, it could well involve some sort of fraud. Be extra-cautious if the returns are being generated by something you never heard of or in a way that’s impossible to follow.

• Be suspicious of unsolicited offers - Someone contacting you unexpectedly, perhaps inviting you to invest in a lucrative investment scheme, is often a red flag. Investment scams often target elderly people, or those close to or in retirement or members of groups which share some central demographic characteristic, such as members of the same religion, ethnic community or profession.

• Check out the investment - Research a broker, financial advisor, brokerage company and investment advisor firm using the Reserve Bank of Zimbabwe or the Securities Exchange Commission of Zimbabwe. Verify that the professional is licensed and look for any negative information. ponzi schemes often involve unregistered investments, says the Reserve Bank of Zimbabwe. Start by asking the person offering the investment: If the investment is not registered, ask why (not all investments must be registered). If you are told it is, verify by following the Securities Exchange Commission of Zimbabwe or the Reserve Bank of Zimbabwe.

• Understand the Investment - Never put money into an investment you do not fully understand. There are many resources to help you learn how to invest and how to evaluate opportunities for risk and potential gain. Do not invest with anyone who won’t fully answer your questions or who tries to discourage questions by saying the investment is using secret, proprietary or too-complex-for-laymen strategies. These days fraudsters use the cryptocurrency, bitcoin of

foreign currency trading as alleged investment areas because they fully know that there is little understanding in how these fields operate.

• Report wrongdoing - If you think an investment is a ponzi scheme or any other type of scam, or you’ve been victimised, file a complaint with the Financial Intelligence Unit (FIU) of Zimbabwe or the Securities and Exchange Commission (SECZ). One sign that you’ve put your money into a ponzi scheme is that you’re unable to obtain promised payments or cash out.

Whether it is for the purposes of avoiding being duped by dubious investment companies or for making important decisions regarding the best solutions available to secure a healthy return on investment, it is of paramount importance that all Zimbabweans, irrespective of social status, have the appropriate financial intelligence to enable them to effectively manage their finances. The world is moving fast, and fraudsters are in a race to find a way to try and stay ahead of the Government and other law enforcement agencies and regulatory authorities. For ponzi and Pyramid schemes, it is the same concept and trick applied to different victims over time, and because of the harsh economic climate, greed and a high-risk toleration drive, people continue to invest in fraudulent investment schemes. The Reserve Bank of Zimbabwe together with the Securities Exchange Commission of Zimbabwe have encouraged people to make inquiries concerning such companies to safeguard their investments. Sadly, most people resort to filing complaints only after falling victim. One thing that one has to understand is that the occasional coming in of these schemes is only history repeating itself and in most cases the victims outweigh the victors.

Mugwagwa is a members of the BAZ Compliance Committee.

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Blessing Duri

AS COVID-19 forces us to consider a “new normal,” the nature of work will change and employee wellbeing and mental health will become more critical. Isolation and loneliness threaten some; blurred boundaries between work duties and personal duties threaten others. As every individual has unique interests and concerns to address, every employer must shape culture in its own workforce, and that culture should include creating ecosystems wherein employees can thrive physically and mentally.

I will focus on the employers’ role. The impacts of the Covid-19 pandemic will affect employees well beyond the immediacy of the initial crisis. As an employer, you have a unique ability and responsibility to manage your benefit providers, such as Wellness Coaching Programme (WCP) and access to medical services to ensure your workers have access to the help and support they need. Having your workers know you are there to support them through these difficult times can make a world of difference for their mental and physical health. Your human resources team and supervisors can help make this difference a reality. In these stressful times, it is not enough to post benefit information on your company website. People are overwhelmed by news about the virus, their health risk, their jobs and the economy. That is why you and your benefit providers should reinforce messaging several times, when appropriate, about how to get help for the stress they are feeling. Employers need to reinforce what their benefits providers are saying, support the importance of getting help when needed, and, when relevant, create multi-lingual resources. Working with benefits providers to assure your employees can access remote services and adjusting internal policies can minimise the impacts on your workplace and support your workers through stressful situations. If your organisation does not offer the WCP or similar programme, there are still things you can do to support your workforce as they deal with the current stresses. You may want to circle back after the crisis has passed to see if you can deploy the WCP for the development of emotional resilience.Whatever resources you do have available, it is crucial to let your employees know about them. Employees may have a lot on their mind and may be experiencing high levels of stress – they may be more distracted, which is typical. You may need to tell them repeatedly and in a variety of ways how to access mental health services.

