Online Reporter
Tapiwanashe Mangwiro
THE recently established Reserve Bank of Zimbabwe (RBZ) Targeted Finance Facility (TFF) would likely address funding gaps in productive sectors of the economy without necessarily increasing money supply.
Market watchers say the facility has the potential to unlock growth while maintaining monetary stability.
However, it has also triggered debate about the dynamics of liquidity in the banking sector and effectiveness of interbank lending.
RBZ Governor Dr John Mushayavanhu told The Sunday Mail Business that the TFF is a necessary intervention to redistribute excess liquidity in the market. He emphasised that the facility addresses structural inefficiencies rather than adding to money supply.
“The problem is not that there is no liquidity in the market. That is where you are getting it wrong. The market has been long by over ZiG1 billion daily since September. We are having to sterilise that excess liquidity through NNCDs (non-negotiable certificates of deposit) at zero percent interest every day,” said Dr Mushayavanhu.
He said banks were not engaging in medium- to long-term interbank lending, which would typically redistribute liquidity.
Instead, many banks were opting to park their funds in NNCDs at zero percent interest.
“Surprisingly, instead of lending to the bank next door and getting interest income, some banks are content with RBZ taking their excess funds and parking them in NNCDs at zero interest. So, we are just redistributing the excess ZiG via the TFF,” he added.
Bankers Association of Zimbabwe (BAZ) president Mr Lawrence Nyazema acknowledged the challenges in medium-term interbank lending but highlighted the broader liquidity constraints faced by banks.
“Banks are lending to each other on an overnight and short-term basis. There is not much medium-term lending going on as most banks do not have enough funding to lend to their customers and clients for periods of up to one year. It would, therefore, not be ideal for a bank to lend to another bank for six months or a year when it has a pipeline of credit requirements from clients that it is failing to meet,” he said.
Banks, he said, do not voluntarily invest in NNCDs, which are primarily used as liquidity management tools.
“I do not think there are many financial institutions that prefer to invest in assets such as NNCDs. We appreciate that these are liquidity management tools that are used to manage excess liquidity in the market. Given a choice, most financial institutions would not voluntarily invest in them.”
Mr Nyazema added that interbank lending is also influenced by risk appetites and lending limits between banks.
“Interbank lending is also governed by the risk appetite that banks have for each other. There are lending limits between and among banks and that has a bearing on the level of lending among market players even if liquidity is in abundance.”
Despite these challenges, Mr Nyazema said the TFF had the potential to support the productive sector and promote use of the ZiG.
“We are grateful for the introduction of the Targeted Finance Facility by the central bank. It will go a long way in enabling financial institutions to provide facilities to the productive sector. It is a ZiG facility which will promote the use of our local currency in the economy,” he said.
Stimulating production
Economist Mr Tinevimbo Shava sees the TFF as a timely intervention that balances economic growth objectives with monetary stability.
“The TFF is a smart way to address funding gaps in the productive sector without stoking inflation. By redistributing existing liquidity, the central bank is ensuring that funds are put to productive use, which is critical for achieving the 6 percent growth target in 2025,” Mr Shava said.
He also praised the RBZ for maintaining stringent conditions for accessing the facility, which he believes will prevent misuse and ensure that funds are directed to genuine borrowers.
“The safeguards in place, such as collateral requirements and close monitoring, are essential to the success of the facility. They ensure accountability and minimise the risk of funds being diverted to speculative activities,” he added.
A local banker, Mr Raymond Madziva, echoed similar sentiments, emphasising the facility’s role in addressing structural inefficiencies in the banking sector.
“The TFF is addressing a real problem in the market — liquidity concentration. By channelling funds from banks with excess liquidity to those with genuine lending opportunities, the facility is bridging a critical gap,” Mr Madziva said.
He highlighted the importance of the TFF in boosting confidence in the ZiG.
“This facility will not only support productive sectors but also strengthen the use of our local currency in the economy. It’s a step in the right direction for stabilising and growing the financial sector,” he said.
As Zimbabwe targets a 6 percent economic growth rate in 2025, the TFF could play a pivotal role in achieving this goal. By redistributing existing liquidity to productive sectors, the facility addresses funding gaps without disrupting the current monetary stability.
While challenges remain in fostering greater interbank collaboration, the RBZ’s intervention has been widely acknowledged as a necessary and innovative step. With support from the banking sector and economists, the TFF is positioned as a tool to unlock the economy’s potential while maintaining discipline.
