The Financial Sector of Zimbabwe
The year 2004 will go down in history as a watershed year for the Zimbabwean financial sector. One would wonder why, but if one is conversant with the tragic events of that year, or was employed by one of the sunken banks, there would be no doubt in one’s mind that the year 2004 was arguably the most difficult year for Zimbabwe’s financial sector. As the Reserve Bank of Zimbabwe puts it, in its third quarter monetary policy statement of September 2004, some market analyst likened developments in the country’s financial sector to an “earthquake”. Many failed banks were occasionally suspended from the country’s clearing system due to failure to fund clearing balances within the stipulated time frames.
Time Bank, for example, was suspended twice in October 2004 before being placed under the management of a curator. These institutions continuously experienced clearing deficits and had to raise the required funds as a result of negative market perception. Therefore, in this research project, the researcher would be evaluating on the impact of technology on asset allocation strategies in Zimbabwe financial institutions for the period 2004 – 2011 (a case study of Homelink Pvt Ltd) faced some challenges in its management of assets.
1.2 Statement of the Problem
The economic growth for the Zimbabwean economy has been on a downward trend for the period 2004 – 2011 and during this period asset allocation strategies declined. The researcher seeks to evaluate the impact of technology challenges on asset allocation strategies in the Zimbabwean financial economy.
1.3 Background of the study
Homelink was established as a money transfer system in 2004 by the Reserve Bank of Zimbabwe. As the money transfer system grew, the Reserve Bank of Zimbabwe transformed Homelink into a Pvt Ltd in February 2005 as a wholly owned subsidiary of the Reserve of Zimbabwe. It quickly became a brand name for the money transfer system in Zimbabwe. At the launch of Homelink in 2005, the Kumusha-Ekhaya concept gave expression to the Reserve Bank of Zimbabwe’s idea of linking Zimbabweans abroad with their home country by providing them with a safe, fast, convenient, reliable and legal money transfer system.
Mobilization of foreign currency from Zimbabweans living abroad was however not the only objective for setting up Homelink. This was supported by the following remarks that were made by Dr.G.Gono, Governor of the RBZ at the launch of Homelink (Pvt) Ltd in 2005. A visit was made to the Diaspora to meet Zimbabweans living there so as to tell them about the new money transfer system that had been put in place as well as to invite their participation in country’s economic turnaround and to get their suggestions to make the system a success. Although Homelink as a corporate body is not a money transfer agency, the Homelink brand today represents the official money transfer system in Zimbabwe. The Homelink brand is well established both in Zimbabwe and abroad but with all that in its respect it still does face technological challenges in meeting its strategies.
1.4 Purpose of the Research Lending business in Zimbabwe has become very challenging as a result of the hyper-inflationary conditions that have prevailed in the economy since the Foreign Exchange Crisis of 1997. The negative growth in real Gross Domestic Product (GDP) experienced hitherto has dampened loan demand to the extent that Homelink had to seek other investment opportunities to earn a fair return on shareholders’ funds. The lack of trading on the foreign exchange market has not done financially institutions any good either.
Given the low levels of loan demand and the deterioration in loan book quality reported by many financial institutions, and the associated substantial bad and doubtful debts provisions, it appears there is limited scope for institutions to earn high returns without undertaking market and technological risks. The increased emphasis on prudential information technology management subsequent to the financial crisis 2003-2004, would suggest that there is substantial pressure on financial institution’s information technology to seek higher returns on lower risk investments to offset the negative developments on the loan portfolio. The project will seek, therefore to establish the asset allocation strategies adopted by financial institutions (Homelink) in the post-crisis period to address their strategic shortcomings.
1.5 Objectives of the Research
1.5.1 Main Objective
The main objective of this work is to establish the impact that the emphasis on information technology management, subsequent to the recent financial crisis, has had on the asset allocation of funds by Homelink Pvt Ltd between the company home loans and its investments, for example the property management.
1.5.2 General Objectives
Other objectives of the work include: 1. To establish whether the institutions’ assets are operating as cost centres or as profit centers. 2. To evaluate the relative effectiveness of asset management and liability management in providing the institution’s technology. 3. To identify strategies that the information technology managers may adopt in order to bolster Homelink efficiency, profitability, liquidity and solvency under the prevailing market and regulatory conditions.
In the view of the recent banking crisis, the contention is that the increased emphasis on technology has resulted in a portfolio shift in favour of home property investments. Financial institutions have therefore become more profit oriented than before. To achieve the objectives of the research, and to test the research hypothesis, the following questions must be answered: 1. How has Homelink as a financial institution responded its lending to the financial crisis? 2. How significantly do IT departments contribute to overall institution profitability? 3. To what extent does Homelink have control over their liabilities?