What employers can do: a) Review our checklist for working with benefits providers to address

mental health issuesb) Share all the resources provided by your benefits providers and

community programmes:-i. Telehealth and coaching by phone, Zoom, or WhatsApp texting.ii. Online and local behavioural health support group information.iii. Connections and support for people with mental health or substance

use disorders.iv. Empowerment through entrepreneurship for financial security.c) Communicate the following related to healthcare benefits:-i. Share how to access telehealth or remote nurse line counselling

ii. Discuss coverage for Covid-19 testing and treatment available through your healthcare plans or through public programmes. You may have employees who are not on your plan, so include information about accessing public Covid-19 testing and treatment.

iii. Post information on the signs and symptoms of Covid-19 from reliable sources.

iv. Explain coverage for seeking routine care, chronic illness and urgent care

d) Adjust and communicate appropriate HR policies and resources:i. Provide a confidential help line or email address where employees

can raise concerns and ask for help anonymously ii. Be ready to provide assistance or links to local or national

resources on common employee concerns, such as applying for unemployment, food insecurity, childcare, etc.

iii. Provide links to national support resources iv. Ensure return-to-work policies (typically used following an illness)

are flexible

Support those at highest riskMany people will need to continue working in risky situations during the Covid-19 pandemic (for example, working in healthcare, first responders, child or personal care, and other professions where the employee comes into contact with large groups of people). These situations may bring them into contact with possibly infected people, even with the precautions of social distancing, maintaining personal and environmental sanitisation, etc. It is important to ensure there is crisis and support counselling for these workers. They will need extra support and a place to ask for help.

A note for supervisorsSupervisors will likely see the impacts of stress on employee wellbeing and mental health first hand. Employees may come to their supervisors when they do not know how to cope with their current situation or circumstances. Some actions supervisors can take to help in these situations include:a) Understanding the actions HR is taking to provide support to

employeesb) Giving explicit permission to take mental health breaks, take walks

and engage in other acts of self-carec) Understanding and accommodating the need for flexible scheduling,

when possibled) Acknowledging the challenges with shared space at home to

complete school and worke) Increase communication and check-insf) Practising good listening skills with your employees when they are

stressed or in distress (being an active listener, being patient, asking how you can help, etc.)

We are all in a very stressful time right now. Being there for workers and making sure they know their wellbeing is of the utmost importance and will help us all get through this together.

Duri is a Master Certified Life Coach

Surviving Mental Health In The Workplace During Covid-19

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28

By Fadzai Manangazira

THERE is presently no specific Act of Parliament or delegated legislation by way of a statutory instrument that regulates e-banking in Zimbabwe.Most of the statutes that are applicable to the banking business in Zimbabwe are largely irrelevant in this regard because they currently address issues peculiar to paper-based transactions.

Consequently, consumers of e-banking services derive little or no protection at all from the piecemeal banking legislation currently in force in Zimbabwe.

It is also vital to point out that the application of common law principles leaves the consumer of banking services at the whim of the banker, as common law is largely archaic in relation to electronic banking.

This paper seeks to proffer recommendations and suggestions on how Zimbabwe can re-align its banking laws in light of the advent of e-banking. The first port of call is the promulgation/enactment of specific legislation that provides for the operation of e-banking in Zimbabwe. The Act should undertake the following;1. Address all legal issues that are connected and/or incidental to the use

of e-banking in the Zimbabwe context for example, electronic offers and acceptance, e-signatures, legal recognition of data messages, the manner of undertaking the retention of client records in electronic form, interception or unauthorised access to electronic client data, client confidentiality and liability for computer or system errors.

