Institute of Bankers of Zimbabwe

1

-

-

In this March issue of the Bankers Magazine, you will �nd a diverse set of articles. Our �rst article focuses on the key question of how organizations unlock, build and sustain their innovation capabilities. We have invit-ed articles that focus on risks attached to technology driven banking products and what Bankers and regula-tors need to do to minimize those risks and ensure e�-cient delivery of services and products. Why lines of credit are essential to build a strong economy? A trea-surer addresses this question. One of the most pressing problems in our economy is unemployment. If o�shore lines of credit are used to �nance the productive sec-tors of the economy the country will register a huge Gross Domestic Product (GDP). A growth in the GDP is associated with employment creation. A reduced un-employment rate will entail improved standards of living. Lines of credit are the lifeline of a strong econo-my and banking industry as they drive spending in the economy.

I hope you will �nd these articles interesting and infor-mative. We invite members to contribute articles to this quarterly magazine. Articles should cover current and topical banking issues. The purpose of this mag-azine is to share knowledge and information, and keep bankers abreast of developments in their profession.

Editor’s Desk

5

10

16

24

30

36

CONTENTSI S S U E 1

corporate body is or was liable to prosecu-tion. It is therefore important for both the directors and the management team to work together and ensure that these duties are adhered to in order to abide by the principles of good corporate governance and to avoid possible lawsuits.

Buidling a culture of innovation

Lines of credit are the lifeline of a strong economy and banking industry: A Treasurer`s view

Where is Government gettingits money?

Board room law:understanding the dutiesOf the directors of Banking institutions in zimbabwe

Cyber Fraud

The Role of Government inMacroeconomic Management

INNOVATIONPICTURE 1

Putting the Moose on the Table: Building a culture of innovation

Dear Reader as well be a waste of time to talk about inno-vation, let alone attempt to introduce or build an innovation culture – because it is this same level of organizational leadership that is supposed and expected to break the usual barriers to change that are often asso-ciated with innovation. In fact, lack of sup-port and buy-in are some of the reasons why John Kotter observed that “from years of study…more than 70% of needed change either fails to be launched - even though some people clearly see the need, fails to be completed - even though some

-es over budget, late and with initial aspira-tions unmet.” Executives are not the only group of people whose buy-in is essential. Middle managers – the gate-keepers – are also an essential element, as they are usual-ly the ones in charge of the systems and processes that enable innovation. In fact,

from key stakeholders and team members is important for…success. I will talk about get-ting buyin in future articles on leading inno-vation.

2.Develop an innovation strategyThe second step is development of the innovation strategy. This would need to be aligned to the overall organizational strate-gy and goals. The innovation strategy should, among other issues, in no particular order:

organization, for example, whether it is an improvement to existing products or the introduction of a completely new product.

-tion, it is essential to always remember that

-tion and an innovation. Basically, an innova-tion is an invention that can be commercial-ized. The struggle is always on commercial-

Welcome to another edition of “putting the moose on the table”, wherein we unpack the threats and opportunities emanating from the 4th Industrial Revolu-tion (4th IR). The previous article observed that rapid technological changes were pre-senting both threats and opportunities to jobs, organizations’ competitive advantages and regulatory frameworks.

The opportunities can almost certainly be pursued through one approach – innova-tion. In fact, Peter Drucker observed way back in 1999 that “for survival, innovation is almost obligatory”. However, despite this ascertain, and in-spite of the widespread acceptance of the importance of innova-tion, very few organizations innovate in an orderly manner, whilst in some organiza-

of expectations.

This article, therefore, focuses on the key question of how can organizations unlock, build and sustain their innovation capabili-ties – in other words how can organizations build a culture of innovation? Where does innovation start? What are the challenges?

1.Executive Awareness, Support and Buy-in The starting point is organizational/ execu-tive awareness of the importance of innova-tion as a necessary condition to remain competitive, and therefore survive. In addition to awareness, executives need to demonstrate their support and buy-in

Without these three – awareness, support and buy-in – at the highest level, then it may

b) Determine and outline the type of innovation strategy suitable for the organi-zation, based on its level of maturity and culture, i.e. whether to be an active, reactive, passive or proactive innovator. Organiza-

creativity and innovation. For example, an adaptive culture will encourage risk-taking, fast decision making, initiative and willing-ness to experiment.

c) Determine how the innovation strate-gy will be operationalized, e.g. outline roles and responsibilities as well as the requisite systems, tools, processes and structures

needed to build and sustain an innovation culture.

especially when introducing innovation for

rushing into adopting bigger outcome based metrics. In fact, as Nicollo Machiavelli noted that “the reformer (innovator) has

-tailed during the initial stages as most em-ployees will be hesitant to upset the status quo.

This hesitation, coupled with bureaucratic

in the initial stages. As such, it will be ideal to start with input metrics and gradually build towards management and outcome metrics as the organization gains maturity. Some organizations make the mistake of jumping into the deep end of the innova-

upfront, launching innovation without a clear sense of direction and expected out-comes, e.t.c, and this usually leads to false starts, confusion, anxiety, disappointment and frustrations, as ideas get rejected, dropped, take long to be implemented or lack the requisite funding – and employees begin to question the innovation process. Always start small!

3.Operationalize the innovation strategy

that aligns with business goals is in place,

how the innovation strategy will be opera--

-ness unit.

Regardless of the approach, what is critical

-

usually begin to show from this stage, and these would need to be properly managed as they have the potential to derail innova-

In the interest of time and space, I will end this article here. In the next article, I will con-tinue with the key topic of building a culture of innovation. As usual, I invite you to share your experiences, lessons, frustrations and expectations in leading, managing and developing innovation and creativity.

Till next time, bye!

A University of London alumni, Andrew Chire-

Balanced Scorecard Master Professional, a --

ment Practitioner and a Competent Commu-nicator (Toastmasters International). He has experience in strategy planning,development and execution; innovation management and leadership; culture transformation; change management and economic and market research, analysis and advisory. He enjoys moderating/ facilitating panel discussions, playing golf, painting and reading widely. He can be reached on andrewchirewo@g-mail.com ; linkedin/ twitter @andrewchirewo

“Getting buy in from key stakeholders and team members is important for…success”

Lines of credit are the lifeline of a strong economy

and banking industry: A Treasurer`s view

It is this Treasurer’s view that the following two pillars, namely price of the loan and its tenor, should be scrutinised before a

of credit that can be said to positively speak to the economy.

