Govt loses millions to loan defaulters

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THE government of Zimbabwe lost millions of dollars to Micro, Small and Medium Enterprises (MSMEs) loan defaulters and fraudsters employed by Small and Medium Enterprises Development Corporation (SMEDCO), the Auditor-General Mildred Chiri has revealed.

In an audit report for 2012 to 2018, Chiri said SMEDCO lost more than $2 million to loan defaulters.

“My audit noted that SMEDCO was not effective in collecting outstanding loans and rentals from rented factory shells.

“… review of the audited financial statements for the period 2013 to 2014 revealed that SMEDCO made two-write-offs of defaulting MSMEs, one in 2013 of $1 765225 and another one in 2014 of $366 943 bringing total to $2 132 168.

“If the $2 132 168 written off had been collected and loaned to MSMEs at an average of $5 000 each, it could have benefited 426 MSMEs.”

According to Chiri, there were more defaulters for the period 2010 to 2012 where loans were granted without collateral and no proper due diligence was done when disbursing the loans.

“The overall default rate was 48 percent of the loans granted during the period 2010 to 2012. The rate of defaulting at branch level ranged from 23 percent to 76 percent. Harare branch recorded the highest defaults followed by Bulawayo branch and the least was Bindura branch. High default rate indicates weak debt collection mechanism at SMEDCO.

“… 29 out of 166 financed MSMEs on the current loan book were at least in 30 days in arrears as at August 31, 2018 indicating weakness in debt collection by SMEDCO. This was despite that SMEDCO had planned to improve debt collections to 100 percent as per the 2012 to 2015 strategic plan.”

She said a high default rate affects the entity profitability and liquidity.

“This may incapacitate SMEDCO’s ability to issue loans in future. If reminder and demand letters are not sent to defaulting MSMEs on time default rates and debts might increase.”

SMEDCO also lost a total of $1 137 573 to internal frauds in 2011, 2012, 2013 and 2015 and some cases had taken too long to be finalised.

“If that $1 137 573 lost through fraud could be loaned to MSMEs at an average of $5 000 each, 228 MSMEs could have benefitted,” she added.

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