CABS managing director Kevin Terry today told parliament the building society has stopped issuing loans under the 10-million dollar Old Mutual Kurera-Ukondla Youth Fund as 80 percent of the beneficiaries are not repaying their loans.
Terry told parliament’s empowerment portfolio committee the fund is performing badly and new strategies and mechanisms are being worked out before any new loans are disbursed to beneficiaries.He said a total of 22,000 loan applications were submitted since 2012 and of that only 3,600 translating to $5 million were approved.
Of that, $4.2 million has not been repaid for more than two years. Terry said this is now creating problems for everyone.
He said CABS will be forced to sell part of Old Mutual’s 2.5 percent shares it holds as surety for the loans, which are being drawn from the building society’s depositors.
CABS is a subsidiary of Old Mutual and is administering the youth fund under Old Mutual’s indigenization plan.
Terry said CABS and Old Mutual want the fund to succeed for the sake of creating jobs and wealth for Zimbabweans.
CBZ group chief executive, Never Nemuyedzo, earlier on told the committee that the default rate was about 45 percent and that most of those defaulting had come through the youth ministry.
He said vetting by the bank was thorough and most of those who got the loans through that process are repaying the loans.
CBZ has to date distributed loans exceeding $3 million.
Both financial institutions said it was generally difficult to recover debts.
Government has set up several youth funds with various financial institutions and most them are not performing well as beneficiaries have not been repaying their loans.
The Zimbabwe government’s black economic empowerment program compels foreign-owned firms to transfer majority stakes to local people. Some companies have settled for empowerment credits such as youth funds in order to avoid parceling out shares to indigenous people.