Cost of fundsThe pricing of the line of credit is one such pillar as it weighs on the ability of the bor-rower to repay the facility and in the case of the banking industry, will determine the price they will on lend the sourced funds

-shore lines of credit help in boosting pro-duction of goods and services and the interest there on will determine the compe-tiveness of the resultant goods and services in terms of;i.product quality.ii.product price.A relatively higher interest rate will result in;i.higher production costs.ii.inferior goods and services.iii.defaulting on loan repayments.iv.accumulations of foreign debt (arrears).v.blacklisting of borrowing institu -tions/government.Thus a line of credit for, it to be a lifeline of a strong economy, should be competitive-ly priced, reasonably benchmarked to stable and acceptable reference point instruments like the London Inter-Bank

Tenor of the line of creditThe terms of the line of credit that include the tenor of the facility and whether the line of credit can be extended or rolled

-bility of such terms will ensure that the lines of credit are the lifeline of a strong economy, as the facility will have an

-es.

A line of credit is a credit source extended to a government, business or individual by a bank or other �nancial institution or Government. It is e�ectively a source of funds that can readily be tapped at the borrower's discretion. Inter-est is paid only on money actually with-drawn. Lines of credit can be secured by collateral, or may be unsecured. This line of credit can be o�shore (foreign) or onshore (domestic) and for the purposes of this discourse a line of credit herein refers to the o�shore / foreign type of credit extended to the nation of Zimbabwe. Lines of credit represent a key source of funds for the business sector while being an important line of business for the bank-ing industry.

Access to lines of credit can be disrupted by defaulting borrowers or as a result of high political and sovereign risk. Zimba-bwe currently has no access to internation-al lenders like the World Bank and Interna-tional Monetary Fund, although it can access lines of credit from ‘friendly’ govern-ments and African institutions like African Development Bank (ADB)and Afrexim-bank. According to the ADB, Zimbabwe needs at least $4 billion in lines of credit so its struggling industries can get back on their feet. More funds will be required if the country decides to introduce a stable local currency – as the o�shore line of credit will be used to support this currency through satisfying the needs of the supply side of foreign currency requirements.

Lines of credit can be a lifeline of strong economy provided the terms and condi-tions as enunciated in the terms sheets are favourable and free from non-�nancial ‘strings attached’.

De�nition

A strong economy is anchored by produc-tion both at primary, secondary and tertia-ry level. In the case of Zimbabwe produc-tion in the local industry has been ham-pered by obsolete equipment/machinery found in most of our industries.

Therefore,retooling is required as a matter of urgency. Retooling is a capital expendi-ture (CAPEX) item as opposed to working

this equipment is imported from abroad. Ordinarily long term funds (from the capi-tal market e.g. bonds) with a tenor beyond

retooling. A long term loan coupled with grace periods is a panacea to a struggling economy.Once the abovementioned 2 pillars are met favourably the accessed lines of credit will sure result in a booming economy. It is this Treasurer’s opinion that a strong econ-omy will thrive as a result of the following points discussed under the respective subheadings.

Balance of Payments: Import substitution and export promotionZimbabwe’s total exports as 31 December 2018 stood at a staggering US$ 4.4 billion, a strong position by African standards. However, for the same period the country imported US$6.9 billion worth of goods and services resulting in a massive trade

position can only be addressed by i. aggressive import substitution.ii. massive and deliberate export pro-motion.iii. rolling out a well-coordinated ‘buy local’ campaign.The abovementioned solutions to the

accessing lines of credit.

retooling of industries, resulting in pro-duction of goods and services for both;i. domestic consumption (import substitution and ultimately ‘buy Zimba-bwe’) andii. foreign consumption (export pro-motion). Lines of credit thus act as a catalyst in

a lifeline to a strong economy

GDP, employment creation, standards of living and economic growth

economy the country will register a huge Gross Domestic Product (GDP). A growth in the GDP is associated with employment creation. A reduced unemployment rate will entail improved standards of living.Lines of credit are the lifeline of a strong economy and banking industry as they drive spending in the economy. The aggregate of money in circulation and credit granted is a determinant of the aggregate expenditure in the economy.

-ing the ability to spend. On an aggregate basis, this results in raised incomes for households and companies. Using the income approach or the expenditure approach, the result is that the gross domestic product of a country rises.

Supporting a local currency

The current status quo where the country does not have local currency is not sus-tainable. It is also the author’s view that

credit lines to support the ‘new’ currency.

.

There is growing debate across the globe about the role of Government or state, Vis a Vis the private sector in the economy, no doubt re-ignited by the

-versal responses by Governments with var-ious stimulus and quantitative easing mea-sures to mitigate against the crisis.

from early 2009, most Government, led by the USA had implemented several mutual-ly reinforcing interventions to stem the recession and engineer recovery and growth, largely following Keynesian type macroeconomic frame of reference. By 2010, even the most conservative Govern-ments of Germany and China had also

-kets stimulus packages, howbeit, not to the same scale and degree as witnessed in the United States of America. Slowly but steadily, the interventions by global pow-erhouse economies began to spur recovery and growth, facilitating global economy wide recovery, though this remained frag-ile for several years

state involvement in the economy, indeed there will always be extreme views for minimum or no Government involvement in the economy. Most economists and Government bureaucrats, as well as academics acknowledge that there will always be need for state involvement in the economy – the debate is about how to optimize the symbiosis between Government and the

ty gains. The nature of the interventions is critical, for either, enabling or deterring economic activity.Most Governments, particularly, though not exclusively in the developing world and emerging markets, make the recurring mistakes of heavy handed, excessively diri.giste type of state interventions. The state interventions are often, characterized by overarching, overt controls, particularly foreign exchange controls and price controls, compounded by interest rates controls. The argument often advanced is typi

public goods and services.

The economy will grow on the back of avail-ability of foreign currency which is accessed against a new currency. Thus a local curren-cy will be enhancing both domestic and

line of credit thus giving a lifeline to a strong currency.

