€12.5m First Capital & EIB loan facility: guarantees, interest rates and startups

First Bank of Capital announced today that it is a beneficiary bank of the European Investment BankMedium and long term lines of credit from the (EIB) (4 to 7 years old) aimed at giving small and medium-sized enterprises (SMEs) a valuable US dollar lifeline. Before we get to that, it was interesting to see that the Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya was present at the signing ceremony of the agreement. If you all still remember, not too long ago the government decided to suspend loans for unknown reasons and after what seemed like public pressure, the the directive has been revokedbut not as strong as the announcement of the loan ban.

Either way, reason has prevailed and the banks are back to what they do (lend money) and in this case it is through the aforementioned EIB. This is the second facility that the EIB has associated with a local bank in recent memory, as CABS received financing from the EU bank to the tune of EUR 15m last year.

“The European Investment Bank has agreed to support EUR 15m of new long-term financing for entrepreneurs and businesses across Zimbabwe in cooperation with leading local bank CABS. The first-ever partnership between the European Investment Bank, the world’s largest international public bank, and CABS, will extend loan terms and increase access to the US dollar by businesses across the country.

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European Investment Bank (EIB) in April 2021

What does this mean for your business?

As with any type of development finance, there are clear guidelines as to how the money will be spent. According to the signing ceremony, certain areas have been identified by both the EIB and First Capital Bank. The main ones are agriculture and productive manufacturing. The first was quite noted by delegates, particularly horticultural exports which would have been encouraging.

EIB First Capital Agriculture

So as you can see they are focusing funding on what they consider to be safe bets and this is the second such facility that the EIB has introduced so obviously they have a lot of loan performance information.

Regarding interest rates, First Capital’s commercial director, Mutumwa Ushewokunze, said that they would work at a more affordable rate than the 13% the bank handles for its usual loans for this loan opportunity with the EIB, but nothing more than that was offered.

“The interest rates are variable, i.e. there is a lower limit, but they will be much cheaper than commercial rates… We have a base minimum lending rate of 13% at First Capital, we will be significantly lower than that with that facilitated”

Mutumwa Ushewokunze, Commercial Director of First Capital Bank

Additionally, collateral would also be an area where First Capital is going to show some flexibility, no concrete details were given, but there were inclinations that there was some wiggle room. Additionally, all who apply for the credit facility will be assessed by First Capital Bank.

“The theme or notion behind this facility is to encourage banks to be much more flexible and move away from the traditional notion of how we view (collateral) security. We have potential opportunities where customers are looking to build factories and in essence then we can take the factory as security”

Mutumwa Ushewokunze, Commercial Director of First Capital Bank

Unfortunately for startups (in the traditional sense of the term), this facility was not designed for them according to Mutumwa Ushewokunze. This is for traditional brick and mortar businesses earning USD, either domestic or export. However, if your startup has been around for a while and has a substantial financial record, you may be considered for this line of credit. Those who want to start a business or get seed funding might be out of luck.

Going back to the multi-currency side, there is some wiggle room for some companies that primarily earn in $ZWL, but First Capital said it would deal with this on a case-by-case basis.

You can watch the entire press conference with the player below or you can go straight to YouTube with the link here

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