$16 BILLION SMALL TO MEDIUM

ENTERPRISES (SMEs) REVOLVING FUND

OPERATIONAL GUIDELINES AND

DISBURSEMENT MODALITIES

SEPTEMBER 2006
1.0 INTRODUCTION

1.1 In line with the Mid-Term Monetary Policy Statement

announced on 31 July 2006, the Reserve Bank of Zimbabwe
put in place a $16 billion Small to Medium Enterprises
(SMEs) Revolving Fund.

1.2 Funds will be made available for on-lending through banks,

Small Enterprise Development Corporation (SEDCO),
selected Micro Finance Institutions (MFIs) and People’s Own
Savings Bank (POSB) at a concessional maximum all-
inclusive interest rate of 70% per annum.

2.0 OBJECTIVES OF THE FACILITY

2.1 The key objectives of the facility are as follows:-

i. Improved access to finance by SMEs;
ii. Employment creation through increased support and
development of entrepreneurial capabilities;
iii. Income generation, resulting in improved standards of
living and poverty reduction;
iv. Foreign exchange savings through harnessing of local
resource endowments; and
v. Enhanced economic growth.
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3.0 PURPOSE OF FACILITY

3.1 The facility is specifically meant to support working capital

and capital expenditure requirements of SMEs.

3.2 Focus is on primary production, value addition, export

oriented projects and projects with a quick turn around.
Non-productive activities such as importing/buying and
trading will not be prioritized.

4.0 ELIGIBILITY

4.1 For purposes of this facility, SMEs with the following

characteristics are eligible for funding:-

i. Formally registered under the Companies Act, Private

Business Corporation Act or by a Local Authority.
SMEs not formally registered but operating from
registered premises are also eligible for funding. This
includes SMEs operating from premises authorized by
Rural District Councils/Chiefs/Headmen;
ii. Employs not more than 50 permanent employees;
iii. Is not part of a large enterprise, i.e. not a subsidiary of a
large corporation; and
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 iv. Must meet all Local Authority requirements.

5.0 NON –ELIGIBILITY

5.1 The following are not eligible for funding under the facility:-

i. Refinancing of existing debt;

ii. Defaulters and/or non-performers under previous
concessional facilities;
iii. Acquisition of real estate, shares,
companies/businesses;
iv. SMEs currently benefiting under other Government
facilities put in place to support distressed
companies and/or SMEs; and
v. Tourism Sector.

6.0 TARGET SECTORS

6.1 Examples of projects which can be financed are as follows;

• Food Processing
• Bakery and Confectionery Manufacturing
• Toiletry Making
• Textile and Garment Production
• Leather and Rubber Production
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 • Foundry & Metal Fabrication
• Construction
• Wood Processing and Furniture Manufacturing
• Small Scale Mining
• Engineering
• Art and Sculptor
• Transport

7.0 TARGET BENEFICIARIES

7.1 The facility will target entities such as sole traders,

cooperatives, private companies, partnerships, etc.

Graduates
7.2 Graduates from vocational training institutions and technical
colleges who have acquired technical expertise/skills are
encouraged to apply for funding, provided they meet the
eligibility criteria.

Corporates
7.3 Large corporates are encouraged to develop policies that
promote synergies with SMEs e.g. where an SME has direct
forward integration with a corporate for the supply of raw

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 materials, funds can be made available to the SME with the
corporate guaranteeing the loan.

7.4 The Reserve Bank will allow for a reduction in foreign

exchange surrender levels for export-oriented corporates with
linkages to SMEs e.g. where a corporate outsources some of
its activities from SMEs.

Group Lending
7.5 A number of individuals can come together and access
individual loans for different projects in order to address the
challenge of inadequate collateral/security.

7.6 Each group member will co-guarantee loans accessed by

group members, in line with the group’s Constitution.

Small Scale Exporters

7.7 Small scale exporters are required to submit confirmed
export orders and Form CD1s for pre and post shipment
finance, respectively.