Bank lending

boost bank lending. Banks are majorly impacted by credit growth in an economy. This is because their primary business is to provide loans to customers in return for interest payments. As an economic environ-ment improves and customers are more willing to spend, demand for credit grows. This is advantageous for banks, as it leads to more loans being provided and an increase to interest incomes. This is achieved through sourced lines of credit by the Banks.

Bank performanceLines of credit are a major line of business

credit for a wide array of business purposes. Lines of credit are a key source of funds for the business sector. Bank lending is critical across a wide array of industry sectors, rang-ing from retail trade to manufacturing. Com-mercial loans advanced by the banking sector represent an important source of funding for corporations, partnerships and sole proprietorships that make up the busi-ness sector. The banking industry performs extraordinarily during an economy’s expan-sion made possible by vast lines of credit. An expansionary cycle is characterized by increased demand for loans and bank services and increased consumer spending. These factors help to boost banks’ earnings.

-ening

economy allocates its resources between competing uses. Availability of lines of credit

major players in a strong economy. Treasury dealers would have more paper to trade.

rise as derivatives are developed to trans-form or reduce the credit and interest rate risks that arise; these can be in the form of credit default swaps, forward rate agree-ments or options or any variants thereof. Speculators would also have a role to play.

Downside – Limited extend--

tution/country. While some Zimbabwean Banks have fair or good credit rating scores they fall into the trading basket called Zim-babwe which is vulnerable to sovereign and political risk. Lending organisations like the Bretton Wood institutions are handled by the West which unfortunately for Zimbabwe comes with ‘strings attached’.

Despite the banking sector playing a critical role in providing credit to the various sec-tors of the economy, the banks are now characterized by non-performing loans and the country is in foreign currency arrears. The implication of this is that the potential funding by way of lines of credit, to the economy and in turn to the banking system

the economy in the following ways:

state involvement in the economy, indeed there will always be extreme views for min-imum or no Government involvement in the economy. Most economists and Gov-ernment bureaucrats, as well as academics acknowledge that there will always be need for state involvement in the economy – the debate is about how to optimize the symbiosis between Government and the

-ty gains. The nature of the interventions is critical, for either, enabling or deterring economic activity.Most Governments, particularly, though not exclusively in the developing world and emerging markets, make the recurring mistakes of heavy handed, excessively diri.giste type of state interventions. The state interventions are often, characterized by overarching, overt controls, particularly foreign exchange controls and price con-trols, compounded by interest rates con-trols. The argument often advanced is typi-

public goods and services.

i.disintermediation of bank-system lending

ii. stagnation of economic resources,

productivity and iii. cautious behaviour of corporations

-

ConclusionA strong economy access to lines of credit tend to be guaranteed if the country in question has a low political and sovereign risk and corporate governance is highly regarded. The balance sheet size and as has been highlighted the ability to repay back the line of credit will ensure that a strong

resources. A strong economy will thrive if the lines of credit are competitively priced

-ital goods.In the same vain if the lines of

import such things like ‘toothpicks’, the

scenarios it cannot be viewed as a lifeline to a strong economy.

Prepared by David Mbiba Agribank – Head of Treasury 08 February 2019

“Lines of credit are the lifeline of a strong economy and banking industry as they drive spending in the economy. ”

but often such overarching controls and expansive state regulatory weight, often impinge on production and productivity, distribution of goods and services, leading to worse outcomes for all stakeholders

activity is constrained, leading to anemic and highly volatile growth. Where such state interventions have often led to shortages of either foreign exchange

-ished often fueled by the connected who can access such scarce resources at subsi-dized rates. The arbitrage opportunities so characteristic of excessive controls fuel per-vasive rent seeking behavior of economic agents – with far reaching adverse implica-tions on production, output and growth. To a large degree, that is what has blighted Zimbabwe’s economy over the past two decades – pricing and foreign exchange controls compounded by regulatory and pricing distortions, which fueled hyperin-

industrialization and economy wide melt-down.

GETTING ITS MONEY?

GOVERNMENT

WHERE

ISIS

ISISThe source of government revenue is important in rearranging and determining what is feasible within the course of time. While taxation remains the major source of income for most countries, other forms of revenue have improved and proving to be working in other countries. With growing donor fatigue and dwindling domestic rev-enue reserves in most developing coun-tries, the need to strengthen national rev-enue collection systems has become par-ticularly imperative. Tax revenue collection should comply with best practices of equity, ability to pay,

-tainty. In most developing countries, tax revenue from individual and corporate incomes, sales, Value Added Tax (VAT), customs duty, estate and capital gains form the main sources of government rev-enue with VAT, customs, and corporate

taxes emerging as high performing reve-nue sources. For Zimbabwe the composition of govern-ment revenue has been mainly from Net VAT on Local Sales, VAT on Imports , Net Customs Duty , Excise Duty , Carbon Tax and Mining Royalties just to mention a few. Of late, another tax, the Intermediated Money Transfer Tax (IMTT) has been the centre of discussion and has contributed positively to

place since 2003 and an amendment was made by in October 2018. The major change is on the rate of tax and the inclusion of exemptions of certain transactions from the tax. Previously IMTT was levied at the rate of

-ber 2018 IMTT is calculated at the rate of 2% on every USD dollar or part thereof transact-ed subject to certain limits. Any single trans-action which is less than $10, 00 shall not be subject to IMTT.

The maximum tax payable on any transac-tion of $500,000.00 or more is restricted to $10 000.

Zimbabwe mostly comes from taxation.

as, borrowing, issuing treasury bills, dona-tions as well as fees and penalties. In addi-

over the years due to declining economic performance in the country. Hence in the future moving forward there is need for the

through capacitating the country’s produc-tive sectors.

1)Tax Revenue In most economies operating at or closer to full employment, the major source of gov-

-bwe tax revenue continues to play a crucial

tax is a compulsory levy imposed by a public authority against which tax payers cannot claim anything. It is not imposed as a penal-

tax, as distinguished from other charges by the government, is the absence of a direct quid pro quo (i.e., exchange of favour) between the tax payer and the public authority.