2. Address the issue of consumer protection in the use of e-banking services. It is envisaged that the specific Act of Parliament address the issue of consumer education regarding what e-banking entails, the products and services for e-banking on offer and the fees charged for such different mediums of e-banking. In addition consumer protection involves tackling the issue of exemption clauses that are evident in a standard form contract between a bank and a consumer of e-banking services.

A dedicated chapter on consumer rights as is the case in Chapter VII of the South African Electronic Communication and Transactions Act No.25 of 2002 is a brilliant starting point. Any provision of a consumer contract for e-banking services that is not in conformity or compatible with the aforesaid suggested chapter on consumer rights in the Zimbabwean e-banking legislation would then be deemed void and of no legal effect. The end result is that comprehensive protection to consumers of e-banking services will be provided against standard terms and conditions of banks, which are sometimes skewed against

consumers.3. Legislation assists in ensuring the protection of the personal and

financial data of consumers of e-banking services. It is recommended that provisions of the proposed specific legislation should be detailed regarding the issue of information technology systems used by banks. It is recommended that legislation allows banks to undertake the encryption of client data outlining the specific safeguards that banks must undertake.

Encryption of client data involves the use of cryptographic algorithms to encode clear text data into cipher text to prevent unauthorised access. Furthermore, the legislation must detail the framework for banks to comply with regarding the issue of hacking of systems and unauthorised attempts to access bank computer networks whether by both internal and external unauthorised persons, that is, cyber-crime. Our local suggested legislation should go further and provide a framework for the periodic testing of bank information technology systems, for example on a quarterly basis. This helps detect unusual activity patterns, avert major system challenges and better detect system attacks or disruptions.

4. There is a growing need for methods of authentication based on unique personal features in the use of e-banking services. These techniques include facial recognition, fingerprint recognition, voice prints and signature analysis. These security measures, if applied, will ensure that integrity, authenticity, privacy and confidentiality of client data obtained electronically by banks are achieved.

5. The new Act should address the issue of a clear cut error resolution

procedure that ensures that both consumers of e-banking services and banks obtain redress. This will most certainly boost consumer confidence in the use of e-banking services, thus increasing the volume of e-banking transactions and the number of consumers who transact electronically. In the USA for example, an e-banking brochure is published by the United States Federal Trade Commission. The brochure details the disclosures that banks must make to consumers of e-banking services, how to file a complaint when aggrieved by a bank’s practice and the appropriate institution where a complaint must be filed and the resolution process thereof.

The recommendation is that the new or envisaged legislation can create or put in place the office of the Banking Ombudsman to undertake the aforementioned key measures. In Zimbabwe, the office of the Banking Ombudsman, once created, can go a very long way in playing the role of a consumer watchdog in the use of e-banking services by consumers.

Re-alignment of Zim’s e-banking legislative frameworkRe-alignment of Zim’s e-banking legislative framework

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6. Provide comprehensive and periodic training to all judicial officers from the lowest to the highest or apex courts in Zimbabwe regarding the ever-evolving information technology advancements in electronic banking to enable smooth implementation of proposed laws;

7. On the issue of security of information stored electronically or transferred in electronic form to a third party, the proposed law should set minimum standards for the storage and transfer of client electronic data, disclosure requirements to client in the transfer of data to third parties and other related matters. Furthermore, legislation should clearly outline the obligations and liabilities of each party in the use of e-banking services.

8. A certification board ought to be established to handle the certification of electronic documents and digital signatures. The proposed law must provide for such certification of electronic documents and digital signatures.

9. The proposed law should outline computer fraud offences and other related offences so as to control the scourge of computer crime.

It is recommended that there should be greater and closer co-operation between the United Nations Commission on International Trade Law (UNCITRAL) and the Zimbabwean Government Ministry responsible for Information Communication Technology (ICT) in conjunction with the Ministry of Finance. This will ensure that Zimbabwe’s e-banking sector is re-aligned in line with international

standards and best practice on the subject of e-banking. UNCITRAL provides for the recognition of electronic contracts which countries like South Africa, UK and the US have validated within their respective jurisdictions.