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8.0 PROJECT LOCATION

8.1 The facility will support SMEs in Growth Points, Rural

and Urban Areas.

8.2 To ensure that all provinces benefit from this facility, in line
with the allocations announced in the Monetary Policy
Statement, beneficiaries are required to indicate the physical
location of the project when applying for funds.

9.0 QUALIFICATION CRITERIA FOR PARTICIPATING

MFIs

9.1 The following qualification criteria will be used to select

MFIs that can access the facility for on-lending to SMEs:-
i. Registered and supervised by the Reserve Bank;
ii. Skills and capacity to administer loans to low income
and marginalized group;
iii. Credentials of principals and management of the MFI;
iv. Branch network and representation in both rural and
urban areas;
v. Status of current loan book; and
vi. Risk management systems.

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10.0 TERMS AND CONDITIONS

10.1 Funds should be for immediate use; borrowing of funds

for speculative purposes is not permissible under the
facility.

10.2 Multiple loans through different lending institutions for

the same project/activity are not permissible.

11.0 LOAN SIZE

11.1 The maximum loan size for each project will be $5 million.

12.0 CURRENCY OF LOANS

12.1 All disbursement and repayments will be made in Zimbabwe

Dollars.

12.2 Where foreign currency is required, the application will be

processed, however, funds will only be disbursed by Reserve
Bank upon the borrower securing foreign currency through
official channels

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13.0 BORROWING LIMIT

13.1 There is no limit on the amount which can be accessed by

each lending institution, provided previous draw downs take
into account provincial allocations indicated in the Mid-Term
Monetary Policy Statement and that the institution has met all
other terms and conditions of the facility.

14.0 INTEREST RATE

14.1 Loans will attract an all-inclusive interest rate of 70% per

annum, computed on a simple interest basis.

14.2 Where a loan is accessed through SEDCO/MFI or POSB, the

interest rate will be shared in the proportion of 50% for the
account of SEDCO/MFI/POSB and 20% for the account of
the Reserve Bank.

14.3 Where a loan is accessed through a bank, the interest rate will
be shared in the proportion of 35% for the account of the
bank and 35% for the account of the Reserve Bank.

14.4 The interest rate may be reviewed periodically and lending

institutions will be advised accordingly.
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15.0 LOAN TENURE

15.1 The maximum loan tenure will be 12 months and 24 months

for working capital and capital expenditure, respectively.

15.2 Lending institutions should, however, ensure that the tenure

of the loan is consistent with the nature of the project, as
some projects may require shorter repayment periods.

15.3 All loans under the facility should be fully repaid on maturity
or by 31 December 2008, which ever is earlier.

16.0 LOAN AGREEMENTS

16.1 The Reserve Bank will sign Loan Agreements with all
lending institutions specifying terms & conditions and
obligations of parties.

17.0 RISK

17.1 In the event of non-performance by borrowers, 100% risk

falls on the lending institution.

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18.0 PROCESSING AND APPROVAL OF LOAN
APPLICATIONS

18.1 Lending institutions will process and approve loan

applications, without the need to submit individual loan
applications to the Reserve Bank. Reserve Bank, however,
reserves the right to decline any application, where it is
established that the loan application does not meet facility
terms and conditions.

18.2 Lending institutions are expected to carry out their normal

viability and credit risk analysis, before submitting
drawdown requests to the Reserve Bank for funding.

18.3 Lending institutions should take into account provincial

allocations, as indicated in the Monetary Policy Statement,
when processing and approving loans.

19.0 DRAW DOWN REQUESTS

19.1 Upon approval of loans, lending institutions are required to

submit draw down requests with detailed schedules of
borrowers, as indicated in the template appended as Annex 1.

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19.2 The drawdown requests should be completed in full, signed
by the lending institution’s two authorized signatories and
should be stamped.