There are, however, many sources of tax rev-enue such as Income tax; that is the basic Pay As You Earn (PAYE) and Corporate Tax; Customs and Excise Duty, Value Added Tax (VAT), as well as other taxes including surtax and presumptive taxes.The regulatory authority mandated to collect tax revenue in Zimbabwe is the Zim-babwe Revenue Authority (ZIMRA). ZIMRA which was established in 2001 in terms of the Revenue Authority Act (Chapter 23: 11) is the responsible revenue collection agency in Zimbabwe. It is the sole revenue

to assess, collect and enforce the pay-ment of taxes. ZIMRA has since decentralized its tax collec-

the country, developments that are poised

become more accessible to taxpayers. These developments also place ZIMRA in

revenue collection points. Zimbabwe’s tax revenue rose 29 percent to $1.1 billion

agency citing better tax compliance and an improving business environment under new the new dispensation. Taking a closer

the following table is extracted from ZIMRA:

Source: Zimbabwe Revenue Authority (ZIMRA)2018 Revenue Performance Report. Net revenue collections for 2018 improved by 34.93% from US$3.75 billion collected in 2017. The positive performance was anchored on the revision of the Intermediated Money Transfer Tax, general price increases experienced from the Third Quarter and improved revenue gener-ation through increased voluntary compliance and enhancing of the Revenue Authority’s operational systems. In particular, IMMT grew by more than 800%.

Gross collections for the fourth quarter of 2018 (Q4 2018) amounted to US$1.66 billion, which is 49.29% above the target of US$1.11 billion. Net collections amounted to US$1.56 billion after deducting refunds of US$106.09 million, surpassing the target by 40.54%. Comparatively, Revenue collections for 2018 4th quarter grew by 44.44% above the 2017 revenue collections of US$1.08 billion.

2) Seigniorage

Seigniorage revenue is the revenue obtained from printing money. It can be

value of the money and cost of producing it. This source of revenue is controlled by the central bank, which is responsible for con-

-tion, in the economy. The government can

then there is no crowding out of private spending. That this spending will increase without reducing consumption or invest-

-

to the Government redistributing real resources to the currency issuer. Issuing new currency, rather than collecting taxes paid out of the existing money stock, is then con-

turn will lead to increased personal tax reve-nue, extra revenue from saving account interest tax and increased revenue from business taxation. Seigniorage in Zimbabwe became rampant during the 2007 to 2008 period when the productive sectors of the economy were crumbling down. This period was characterized by massive industrialization of the economy. Hence the only measure the Gov-

of its day to day of structures was through

reached its all-time low of 231 million per-cent in October 2008. With the advent of dollarisation in 2009 it became no longer

economic activity and unfavourable bal-ance of payments position through mone-tary policy interventions such as open market operations and through printing of money (seigniorage).

In addition there are no clear-cut commit-ments signed with the parent countries who own the currencies, such that we have no country that is at liberty to give us a fraction of its Seigniorage.

Were it that we had gone into formal agree-ments with the parent countries, as is the case if we had taken the Common Monetary Area (CMA) route that all signatories to it get a fraction of Seigniorage depending on the dynamics of their money supply, which however, has to be in line within the agreed limits by all the other signatories to it. Thus, for Zimbabwe to get this source of revenue, it either has to adopt its own currency, or enter into a strategic monetary alliance such as joining the CMA.

3) Borrowing

The third source of revenue for government is made up of borrowing that is both domes-tic and foreign loans. This source of revenue has a very high cost attached to it in the form of interest charges. With the limited

Zimbabwe, there is no option other than -

ment secures bilateral and international

its activities.

Zimbabwe embarked on its debt clearance strategy in 2015 aimed at unlocking new lines of credit. The country’s total external debt in 2015 was about US$10 billion of which the country committed to clear part of the debt by April 2016. The arrears agreed to cleared were the International Monetary Fund (IMF)’s US$110 million, World Bank’s US$1,15 billion and US$601 million for the African Development Bank (AfDB). Despite settling a debt of US$108 million to IMF as in 2018, fresh funding has eluded Zimbabwe as the international lending institutions operate using the pari- passu rule.

de

The rule states that all creditors are equal and should be paid back at the same pace or to the same degree without bias or prefer-ence. In as much as it is not bad to be in debt, the level of debt kept by a country should be sustainable, that is, the country should be in a position to cover its obligations towards that debt as and when need arises. To ensure this, there is need to make use of resources found in this way by investing them in sectors of the economy where you are assured of higher returns that is less risky sectors of the economy, such as manufac-turing mining and the service sectors.

4) Fines and Penalties

Charges and fees are levied for publicly pro-vided commodities (i.e. goods and services) which are not (pure or nearly pure) public

option – for socially desirable commodities to be provided publicly if either the private sector would have underprovided them or if it can provide them only at a greater social resource cost than the government. If this requirement is met then the government should collect charges or fees for commodi-

them.

However, there should be full recovery of

only if the good or service in question is a "private good" having, furthermore, no posi-tive or negative spillovers for citizens other

publicly provided service which has no or minimal spillovers is the provision of adjudi-cation by courts of law in the case of disputes between citizens (or torts). This is not the case for many publicly provided goods like education, curative health services, anti-poverty services or agricultur-al extension services where positive spill

-able.During the period 2016 to 2017 the Zimba-bwean government put in place new ways

-

percent,

5) Toll Gate Fees The Zimbabwe Government adopted a policy of user-pay principle were road users pay as they use the road. The Zimbabwe National Road Administration (ZINARA) is mandated to collect road tolls through Stat-utory Instrument 39 of 2009 and successive amendments. Toll fees are collected from designated trunk routes, especially major highways that connect Zimbabwe with neighbouring countries. At inception, road tolling started in Zimba-bwe in 2009. Initially, a Statutory Instrument was promulgated to empower the Zimba-bwe Revenue Authority (ZIMRA) to collect toll fees on behalf of ZINARA which at the time was not capacitated enough to under-take such a massive project. This saw ZIMRA

around the country on major highways.This period saw the collection of toll fees in the open on the gazetted tolling points. Toll-

collect the fees. This was hazardous to the collectors as they risked being run over by unscrupulous motorists resisting to pay the fees. Toll gate fees continue to play a pivotal role in servicing the country’s road network as well as other Government infrastructural projects.