The current laws in Zimbabwe and common law are structured to suit the paper based banking law environment. There is thus a gap/ lacuna in our law in the regulation of e-banking. The purpose of the five part series of articles was to outline how the e-banking phenomenon in Zimbabwe is inadequately and insufficiently regulated. This leaves the customer at the whim of a banker. There is urgent need to enact a specific Act of Parliament to tackle the issue of e-banking regulation as has been done in other jurisdictions like SA, UK and the US.In addition, Zimbabwe can domesticate the UNCITRAL Model Laws on e-banking into our proposed e-banking law. This will serve to enhance consumer protection which is currently lacking in the Banking Act (Chapter 24:20) and the Consumer Protection Act (Chapter 14:14) as amended from time to time. Law reform in an extensive manner will thus act as an anchor to bring forth the requisite legal framework that is urgently required in Zimbabwe to tackle all the legal issues that have arisen, in light of the advent of e-banking. By Sharon Fadzai Manangazira

●Manangazira is a legal practitioner and a member of the Bankers Association of Zimbabwe (BAZ) Legal Committee. Views expressed in this article are her own and do not necessarily represent the organization she works for and/ or any associates.

30

Q: How is the spread of coronavirus likely to impact African economies?

A: Africa is facing an unprecedented health and economic crisis, which threatens to reverse much of the region’s progress over recent decades, and which may also weigh on growth prospects for years to come. Moreover, the pandemic is reaching the shores of the continent at a time when budgetary space is already limited in many countries, complicating the policy response and urgently boosting the need for external assistance.

The IMF is working closely with our partners – the World Bank, World Health Organisation, African Development Bank and African Union – to respond to this crisis swiftly and effectively.

Q: What are the largest threats to regional economies, and what will be the impact on the continent’s economic growth?

A: We project that the region’s economy will contract by at least 1.6% this year – the worst since at least 1970. This reflects multiple shocks that will weigh heavily on economic activity.

First, the strong containment and mitigation measures that countries have had to adopt to limit the spread of the virus will disrupt production and sharply reduce demand. Second, plummeting global economic growth and tighter global financial conditions will have large spillovers in the region. Third, the sharp decline in commodity prices, especially oil, is set to compound these effects, exacerbating challenges in some of the region’s largest resource-intensive economies, including Nigeria.

Q: What are the main tools at the IMF’s disposal to help the continent’s response to the crisis?

A: As stressed recently by the IMF’s managing director [Kristalina Georgieva], this is a crisis like no other. And in many ways, this challenge has been met with a ‘response like no other’ from the IMF’s membership. In just the past few months, the fund has significantly strengthened its ability to help those countries in greatest need. The IMF’s emergency, rapid-disbursing capacity has been doubled to meet expected demand of about $100bn.

We have also reformed our Catastrophe Containment and Relief Trust (CCRT), to help our poorest and most vulnerable members through rapid debt-service relief, and we are working with donors to increase our debt-relief resources by $1.4bn. In sub-Saharan Africa, 22 countries are eligible for IMF debt relief via the existing CCRT framework, totalling $205m for the first six months.

Finally, we have also established the new short-term liquidity line, the

first addition to the IMF’s financing toolkit in almost 10 years. This new facility provides a reliable and renewable credit line, which can help countries strengthen economic stability and confidence.

Q: Could you explain how you are using extended credit facilities to help African countries at this time? Is the IMF deploying its Rapid Credit Facility (RCF)?

A: As of May 12, close to 40 countries in sub-Saharan Africa have requested emergency financial assistance from the IMF, of which 25 requests have already been approved. However, given the urgency associated with our members’ crisis-related needs, most of these requests have been for disbursements under the fund’s RCF or rapid financing instrument (RFI). Both of these facilities provide rapid financial assistance to member countries without the need to have a full-fledged programme in place. To date, 20 sub-Saharan African countries have received disbursements under the RCF amounting to $4.6bn, while seven countries have made purchases under the RFI amounting to $4.9bn.

Q: Is the IMF concerned about moral hazards stemming from debt relief?

