The impact of corruption and lost $15 billion on Zimbabwe’s economy

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The banking system in Zimbabwe has been crippled by the worsening liquidity crises and cash shortages. Depositors are bearing the full rage of the crisis as they are not able to get cash on demand. A financial intermediary never holds sufficient balances to guarantee full withdrawals, a condition that exposes it to potential runs. Financial intermediation activity; a role carried out by banks carries a significant social risk because there is potential for systemic disruptions. Therefore, the financial situation in Zimbabwe should be taken seriously.   Investments of banks are naturally opaque, it is difficult to distinguish the problems specific to one bank from problems affecting the industry. The result is that financial distress at one entity could lead to runs on others as well. 









“Since
the end of 2015, the country has seen its cash crisis escalate to the point
today whereby Banks cannot pay out clients more than a small proportion of what
is in their accounts. In a “normal” economy this would automatically result in
the Bank declaring insolvency and closing its doors. Here, the Banks just carry
on as if it’s business as normal. Extraordinary, but Zimbabwe is always doing
that and it makes understanding what exactly is going on very complex and
difficult to grasp.” Eddie Cross a member of
parliament lamented on March 12, 2017. Banks have existed since ancient times, taking deposits
from households and making loans to economic agents requiring capital. In
Zimbabwe, it now seems banks are only providing cash to depositors and whatever
is withdrawn never comes back to the banking system again.







Financial intermediation is the use of a financial
institution such as a bank to allocate funds between borrowers and lenders. The
use of a financial intermediary allows pooling of risk and information costs,
and an efficient means of payment. Theoretical and empirical studies find that
a well-developed financial system is beneficial to the economy. Bank loans are
the predominant source of external funding in Zimbabwe and with low deposits it
means banks are not able to mobilise funds to increase lending activities. 














The financial sector has multiple and important
functions to an economy. The primary purpose of the banking system is to transfer
funds from savers to borrowers, that is both households and corporates. In
Zimbabwe contrary to the normal function of a banking system people are only
withdrawing and not depositing. The financial system in Zimbabwe can no longer
pool funds, and lend to borrowers. A financial system provides a way to
transfer economic resources through time and across geographic regions and
industries. Persistent cash shortages in Zimbabwe mean the financial system is
not able to provide means of payments and ease the exchange of goods and
services. A banking system in a normal economy must provide a way to manage
uncertainty and control risk. The banking system in Zimbabwe on the contrary is
the source of uncertainty as depositors are not sure whether they will be able
to withdraw their money. There is a high risk for depositors if they deposit
their savings in a bank because they will be not be able to get their cash on
demand.










Banks are the fulcrum of financial sector development
in developing and emerging economies. Banks are one of the very important
elements of financial development, without which developing economies such as
Zimbabwe cannot progress without. Small countries completely rely on their
banking sector rather than financial markets which are still under-developed.
The banking sector plays an important role in undertaking intermediation
functions in the economy, such as receiving money from the public in the form
of deposits and using such funds, in whole or in part, to grant loans and other
credit facilities.























































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