6)Foreign Aid and Donations

The provision of foreign aid to disadvan-taged countries became a paramount issue in the agenda of the United Nations after the San Francisco conference in June

1945.The objectives of foreign aid assis-tance were to promote economic and social development and improving the living stan-dards of disadvantaged people. After the success of the Marshall Plan in the 1950’s, countries whose economies had been destroyed in the Second World War rejuve-nated. This led the United States of America and other developed countries to take a step further into assisting Governments of developing countries especially African countries with foreign aid.

Zimbabwe became part of the foreign aid assistance program after 1980 when the country won its independence. In addition the Government of Zimbabwe experiences a low percentage of foreign aid and dona-

aid declined in the country from 2000 onwards due to tense political and econom-ic ties with the western countries.Humanitarian aid continued to enter the country assisting health care and education-al services.

Issuance of treasury bills for the purpose of raising fund for governments may lead to unintended liquidity drain. In this case, an essential function of central banks, that is, price stabilization for monetary policy may be destroyed. In the Zimbabwean case, the practice was to incur extra budgetary expenditure on the back of TB issuances. The Minister of Finance, Hon Prof Mthuli Ncube has indicated that he is in discussion with market players to restructure the Trea-sury Bills (TBs) to longer tenure —

indicated that TB issuances will only be con-

gap

7) Issuing Treasury Bills (TBs)

In most cases, treasury bills are issued by governments through their central banks to

treasury bills are also employed as one of open market operations (OMO) forms for monetary policy. Hence, by issuing treasury bills, central banks can raise short-term fund for governments and absorb surplus liquidi-

-pants are more likely to be confused when treasury bills are issued with unclear or mixed objectives.

BOARD ROOM LAW: UNDERSTANDING THE DUTIES OF THE DIRECTORS OF BANKING INSTITUTIONS IN ZIMBABWE.

A Company is a separate legal entity, which acts through two bodies of people that is its shareholders and its board of directors. The

director as any person occupying the posi-tion of director or alternate director of a company, by whatever name he may be called. The role of the board of directors in an institution was explained in the case of Aberdeen Rly Co v Blakie (1854) which states that “the directors are a body to whom is delegated the duty of managing the general

Banking Act Chapter 24:20 makes it manda-tory for every banking institution to have a

directors. In order to ensure that banking institutions adhere to good corporate gov-ernance principles, directors are given cer-tain duties to perform by the law. Section 20 A of the Banking Amendment Act, 2015 lists the responsibilities and conduct of directors

and controlling companies. Subsection (1) of that Section gives each director and prin-

-

duty is explained below to consist of the

-cise an independent discretion and to exer-cise the duty of skill and care.

Section 20 A (1) (b) of the Banking Amend-ment Act, 2015 provides that each director of a banking institution has a duty to avoid

interests and the interests of the institution or company and its depositors and share-holders. This duty was explained in the case of Robinson v Randfontein Estates Gold Mining Company Limited 1921 A.D 168 as follows;

Where one man stands to another in a posi-

the interest of that other, he is not allowed to

place himself in a position where his interests

Section 186 of the Companies Act Chapter 24:03. It states that it shall be the duty of a director of a company who is in any way whether directly or indirectly, interested in a contract or proposed contract with the com-pany to declare the nature and full extent of his interest at a meeting of the directors of the company.

It is of course, clear that the duty of all agents, including directors of companies is to conduct

This was further buttressed in the case of The Master v Thompson’s Executors 1961 R&N 43 which states that

towards the company must exercise those

company as a whole, and not for an ulterior object.

However, it is important to note that the test applied by the courts on this duty is subjec-tive. This was explained in the case of Regent crest Ltd v Cohen [2001]1 B.C.L.C 598 as follows;

The duty imposed on directors to act bona -

tive one ….The question is not whether the court, had it been in a position of the director

-ently. Rather, the question is whether the director honestly believed that his act or omis-sion was in the interests of the company. The issue is as to the director’s state of mind. No doubt, where it is clear that the act or omission under challenge

resulted in substantial detriment to the com-pany, the director will have a harder task per-suading the court that he honestly believed it to be in the company’s best interest, but that does not detract from the subjective nature of the test.

The test is subjective because it is based on beliefs. One person can believe that an act is in the interests of the company whilst another person may believe that the same act is not in the interest of the company.To exercise an independent discretionSection 20 A (1) (c) of the Banking Amend-ment Act, 2015 requires a director to pos-sess and maintain the knowledge and skill that may reasonably be expected of a person holding a similar appointment and carrying out similar functions as those that he or she carries out. This requirement places a duty on the directors of banking

company in an objective manner. In the case of S v Shaban 1965 (4) SA 646 (W), the learned judge had this to say about the duty to exercise an independent discretion;

I want to destroy an idea that puppets can be lawfully employed in our company system. By that I mean persons placed on boards who pretend to have taken part in resolu-tions of which they know nothing…. Our law does not know the complete puppet who pretends to take part in the management of a company whilst having no idea what it is to which he puts his signature. It is foreign to the basic concepts of our law and the courts will punish it as fraud.

Directors therefore should constantly work on improving their skills and knowledge base in order to comply with the require-ments of the law. It is also important for the banking institutions to ensure that their board of directors get the necessary train-ing to enhance their ability to exercise an independent discretion.

independent discretion.

To exercise the duty of skill and careThe duty of skill and care is provided for by Section 20A (1) (d) of the Banking Amend-ment Act, 2015. It states that, directors of banking institutions have a duty to exercise such care in the carrying out of their func-tions in relation to the institution or com-pany as may reasonably be expected of a diligent person who holds the same appointment under similar circumstances and who possess both the knowledge and skill required by the duty to exercise an independent discretion. The Act goes on to give an example of a violation of the duty to exercise skill and care. This example is given in subsection (4) as follows;

A director of a banking institution or con-trolling company, who fails, without just cause, to attend at least ¾ of the meetings of the board of his/her institution or company that are convened during any period of a year shall be regarded as not having exercised the degree of diligence required of him / her by subsection (1) (d).

however, it is important to note that the duty of skill and care is not onerous. The learned judge in the case of Fisheries Development Corporation v AWJ Invest-ments 1980(4) SA 157 made the following comment about the duty of skill and care;

A director is not liable for mere errors of judg-ment. In respect of duties that may properly

honestly. He is entitled to accept and rely on the judgment, information and advice of the management, unless there are proper reasons for querying such. Similarly, he is not bound to

examine entries in the company’s books. Obviously, a director exercising reasonable care would not accept information and advice blindly. He would accept it, and he would be entitled to rely on it, but he would give it due consideration and exercise his own judgment in the light thereof. There is a strik-ing contrast between the directors’ duty of loyalty and good faith and their very light obligations of skill and diligence. Neverthe-

mere dummy. Nor may he shelter behind culpable ignorance or failure to understand

The above comment by the learned judge

institutions should give adequate support to the directors in the carrying out of their duties. This is so because although the board of directors have a duty of skill and care towards the institution, they still rely on information from management in order to make certain decisions. It is therefore

institutions understand the role that they play in enabling the directors to exercise their law given duties.