A: The issue of moral hazard is more valid when countries’ debt difficulties are policy induced. But in the case of the vast majority of countries, the debt pressures they now face are on account of the exceptional nature of the Covid-19 shock. This is a once-in-a-100-years event – an exceptional health and economic shock.

The response has to be equally exceptional, including debt relief from all those creditors that can provide this relief. And it is why the IMF, jointly with the World Bank, called on official bilateral creditors to suspend debt service. If the private sector were to contribute to the effort, it would be more beneficial still to free up critical resources for health and social protection spending.

Q: To what extent should private sector creditors offer debt relief?

A: It is imperative at this moment to provide a global sense of relief for developing countries, as well as a strong signal to financial markets. The international community’s support for countries in Africa will be critical in ensuring that the human toll and dislocation from this crisis will be limited and short-lived. Private sector participation is, of course, voluntary. We are encouraged by the signals coming out of entities such as the Institute of International Finance, whose membership covers over 450 global firms across the financial services industry.

Abebe Aemro Selassie is director of the African department at the International Monetary Fund.

...says IMF Africa Chief Abebe Aemro Selassie

Covid-19could undo Africa’s recent progress,

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Nqobile Munzara

Introduction IN 2007, the Warehouse Receipt Act (Chapter 18:25) came into operation, to provide for the establishment and registration of warehouses, the licensing of warehousepersons, the issuing of warehouse receipts and the negotiability of the warehouse receipts. The Act also sought to provide the framework governing the storage, grading, weighing and inspection of agricultural commodities. The Act was amended in 2009 to increase the list of agricultural commodities under its framework to include barley, coffee, groundnuts, macadamia nuts, maize, mhunga, oats, pecan nuts, rapoko, rice, soya beans, sorghum, sugar beans, sunflower seeds, tea, wheat, cow peas and jugo beans/round nuts. Recently, in September 2020, the Warehouse Receipt (General) Regulations SI 224 of 2020 were promulgated, thus operationalising the Warehouse Receipt Act. This article seeks to provide an analysis of the Act and the regulations, particularly as they relate to the negotiation of the warehouse receipts, an area of interest in the financial services sector.

Registration of warehouse operators The Warehouse Receipt Act establishes the Office of the Registrar of Warehouses, who is responsible for the administration of the Act. The Act states that the physical warehouse, that is, the building or structure in which the agricultural commodities are stored, can only be operated by a company that is a registered warehouse operator. The Act and regulations provide the requirements for the application for registration as a warehouse operator through the Registrar of Warehouses, including submission of the company’s constitutional documents, details of the shareholders and directors of the company, list of the warehouses and their location, business plan, insurance policy that includes fire, storm-damage, theft, professional indemnity, and fidelity guarantee, the prescribed registration form, and the prescribed fee. The Third Schedule of the regulations provide the minimum standards and physical requirements that each warehouse building or structure must satisfy, upon inspection. Once a warehouse operator is registered, the company is issued with a registration certificate, which is valid for three years. In the intervening period, the warehouse operator is required to pay an annual fee to the Registrar of Warehouses. At least one month before the three-year period expires, the warehouse operator can

Understanding the Warehouse Receipts Act and Regulations

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renew the certificate by following the steps outlined in the Regulations. The Registrar of Warehouses is mandated to keep a register of all warehouse operators, which is open for inspection by the public.

Licensing of Warehouse Persons The Act states that no person shall manage a registered warehouse operator, unless they are hold a licence as a warehouse person. The Act and Regulations again specify the requirements to be submitted when applying to be licensed as a warehouse person to the Registrar of Warehouses, namely, the prescribed qualifications, the prescribed minimum period of experience in the production, processing or marketing of the agricultural commodity to be stored in the warehouse concerned, the prescribed form and the prescribed fee. A successful applicant is issued with a licence that is valid for three years and is required to pay an annual fee to the Registrar of Warehouses. The warehouse person can also renew the licence at least one month before the three-year period expires. The Registrar is mandated to maintain a register of all licences issued to warehouse persons, and again, this register is open for viewing by the public.