20.0 DISBURSEMENT OF FUNDS BY LENDING

INSTITUTIONS TO BORROWERS

20.1 Banks, including POSB are required to open non interest

earning operating accounts for all their borrowers under this
facility, into which funds should be immediately deposited,
upon disbursement by Reserve Bank.

20.2 MFIs and SEDCO are required to pass on the funds to

borrowers within 5 working days from the date of
disbursement by the Reserve Bank.

20.3 Where a lending institution fails to pass on the funds to a

borrower within the stipulated period, funds should be
returned to the Reserve Bank immediately.

20.4 Delays in disbursing funds to borrowers will attract a penalty

equivalent to the prevailing Unsecured Overnight Rate for
each day beyond 5 days.

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20.5 Loan draw downs by borrowers should be strictly
monitored and supported by documents indicating the
purpose for which funds are required. These documents
should be readily available for inspection by the Reserve
Bank.

20.6 Drawdown request for additional funds for a borrower will

only be considered upon the lending institution satisfying
itself that previous loans were utilized for the intended
purpose and that there is genuine need for additional funds.

20.7 Priority should be given to projects which demonstrate

potential for incremental production/employment.

20.8 Lending institutions are not permitted to deduct interest

upfront. They may, however, collect interest accruing to them
on a monthly basis.

20.9 MFIs and SEDCO are required to open separate current

accounts with commercial banks, to facilitate disbursement
and repayment of loans.

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21.0 REPAYMENT OF LOANS BY BORROWERS

21.1 Loan repayments will be made quarterly and borrowers will

be given a grace period of up to three (3) months for working
capital loans and six (6) months for capital expenditure loans.

21.2 Loan repayments will, therefore, start after 6 months for

working capital loans and 9 months for capital expenditure
loans.

21.3 Interest will start accruing from the date the loan is disbursed
by the Reserve Bank.

21.4 Lending institutions are required to open sinking fund

accounts on behalf of borrowers to ensure availability of
funds upon maturity.

21.5 Early loan repayments by borrowers are encouraged.

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22.0 REPAYMENT OF MATURING LOANS TO RESERVE
BANK

22.1 Lending institutions are required to repay the principal loan

amount together with accrued interest due to the Reserve
Bank on due dates through ZETSS.

23.0 MONITORING OF LOANS

23.1 Primary responsibility for monitoring of projects lies with

the lending institutions and they are accountable for the
manner in which funds are utilized.

23.2 Lending institutions are expected to monitor the project

throughout the tenure of the loan to ensure production and
delivery.

23.3 The Reserve Bank will, however, carry out periodic offsite
and onsite monitoring to check on the following:-
i. Implementation of projects;
ii. Compliance with facility terms and conditions; and
iii. Assess overall impact of the facility.

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24.0 RETURNS

23.1 Lending institutions will be required to submit returns to the

Reserve Bank in a stipulated format from time to time. Such
requests will be communicated in writing by the Reserve
Bank.

25.0 ABUSE OF FACILITY

25.1 Where the borrower abuses the facility, the full loan amount
will become immediately due and payable.

25.2 Interest equivalent to the prevailing 91 day Treasury Bills

(TB) Rate will be levied on the loan amount for the period
the loan was outstanding. This penalty will be paid by the
lending institution to the Reserve Bank. The lending
institution will then recover the full amount from the
borrower.

25.3 Where the lending institution fails to monitor the borrower

resulting in non performance or where incorrect information
is submitted, the full loan amount will become immediately
due and payable.

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25.4 The loan amount will attract penalty interest equivalent to the
prevailing Unsecured Overnight Rate for the period the
loan was outstanding. This interest will accrue on the
account of the lending institution and should not be
passed on to the borrower.

26.0 CORRESPONDENCE

26.1 All correspondence should be channeled through lending

institutions to:-

The Division Chief

Economic Support Facilities
Reserve Bank of Zimbabwe
80 Samora Machel Avenue
P.O Box 1283
Harare

RESERVE BANK OF ZIMBABWE

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