The duties of directors listed above play an important role in the governance of bank-ing institutions as they touch on the revered principles of good corporate gov-ernance like honesty, transparency, open-ness and accountability. The exercise of these duties by directors will ensure that banking institutions are run in such a way that they achieve their objectives. It is also important to note that a director who breaches the above duties may be held liable. Section 277(3) of the Criminal Law

allows the piercing of the corporate veil in order to make directors liable for any con-duct, which constitutes a crime for which a

corporate body is or was liable to prosecu-tion. It is therefore important for both the directors and the management team to work together and ensure that these duties are adhered to in order to abide by the principles of good corporate governance and to avoid possible lawsuits.

Rumbidzai Mukarakate is a Legal Practi-tioner, registered with the High Court of Zim-babwe, a member of the Law Society of Zim-babwe and the Institute Of Bankers Of Zim-babwe.

There are many risks that attach to technology driven bank products. It is therefore the role of Bankers and regulators to minimise those risks and

-ered.

CYBER FRAUD

The Internet has transformed human society at a historically unprecedented rate. Today, the transactions, applications,

and to billions of connected and intercon-nected devices have become critical for businesses, consumers, and governments. However, our growing reliance on the resulting digital economy also exposes us to a new range of risks and threats never even anticipated less than 50 years ago. As networks continue to undergo digital transformation to accommodate today’s and tomorrow’s business and social requirements, an equal transformation in how we secure this pervasive environment must also occur. The growth of the Internet is unprecedented by any other invention in all of human history. And by most esti-mates, we are just at the beginning. With

-gence), IoT (Internet of Things) devices, for example, many experts predict that there will be four devices connected to the Inter-net for every human being on earth by 2020. That rate of growth is both a blessing and a curse.

The Rapid Evolution of the Internet While we can now provide critical data, information, and solutions to the farthest

tracking, managing, and securing all of these devices is overwhelming the resourc-es of many organizations, banks included.In a short time, these and new devices we have barely begun to even conceive of, will be connected—and interconnected—in ways no one could have possibly anticipat-ed. And if history is any guide, the size of the networked landscape and the volume

will not just continue to grow, but continue to grow exponentially. The types of frauds

There are many kinds of card fraud, and they change so frequently as new technol-ogies enable novel cybercrimes that it’s nearly impossible to list them all.

But there are two main categories:

•Card-present-frauds: This is less common today, but it’s still worth watching out for. It often takes the form of “skimming” – when a dishonest seller swipes a consumer’s credit card into a device that stores the information. Once that data is used to make a purchase, the consumer’s account is charged.

•Card-not-present (CNP) frauds: This is the most common kind of fraud, and it occurs when the cardholder’s information is stolen and used illegally without the physical presence of the card. This kind of fraud usually occurs online, and may be the result of

contaminated link. Also fraudulent OTP Requests.

Managing Risk“For a number of years, cybersecurity risk was considered almost incomprehensible,” says

-cer at Fortinet. Because corporate managers couldn’t get a handle on risk, they didn’t have a plan to address it, he says. “Some threw money at the problem and some withheld money, because they didn’t feel like they could buy down risk smartly.”But today executives and boards are more comfortable with taking action against that risk. “,” Quade says. “It’s about talking about consequences in terms that executives under-stand.”

In a digital environment of distributed net-works such as that found in banking envi-ronment’s -always-on access, there are con-stant and rapidly evolving malware and attack threats that are impossible to fully eliminate. Instead, focus is always on mini-mising the consequences of a breach. That is why companies and executives must instead think about managing those digital risks, just like they would physical ones.That means acknowledging that it is impossible to stop all cyberattacks as well

breach would be and how to mitigate them. That means building stronger defenses, being careful about backups and redundancy, including a combination of those practices along with additional tactics, such as formally educating employ-ees about the risks of phishing attacks and social engineering ploys.The challenge with our growing reliance on digital resources is that anything that can be generated, transmitted, stored, or ana-lyzed, no matter how valuable, can also be stolen, corrupted, or misused. So the ques-tion banks are grappling with today is, how can they capitalise on the opportunity of the digital economy while managing asso-ciated risks?

In this new environment, constant change is the new normal. And given the rate of change that network, devices, and applica-tions are undergoing, banks must establish a way to maintain control in a constantly churning environment. This includes estab-lishing a deep understanding of every device on their network at any given moment, where their most critical data lives, who has access to which digital

data move, and how applications and services connect everything together.However, as the rate of adoption of devices and applications accelerates, maintaining visibility and control over these elements is becoming increasingly complicated. The sheer volume alone can overwhelm many banks. And given the current rate of securi-ty breaches and malware development, however, it is clear that yesterday’s security strategies and tools are increasingly less

securing against this evolving threat land-scape will be compounded further as we move infrastructure and services to multi-cloud environments, leverage increasingly transitory network resources, embrace a more mobile workforce, and continue to merge clients’ public, private, and business lives.

Reimagining Security

We are in the middle of the most disruptive period of innovation in history—and all evidence indicates that this process is only going to continue to accelerate. This growth, of course, will expand opportunity for someone. The question we need to ask

-tors, cybercriminals, or our bank?

1.Islands of information sources pose a big threat to systems security and reliability of information. It is critical that a bank estab-lishesmultiple networked ecosystems that

data and to detect and even anticipate both known and unknown threats.