Storage of commoditiesThe Act mandates the warehouse operator to uphold certain standards of care when receiving agricultural commodities from farmers/depositors for storage. The operator is expected to keep the commodities received in separate, distinguishable storage, for ease of identification. This is an important requirement, given the different types of agricultural commodities that can be submitted for storage and the varied storage requirement for each type of commodity. Each commodity must be weighed and graded, prior to placement in storage. Thereafter, the warehouse operator must issue the depositor with a warehouse receipt, which is in the form prescribed by the Regulations. For as long as the commodities are in the custody of the warehouse operator, it is expected that the operator will ensure that the commodities are well-maintained, free of moisture, ventilated, there is availability of sufficient lighting, leakage is averted, access by birds and rodents is prevented, dust is minimised and there is sanitation and regular/monthly fumigation. The Act places liability for loss or damage of the agricultural commodities on the warehouse operators, where the loss or damage is caused by the warehouse person’s negligence, fraud or failure to exercise a reasonable degree of care of the commodities. The warehouse operator must also have adequate insurance against risk of loss of the agricultural commodities by fire, explosion, employee misconduct, burglary, and theft. All farmers/depositors are expected to pay a storage fee as agreed with the warehouse operator. Where the depositor fails to pay the storage fees, the Act provides the warehouse operator with a lien or a legal right against the commodities stored therein, to cover its storage and processing charges.

Issuance of warehouse receipts The Act states that warehouse receipts are issued by warehouse persons after they receive agricultural commodities from depositors or farmers for storage in their warehouses, using the receipt books given to them by the Registrar of Warehouses. The Regulations provide the detailed list of mandatory terms and information that must be captured in the warehouse receipt, as well as the security features that each receipt must have. The Regulations provide that a warehouse receipt may be hard copy or electronic copy, and a warehouse person is prohibited from issuing more than one receipt for the same lot of commodities, unless the depositor requests partial receipts for the commodities. If a depositor loses a warehouse receipt, both the Act and Regulations

provide for the process of its replacement, and cancellation of the lost receipt.

Negotiability of warehouse receipts The Act states that a warehouse receipt is negotiable on condition that the receipt clearly states that the agricultural commodity received shall be delivered to the depositor or to a specified person on demand. It is a requirement that any negotiation of the warehouse receipt to either transfer, pledge or encumber it, be endorsed on the receipt by warehouse person, and recorded by him. Upon negotiation, the holder is entitled to ownership or title to the receipt, ownership or title to the agricultural commodities to the extent specified in the receipt, and the right to dispose of the said agricultural commodities. The Regulations provide that the negotiability of the warehouse receipts shall be either over-the-counter, or on a securities exchange registered in terms of the Securities and Exchange Act (Chapter 24:25) or on a registered commodity exchange.

The negotiation of the warehouse receipt over-the-counter is done when the warehouse person endorses on the receipt to the order of a named person, and the transaction is done directly between two persons without an exchange or a centralised system platform. The latter is defined to mean a platform that provides order management, matching, trading, clearing, settlement and ownership transfer of warehouse receipts.

The negotiation of the warehouse receipt on a registered securities exchange or on a commodity exchange is brought about by the extension of the definition of the term “security” in the Securities and Exchange Act to include a warehouse receipt, through General Notice 469 of 2020. By designating a warehouse receipt as a “security” for the purposes of the Securities and Exchange Act, it means that a warehouse receipt can be negotiated in a formalised secondary marketplace in the capital markets, in the same manner as shares traded on a stock exchange. The Regulations state that for the warehouse receipts to be negotiated and subsequently traded on the secondary market, the warehouse operator must subscribe with the relevant centralised system platform operator. After this subscription, all transactions relating to the issued warehouse receipt, namely, its issuance, transfer, pledging as collateral, loan repayment, partial or full settlement and release of the underlying goods, cancellation of the receipt, and loss or destruction and subsequent replacement must be recorded on the centralised system platform. Further, the centralised system platform operator must deposit any warehouse receipts that are negotiated on the registered securities exchange or on a commodity exchange with a custodian bank for safekeeping.

