CABS Suspends Youth Loan Fund,Cites High Default Rate, Mismanagement
The Central African Building Society (CABS) has suspended disbursing loans under the Youth Development Fund (YDF) due to a high default rate of 78 percent, Parliament heard Thursday.
A subsidiary of Old Mutual, CABS is the disbursing agent of the $10 million YDF which the parent firm availed as part of its compliance with the indigenisation and empowerment laws.
The financial institution has received around 22 000 applications since the fund was launched two years ago and had disbursed $5 million to fund 3 600 projects.
CABS managing director, Kevin Terry told the Parliamentary Portfolio Committee on Youth, Indigenisation and Economic Empowerment that the fund targeted youths between 18 and 35 years, was not performing well with the allocation criteria set to be reviewed.
“The trustees (of the YDF) have asked us to suspend doing more loans since May,” Mr Terry told the Committee chaired by Gokwe-Nembudziya legislator, Justice Mayor Wadyajena.
“The last disbursements were done in May and the funds are just sitting at CABS.”
Terry said lack of business management skills was the main reason for the high default rate as most youths were allocated funds without having undergone any capacity building programmes.
“It will be better if the fund was linked to vocational training centres, that way we will be lending to someone who has been given some training,” the CABS boss said.
He said a number of projects were performing well although the majority were struggling.
Another bank, CBZ which has disbursed $2,3 million to youths under the government driven programme also told the committee it was facing compliance challenges with beneficiaries.
CBZ Holdings group chief executive Never Nyemudzo said the default rate for its youth facility was 45 percent.
“The performance has generally been very good with a default rate of 45 percent which means 55 percent of the beneficiaries have been able to pay back their loans,” he said.
Defaults were mainly by beneficiaries in the cross border, manufacturing and poultry business, he said.
“The major reasons for this default have been to do with management and general unwillingness to payback the loans,” he said.
CBZ Bank managing director Peter Zimunya said the default rate was not bad considering the money was lent to inexperienced youths.
“On normal business the rate of 45 percent is very bad but we are trying to empower the youths,” he said.
“When we train them, it should come down. The normal default level for a bank is around five percent.”
The youth fund was set up to support income generating programmes to uplift the livehoods of youths in the face of economic challenges and unemployment in the country.
Committee members expressed concern on skewed lending which appeared to favour big cities and towns.