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Joshua Chimhanda and the Role of Securities Lending in Zimbabwe’s Financial Growth

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Zimbabwe’s financial markets are changing, aiming to attract more local and international investors. A key part of this evolution is Securities Lending and Borrowing (SLB), which could solve challenges like low liquidity and limited market options on the Zimbabwe Stock Exchange (ZSE) and Victoria Falls Stock Exchange (VFEX).

At its core, Securities Lending and Borrowing is a financial transaction where the owner of a security temporarily transfers ownership to another party in exchange for collateral. The borrower can use the securities for various purposes, including short-selling or fulfilling settlement obligations, while the lender earns a fee. A security is a tradable financial asset.

Types of Securities:

  1. Equity securities: These represent ownership in a company (stocks) and provide dividends. Their value fluctuates with the market and company performance.
  2. Debt securities: These are borrowed funds (e.g., bonds, Treasury notes) sold by individuals, companies, or governments with a promise to repay with interest by a set date.
  3. Derivatives: These are financial contracts whose value depends on an underlying asset (e.g., commodities, currencies, stocks). They are often used by hedge funds to manage risk.

This practice enhances market liquidity, supports price discovery, and allows investors to profit from a broader range of trading strategies. In Zimbabwe, the introduction of SLB is seen as an opportunity to resolve issues such as low liquidity, limited product diversity, and regulatory bottlenecks that currently stymie the growth of the capital markets.

Joshua Chimhanda: A Key Advocate for SLB

Joshua Chimhanda, a seasoned financial expert and board member at Chengetedzai Depository Company (CDC), is leading the push for SLB in Zimbabwe. With over 30 years of experience in banking and accounting, Joshua has played significant roles in transforming financial systems, making him a significant voice in the ongoing transformation of Zimbabwe’s financial markets.

Joshua is a highly experienced financial professional with an extensive career that has seen him hold prominent roles across Zimbabwe’s banking and auditing sectors. A graduate with a Bachelor of Accounting Science (BCompt) from UNISA, Joshua completed his Articles of Clerkship with KPMG in 1991. He rose through the ranks to become an Audit Senior, overseeing multi-national clients and gaining expertise in financial, secretarial, and tax matters.

His career trajectory led him to the First Merchant Bank of Zimbabwe (a subsidiary of FMB Holdings), where he spent eight years in various senior positions, including Senior Accountant and Group Accountant. At FMB, Joshua played an instrumental role in implementing an Oracle-based banking package.

Joshua also served as Deputy General Manager – Finance and Accounting at the Commercial Bank of Zimbabwe (CBZ), where he managed the Finance and Accounts Section and was involved in the establishment of Jewel Stock Broking Company. His wealth of experience in financial management and corporate governance has made him a key advocate for deepening Zimbabwe’s capital markets and supporting initiatives like SLB.

As a board member at CDC, Joshua has been vocal about the need for industry players to rise to the challenge of market transformation. He believes that SLB is a crucial step toward creating more robust and diverse financial markets, capable of meeting the evolving needs of both local and international investors. In his view, achieving market depth requires consistent, incremental steps, and SLB can serve as a catalyst for this gradual but impactful development.

“The Zimbabwean financial landscape has undergone immense transformation and this has been driven by many factors; evolving regulatory frameworks, continued shifts in investor expectations and needs and technological advancement, to mention just a few.

“As active stakeholders within the capital markets, the call is for us to step up to the challenge and move ahead of the tide in growing our markets.” He said.

Joshua believes SLB is crucial for creating a more dynamic financial system. By improving liquidity and enabling modern trading strategies, SLB could attract more investors and support the growth of Zimbabwe’s stock exchanges.

Zimbabwe’s financial market is evolving, marked by an ambitious push to create a more dynamic and liquid environment that attracts both local and foreign investors. With the Zimbabwe Stock Exchange (ZSE) and Victoria Falls Stock Exchange (VFEX) holding a combined market value of over US$4.5 billion, it is clear that Zimbabwe’s financial infrastructure has vast potential. However, to reach its full capacity, innovative solutions like SLB will be crucial in deepening market liquidity and broadening investor participation.

Unlocking the Potential: How SLB Can Transform Zimbabwe’s Capital Markets

Zimbabwe’s stock exchanges, particularly the ZSE, have struggled with liquidity issues, preventing them from fully realizing their potential. SLB can address this by enabling investors to borrow and lend securities, facilitating smoother and more dynamic trading activities. This would not only enhance the depth of the market but also make it more attractive to foreign investors, who are often deterred by low liquidity.

Short selling allows investors to profit from falling stock prices, improving price discovery and market efficiency. Furthermore, SLB lays the foundation for the development of derivative instruments such as options and futures, which rely on the ability to borrow securities. These products can attract a different class of investors and introduce new strategies, further deepening market participation.

“Deepening our capital markets is no small feat and cannot be achieved in one giant leap. It is through small but consistent steps that we can achieve the desired levels of market depth that are comparable to our counterparts in advanced markets,” Chimhanda said.

By reducing settlement failures, SLB can help ensure that trades are completed efficiently and on time. This is particularly important in markets like Zimbabwe’s, where settlement delays can dampen investor confidence and participation.

“Securities lending and borrowing provides one such step for our market as it ensures that investors are aware of the options and opportunities which are potentially open to them within the capital markets.” He added.

Pension funds, insurance companies and other institutional investors often hold large portfolios of securities, some of which may not be actively traded. SLB gives these investors an opportunity to generate additional income by lending out their securities, thereby boosting their returns without needing to sell their holdings.

The Regulatory Path Forward and learning from other Markets

For SLB to succeed in Zimbabwe, a robust regulatory framework is essential. Currently, the Securities and Exchange Commission of Zimbabwe (SECZ) oversees capital market activities, but specific regulations for SLB are yet to be introduced. Ensuring the safety and value of the collateral provided by borrowers is essential for maintaining trust in the system.

Defining the tax treatment of lending fees and interest earned will be important to incentivize both lenders and borrowers to participate in SLB transactions. Developing secure and efficient platforms for SLB transactions will be crucial to the success of this initiative and raising awareness among market participants about the benefits and risks associated with SLB will be key to widespread adoption.

By establishing a clear and supportive regulatory environment, Zimbabwe can ensure that SLB becomes a trusted and valuable tool within its capital markets.

Zimbabwe can look to other African markets like South Africa, Kenya, and Nigeria, where SLB has been successfully implemented to enhance market liquidity and deepen financial markets. For example, in South Africa, SLB has played a vital role in increasing the depth and liquidity of the Johannesburg Stock Exchange (JSE). By collaborating with regional markets and leveraging technology to create centralized SLB platforms, Zimbabwe can gradually roll out SLB with the necessary infrastructure and trust built over time.

For Zimbabwe, the introduction of Securities Lending and Borrowing represents more than just an ordinary financial product—it is an essential tool for modernizing the capital markets and enhancing liquidity. By creating a more dynamic trading environment, SLB could drive foreign investment, improve settlement efficiency, and enable the development of more sophisticated financial products. However, there is still need for investor education, and the active engagement of all stakeholders.

As the country’s financial landscape continues to evolve, figures like Joshua Chimhanda and CDC Company are crucial in guiding the transformation, ensuring that Zimbabwe’s capital markets are equipped to meet the demands of an increasingly globalized economy. SLB, alongside other market innovations, holds the potential to unlock a new era of growth and opportunity for Zimbabwe’s financial sector.

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