The warehouse operator is mandated to keep an electronic record of warehouse receipts issued on the registered securities exchange or on a commodity exchange, and deposited with a custodian bank. The custodian bank itself must maintain an accurate register of all underlying beneficiaries of the warehouse receipts in its custody. Important to note is that each warehouse receipt deposited with a custodian bank can have more than one beneficiary, albeit each with proportional ownership of the underlying goods therein. The custodian bank and warehouse operator must therefore accurately record such proportional ownership of the underlying goods per beneficiary. In the case where a warehouse receipt is pledged for credit facilities, the custodian bank and warehouse operator must keep records of this.

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Understanding the negotiation and trading of warehouse receipts on the secondary market The Regulations provide a framework for the negotiation and trading of warehouse receipts on the secondary market, that is, on a registered securities exchange or on a commodity exchange. Firstly, the warehouse operator must enter the capital markets marketplace, by subscribing to a centralised system platform operator. This is because the warehouse operators are responsible for issuance warehouse receipts with all the mandatory terms, information and security features. However, in order for the negotiability and trading of issued warehouse receipts to be carried out on the secondary market, the warehouse operator must subscribe to a centralised system platform. After this subscription, the centralised system platform operator must ensure that all activity regarding the issued warehouse receipt, starting with its issuance, right down to its cancellation is recorded on this platform. Further the centralised system platform operator must deposit the warehouse receipts with a custodian bank. The custodian bank must keep an accurate register of all beneficiaries and underlying goods of the warehouse receipts in its custody, and the warehouse operator must also keep an electronic record of warehouse receipts issued on the secondary market and deposited with the custodian bank.

The Regulations therefore bring together the various participants in the capital markets marketplace to enable the negotiation and trading of warehouse receipts as security in the secondary market. These participants are the securities exchange or a commodities exchange, the centralised system operator, and the custodian bank.

The first new entrant in this marketplace is the warehouse operator, through subscription with a centralised system platform. Another new entrant is the farmer or depositor, by virtue of depositing their agricultural commodities and being issued with a warehouse receipt that can be traded on the secondary market. Lastly, commodity buyers enter the capital markets as they participate in the buying and/or selling of warehouse receipts.

This deepening of the capital markets into agriculture is not unique to Zimbabwe, as there are several African countries that already operate commodity exchanges, for example, South Africa, Kenya, Egypt, Ethiopia, Malawi, Mauritius, Rwanda, Madagascar, Nigeria and Ghana. By so

doing, the perception that only blue chip companies can participate in a securities exchange is demystified, as the expansion to include agricultural commodities brings on board warehouse operators, small scale, medium and commercial farmers and commodity buyers into the capital markets.

Are the Regulations beneficial? The Regulations create order in the warehouse receipts value chain, starting with the registration of warehouse operators, the licensing of warehouse persons, the storage of agricultural commodities, the issuance of warehouse receipts and their negotiability. The Registrar of Warehouses is therefore empowered to regulate the activities of warehouse operators and warehouse persons, as well as ensuring compliance with the minimum standards and physical requirements of the warehouse buildings or structures.

The Regulations also provide a framework for the issuance, negotiation and trading of warehouse receipts not only in the free market, which is provided for as the over-the-counter transactions, but also, in the secondary market on a securities exchange or commodities exchange, following their designation as a security earlier this year.

Warehouse operators will therefore have to adjust their internal processes and procedures to comply with the provisions of Regulations. Those warehouse operators seeking to participate on the secondary market will have to subscribe with the relevant centralised system platform operator. The Regulations certainly provide the much needed supervision and support of the activities in the warehouse receipts value chain in a succinct manner that expands financial inclusion of the capital markets into the agricultural sector.

Conclusion The gazetting of the Warehouse Receipt (General) Regulations SI 224 of 2020 is certainly a welcome development, as its provisions relating to the negotiation of the warehouse receipts deepen the capital markets, and promote financial inclusion. What remains is for their implementation over the next 12 to 18 months. Munzara holds a Law Degree from the University of Cape Town and an MBA from the University of Gloucestershire, and is admitted as a Legal Practitioner, Conveyancer and Notary Public with the High Court of Zimbabwe.

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