#4 in the Financial Inclusion Interview Series – How globally recognized digital business identities could change Zimbabwe’s economy for good, with Munyaradzi Kamhozo from NMB Bank Limited
We spoke with Munyaradzi Kamhozo, Account Relationship Manager at NMB Bank Limited, to discuss the potential impact that this initiative could have on businesses, banks and the people of Zimbabwe.
Author: Munyaradzi Kamhozo, Account Relationship Manager at NMB Bank Limited
All around the world, small and medium sized enterprises (SMEs) lack the legal documentation that can prove who they are to banks, service providers and other businesses. As a result, millions are struggling to access trade finance and create partnerships, particularly in developing economies.
Following the launch of GLEIF’s digital business identity initiative designed to bridge this trade finance gap in Africa, we’re catching up with our key partners to hear their thoughts on how the project will bring about greater financial inclusion for SMEs on the continent and beyond.
Munyaradzi Kamhozo is Account Relationship Manager at NMB Bank Limited, a registered commercial bank based in Zimbabwe.
NMB Bank’s role in this initiative is to act as the Validation Agent, working with the London Stock Exchange Group (LSEG) as the Local Operating Unit (LOU), to issue SME clients with globally recognized digital business identities. Project partners GLEIF, Cornerstone Advisory Plus and Cenfri supported NMB Bank Limited to complete the required qualification process.
The LEI presents a significant opportunity to help close the current trade financing gap and support more SMEs to engage in international and domestic trade. NMB Bank Limited saw that potential, which drew them to the Validation Agent role, supporting its key objectives to create a market leading proposition for its SME client base, foster greater financial inclusion in the region and support the growth and formalization of the Zimbabwean economy.
How could this LEI initiative improve domestic and international trade out of Zimbabwe?
Most Zimbabwean SMEs rely on an international supply of raw materials. At least 80% of our SME customers engage with international suppliers on a regular basis. Currently, however, if an SME in Zimbabwe completes a telegraphic transfer to a supplier based in Europe, the correspondent bank will have to validate the identity of the Zimbabwean business and, without an established form of legal identity, this process can take up to a month.
The LEI initiative will help by building trust in both the global financial ecosystem and in key supplier relationships. Using an LEI can significantly reduce the time correspondent banks take to validate the identity of the SME, ensuring that they can quickly access key supplies without building up excessive interest on local currency loans which, for SMEs in Zimbabwe, range from 40 per cent to 60 per cent per annum depending on the financial institution.
The benefits of the LEI also apply to Zimbabwean exports. By obtaining an LEI, SMEs can increase their international visibility and credibility with new overseas clients. All buyers must screen new suppliers to validate that they are who they say they are. With an LEI, this process will be faster and simpler than ever before. This will help to create new opportunities for our exporters, enabling them to foster new markets and grow domestic and international trade.
How is the LEI initiative helping NMB Bank compete and/or differentiate itself in the financial services marketplace?
One of the principal benefits of being a Validation Agent is that NMB Bank is now able to offer an entirely new service to our SME clients which allows them to save significant time when partaking in international transactions and opens opportunities to access trade finance, something which none of our competitors can offer currently. Addressing these key pain points will help us grow our client base and deliver an attractive proposition to SME customers.
From a compliance perspective, becoming a Validation Agent meant NMB Bank also had to undertake a comprehensive training program to get us up to speed with GLEIF’s regulatory standards. This has allowed us to realign our internal processes with an international standard of best practice. We can now set the standard for due diligence processes in the region.
By supporting SMEs as part of the Validation Agent role, NMB Bank is also actively supporting the Reserve Bank of Zimbabwe’s National Financial Inclusion strategy, which aims to increase financial and economic inclusivity in the country.
What long-term potential do you see in the LEI initiative, both for banks and SMEs in Zimbabwe?
Zimbabwe, like many African countries, has a sizeable ‘informal economy’. It is estimated that around 80.8% of those employed in sub-Saharan Africa work within the informal sector. Unfortunately, this means businesses operating in this sector lack the credentials necessary to grow and often find themselves losing money when undertaking cross-border transactions. In the long term, we can see the LEI helping to formalize our economy. With a globally standardized identifier, our businesses can prove their legitimacy and engage in regulated trade, leading to the generation of more money for the businesses and their employees.
We also believe that the LEI will have long term impacts on access to trade finance. SMEs currently struggle to access finance as they are perceived as ‘too risky’ by international lenders. As a result, the current trade finance gap in African stands at $81 billion. When we apply for credit lines for our SME clients with an LEI, the screening process undertaken by the Development Finance Institutions to identify the applicant will be much simpler, meaning SMEs can access more trade finance, faster than ever before. This will also allow many businesses to be freed from the control of loan sharks as more legitimate lines of credit become available to them.
For banks, in particular, the LEI initiative will help to streamline onboarding processes. By adopting the role of Validation Agent, banks can provide a faster and more efficient experience for new clients by handling the LEI issuance process internally. Banks will also benefit from a simplified approach to establishing automated beneficial ownership systems, in line with Zimbabwe’s national project to do so. This means the initiative will contribute significantly to supporting Anti-Money Laundering and Counter-Financing of Terrorism.
What kind of change in Zimbabwe would you like to see result from broad LEI adoption among SMEs?
Overall, we want to see accelerated financial inclusion in line with Zimbabwe’s National Inclusion Strategy. Broad adoption of the LEI is a big step towards achieving this.
The formalization of Zimbabwe’s economy as a result of LEI adoption will not only benefit banks and SMEs, but the entire population. At an international level, a formal economy means more taxes are paid, which, in turn, means our government can invest more into key infrastructure projects to support the growth of the nation, improving the standard of living for all.
We’d also like to see a change in the perception of Zimbabwe in international markets. Our national mantra is ‘open for business’. We want to be seen in this way. Currently, we are seen as a risky market in the eyes of international lenders, banks and suppliers. The LEI presents an opportunity to help us overturn this perception. If the world knows who you are, the opportunities will flow in.
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Munyaradzi Kamhozo is an Account Relationship Manager with NMB Bank Limited, specializing with SMEs. He has over 12 years banking and finance experience, throughout which he has been involved in capital raising transactions through bonds, along with debt and rights issues. His current role involves acquiring, enhancing and retaining SME customer relationships for the Bank, in addition to working across various SME development initiatives with partner NGOs and DFIs operating in Zimbabwe.