2.Once a multiple networked ecosystem is in place, security needs to be automated and integrated across devices and applica-

and in a coordinated fashion at machine speeds.

Prepare for Unimaginable Threats

When you know what a threat is, that is a “known known,” something you can be pre-pared for. A “known unknown” is a threat you know is out there but don’t know where it’s coming from or how it’s showing itself. In that case, “you know what the behavior of a threat looks like, so you search for those bad behaviours and when you see them, you do more research, turning these ‘known unknowns’ into ‘known knowns.’.Finally, there are the “unknown unknowns.”

they are, but you can’t even imagine them”. The internet, , is fundamentally built on optimizing speed and connectivity. So the best way to be prepared for the future is to have a security platform that’s built that way, too. Thus, when new strategies and new ideas are available, you can bring them on board because you have a fast and con-nective platform that allows you to embrace those new ideas.

prepared for change. “If you have an archi-tecture that’s capable of embracing new countermeasuresthen you’re in good shape.The strength of this model, which applies a well-known mathematical theory called

optimal stopping theory to fraud detection, is that it aims at either maximising an

cost. In other words, all the computations would be aimed at limiting the frequency of false alarms.

The main risks that IT and business manag-ers face from over-automating business processes fall into three areas:

1. Inability to revertto manual opera-tions if systems and automation fall over.This scenario occurs when automated systems fail to function as expected, and such failure could be a result of numerous causes that include sabotage, acts of war, natural disasters or cybercriminal activities.-Such a scenario is descried as catastrophic failure where banking systems are rendered dysfunctionalresultant from any one or a combination of the listed events.

The recovery time objective (RTO), which is

disaster recovery facility, could also be ren-dered unattainable depending on the nature of the cause of the failure. The only possible fall back situation could be revert-ing back to manual operations. However, more often than not, tellers in most if not all branches would have done away with hard-copy ledgers or forgotten how to record transactions manually on them. The hard-copy ledgers would later be input into the system when it comes back up. Due to over automation, the tragedy is often that the tellers would have forgotten or in most instances, have little or no clue how manual systems work.

2. Limited understanding of the busi-ness

The more employees are distanced from the essence of the business operations that

they are responsible for, the less they are able to think independently about how the

Automation can breed out business knowl-edge because it creates a level of abstrac-tion between the employee and the busi-ness process. The employee no longer becomes a decision maker. This also creates morale issues for employees, who feel that their talents aren't being utilized.Using technology for contextualized cross learning in business provides cross-skilling, can remove isolation and can enhance busi-ness involvement for all employees. This

processes through the medium of E-Learn-ing.

3. Poor business performance at custom-er touch points

!

Challenges banksface in the era of digitalization of Everything

Mitigation

1.Card Cloning • ! Creating Sub Accounts ( Transacting Wallet and Main Account) • ! Educating Users and Clients • ! Migrate all cards to Chip and Pin. • ! Awareness campaign plan.

2. Increased Vulnerabilities, Hacking

(Mobile Malware)

Trojans, Virus and rootkits that end up affecting systems infiltrating through mobile devices as most people don’t protect their mobile devices as much as their computers.

• ! Holistic and robust approach to cyber security. • ! User awareness training on appropriate behavior • ! Enabling end to end data security

3. Identity theft, Card swapping etc • ! User awareness training

4. Lack of Standards Enforcement

Standardization is not enforced and every player is doing things their own way

• ! lobby with the regulator (RBZ)

5.Retention of Good skills

To maintain the digital platform banks require good skilled engineers and there has to be a retention mechanism otherwise banks risk skills flight and a collapse of the systems.

• ! Innovative skill retention mechanisms. • ! Remunerate above average to attract good skills • ! Empower IT staff through trainings and couching.

6.Expensive to manage and maintain daunting big data secure

• ! Have a high provision for IT budget

7. Increased fraud cases. • ! User awareness training

8. Job insecurity of menial staff.

Most jobs will be replaced as there won’t be manual processing of things due to automation and digitalization

• ! Reskilling and redeployment to other departments where they can be useful

9.Adoption Challenges with the elderly clients • ! Educate clients • ! Train clients

10.Short life cycle of IT Equipment

IT equipment life cycle are going to be shorter than before as new release will be frequent to match the technology of the day.

• ! Increased budget on IT Equipment

Most of us have experienced interactions with automated call attendants that make it

launch of websites that help you navigate through these systems to get to a human being. Yet, companies continue to invest in these unfriendly customer systems, even when they are putting customer goodwill at risk.

While technology generally is a game changer in business, it is important to note that technology must be appropriate tech-nology for the purposes it is deployed. Tech-nology must not be viewed as a fad, but as giving business a competitive edge through easing processes, reducing overheads and

-ciency.

See summary below :-

The Role of Government in Macroeconomic Management

The Role of Government in Macroeconomic Management

The Role of Government

There is growing debate across the globe about the role of Government or state, Vis a Vis the private sector in the economy, no doubt re-ignited by the

-versal responses by Governments with var-ious stimulus and quantitative easing mea-sures to mitigate against the crisis.

from early 2009, most Government, led by the USA had implemented several mutual-ly reinforcing interventions to stem the recession and engineer recovery and growth, largely following Keynesian type macroeconomic frame of reference. By 2010, even the most conservative Govern-ments of Germany and China had also

-kets stimulus packages, howbeit, not to the same scale and degree as witnessed in the United States of America. Slowly but steadily, the interventions by global pow-erhouse economies began to spur recovery and growth, facilitating global economy wide recovery, though this remained frag-ile for several years

1. Introduction The debate is no longer about the need for state involvement in the economy, indeed there will always be extreme views for min-imum or no Government involvement in the economy. Most economists and Gov-ernment bureaucrats, as well as academics acknowledge that there will always be need for state involvement in the economy – the debate is about how to optimize the symbiosis between Government and the

-ty gains. The nature of the interventions is critical, for either, enabling or deterring economic activity.Most Governments, particularly, though not exclusively in the developing world and emerging markets, make the recurring mistakes of heavy handed, excessively diri.giste type of state interventions. The state interventions are often, characterized by overarching, overt controls, particularly foreign exchange controls and price con-trols, compounded by interest rates con-trols. The argument often advanced is typi-

public goods and services.

A line of credit is a credit source extended to a government, business or individual by a bank or other �nancial institution or Government. It is e�ectively a source of funds that can readily be tapped at the borrower's discretion. Inter-est is paid only on money actually with-drawn. Lines of credit can be secured by collateral, or may be unsecured. This line of credit can be o�shore (foreign) or onshore (domestic) and for the purposes of this discourse a line of credit herein refers to the o�shore / foreign type of credit extended to the nation of Zimbabwe. Lines of credit represent a key source of funds for the business sector while being an important line of business for the bank-ing industry.

Access to lines of credit can be disrupted by defaulting borrowers or as a result of high political and sovereign risk. Zimba-bwe currently has no access to internation-al lenders like the World Bank and Interna-tional Monetary Fund, although it can access lines of credit from ‘friendly’ govern-ments and African institutions like African Development Bank (ADB)and Afrexim-bank. According to the ADB, Zimbabwe needs at least $4 billion in lines of credit so its struggling industries can get back on their feet. More funds will be required if the country decides to introduce a stable local currency – as the o�shore line of credit will be used to support this currency through satisfying the needs of the supply side of foreign currency requirements.

Lines of credit can be a lifeline of strong economy provided the terms and condi-tions as enunciated in the terms sheets are favourable and free from non-�nancial ‘strings attached’.

These are valid concerns by Government but often such overarching controls and expansive state regulatory weight, often impinge on production and productivity, distribution of goods and services, leading to worse outcomes for all stakeholders

activity is constrained, leading to anemic and highly volatile growth. Where such state interventions have often led to shortages of either foreign exchange

-ished often fueled by the connected who can access such scarce resources at subsi-dized rates. The arbitrage opportunities so characteristic of excessive controls fuel per-vasive rent seeking behavior of economic agents – with far reaching adverse implica-tions on production, output and growth. To a large degree, that is what has blighted Zimbabwe’s economy over the past two decades – pricing and foreign exchange controls compounded by regulatory and pricing distortions, which fueled hyperin-

industrialization and economy wide melt-down.

Is there an optimal roadmap for state inter-ventions in the economy? There is, but it is important to put into perspective that

even for the same country as it evolves

it is important that the relationship between Government and private sector evolve as guided by some underlying fun-damental principles. First, and above all, the economy must be private sector driven, with the State role as a critical .enabler and creating the environment necessary for the private sector to thrive, including, among others

i Prudent macroeconomic management;ii.Strong Institutions and Regulation;iii. Fair and transparent competition;

for contract enforcement;v. The rule of law and property rights enforcement;vi. Fair Taxes, vii. Equitable and Fair Wealth distributionviii. Investment in infrastructure and social services

A line of credit is a credit source extended to a government, business or individual by a bank or other �nancial institution or Government. It is e�ectively a source of funds that can readily be tapped at the borrower's discretion. Inter-est is paid only on money actually with-drawn. Lines of credit can be secured by collateral, or may be unsecured. This line of credit can be o�shore (foreign) or onshore (domestic) and for the purposes of this discourse a line of credit herein refers to the o�shore / foreign type of credit extended to the nation of Zimbabwe. Lines of credit represent a key source of funds for the business sector while being an important line of business for the bank-ing industry.

Access to lines of credit can be disrupted by defaulting borrowers or as a result of high political and sovereign risk. Zimba-bwe currently has no access to internation-al lenders like the World Bank and Interna-tional Monetary Fund, although it can access lines of credit from ‘friendly’ govern-ments and African institutions like African Development Bank (ADB)and Afrexim-bank. According to the ADB, Zimbabwe needs at least $4 billion in lines of credit so its struggling industries can get back on their feet. More funds will be required if the country decides to introduce a stable local currency – as the o�shore line of credit will be used to support this currency through satisfying the needs of the supply side of foreign currency requirements.

Lines of credit can be a lifeline of strong economy provided the terms and condi-tions as enunciated in the terms sheets are favourable and free from non-�nancial ‘strings attached’.

ix. Fighting corruption, x. Improving conditions for doing business, andxi. Ensuring good corporate governance.

The State, in this way is creating an environ-ment for business growth, without being directly in competition with business. Pru-dent macroeconomic management is criti-cal for macroeconomic stability and a pre-dictable business environment. This is the underlying requirement for investment, business expansion and economic growth. Without macroeconomic stability, all else is shifting sand and there are basic fundamen-tal requirements necessary to achieve

balanced monetary management and trade policies.

Secondly, the Government must also invest in infrastructure and social services, educa-tion and health. This is important for crowd-ing in private sector investment, through public infrastructure investment, notably water and sanitation, irrigation infrastruc-ture, railways that connect and reduce transport costs, highways and roads, as well as education and health. As part of invest-ment in education, particularly higher insti-tutions of learning, the Government must deliberately target creationGovernment must deliberately target creation of ICT and

push through the agenda for technology based innovation and enterprise. Technolo-gy will remain the greatest driver of busi-ness over the next four decades if not more and Zimbabwe must be at the epicenter of this ongoing ICT revolution, which is rede-

in all sectors

Third, the Government must build strong and independent regulatory institutions for macroeconomic management, including such institutions as the Parliament Budget

Central Bank, the Ombudsman, among others. The strong and sustained postwar Germany economic recovery since 1948 was on the back of foundations of strong institu-tions, particularly the Bundesbank (Germa-ny Central Bank) which became the refer-ence model Central Bank for all Europe and beyond. Sound monetary management became the hallmark of the Bundesbank right through to the introduction of the Euro monetary system and the European Central Bank, modeled on the “Growth and Stability” foundations of the Bundesbank.Institutions are important for they are the bulwark against the excesses that have often brought down economies through vitiated, often populist policies that seem to confer short term gains at the expense of long term stability and business continuity.

They enforce transparency and accountabil-

and public trust requires institutions that have adequate checks and balances, trans-parency and accountability to safeguard the public monetary system and ensure that it is

hoc interventions. To achieve this, the Government must studi-ously work to create institutions for macro-economic management that are completely insulated from political decisions and administered by men and women of out-standing and exceptional professional integrity.

.