1.7 Scope of the Study
The research will focus on Information technology and lending activities of financial institutions especially that of Homelink Pvt Ltd. The respondents to the questionnaires and interviews will be IT and lending executives, who are directly involved in the investment of Homelink funds. Finance executives will be particularly considered important for this research as they are responsible for managing the asset allocation of the institution. Interest income and balance sheet values of investments in the two departments will be regarded as important parameters for revealing trends in relative contributions by the lending, treasury and IT functions of the institution.
1.8 Significance of the Research
The research is expected to awaken IT executives, lending executives and treasury executives in particular, to the need to create distinctive competencies in not only their funding operations (as is traditionally thought), but also in their investment activities, to ensure sustained competitiveness and profitability. By analyzing the strategies that most financial institutions have adopted, the research identifies possible strategic improvements that these institutions can make, especially with regard to developing effective switching strategies based on extensive research into major macroeconomic trends.
The research will also highlight the need to integrate the local financial sector with international financial markets in order to improve financial market technology in asset allocation and to also encourage financial innovation. This will enable Homelink and other financial institutions to employ liability management and reduce undue reliance on asset management, which as the research seeks to establish, may result in financial crowding out, as financial institutions concentrate investments in liquid treasury securities (secondary reserves) to bolster asset liquidity and in turn improves the impact of technology on these investments. In addition, the research will highlight the destabilizing impact that inconsistent monetary policy measures may have on the financial sector, especially with regard to the term structure of intrest rates in the economy.
The Reserve Bank will also find this research helpful in this regard. The financial crisis presented a management dilemma that required the management of institutions to develop effective strategies to employ proper information technology and also balance profitability. The research, by emphasizing the need to develop such strategies, provides insight, to the Great Zimbabwe University Finance department, into the growing importance of strategic financial management in modern financing, especially with regard to information technology. It therefore highlights the need to include strategic financial management in undergraduate programmes. Other researchers can benefit from this research through its use as a reference material.
1.9 Brief Literature Review
This literature review explores the concrete details related to technological challenges and its link to asset allocation strategies as well as what was put across by various authors. Theorists like Underwood Doug (1999) have also forward the fact that proper information technology is an important tool to asset allocation in financial institutions. A number of studies have concluded that technology has a larger impact on asset allocation than other variables like liquidity and human factor for instance .Among them are Davies and Mabugu 1998 who found that asset and liabilities of an organization has a statically significant positive association with technology but with liquidity having a one and half times as large as technology.
Bouton and Sumlinski (2000) confirmed Davies and Mabugu‘s (1998) results and found that successful and effective management is the basis of successful and effective IT security. Due to the reality of limited resources and nearly unlimited threats, a reasonable decision must be made concerning the allocation of assets to protect systems. Thus the degree of proper asset allocation with sustainable financial institutions is well established in economy. DeOlivera Cruz and Teixeira (1999) studied the impact IT in financial institutions on the basis of assessment of the risks that may have a substantial impact on the substitution as a whole, whether they are financial strategic, legal/regulatory or a combination. Their result showed that effective IT management requires a mutual understanding between IT and the business over which IT needs to be managed.
1.10 Research Methodology
The researcher will use descriptive survey and will use data collection methods like questionnaire, interviews, primary, secondary, internal and external sources. The method can be viewed as a useful way of obtaining descriptive and explanatory information. On this basis, the survey design approach is relevant to this research as it intends to gather view from a variety of stakeholders on whether private investment has been the cause of poor economic growth rates in Zimbabwean economy. The approach further allows the researcher to come up with both qualitative and quantitative data.
1.11 Research Design
According to Selliz (1981:27) a research design refers to deliberately planned arrangements of conditions for analysis and collection of data in a manner that aims to combine relevance to the research purpose with economy of procedure. The descriptive survey would be used by the researcher as it involves the use of valid instruments namely questionnaire, interviews, primary, secondary, internal and external.
1.11.1 Target Population
A population is the aggregate of individual units or elements of analysis from which a study sample is actually chosen. For the purpose of this study, the target population would be composed of key business persons and Homelink Executives as well as the educated folks who by nature of their professional qualification and disposition have been exposed to issues of asset allocation in financial institutions and general economic issues. The majority of the target population would be bankers who naturally trace the asset allocation strategies by way of disbursing capital to the public and SMEs in the form of loans.
1.11.2 Sample population
Mainly purposive sampling and snowball sampling would be used by the researcher. Purposive sampling involved the hand picking of people on the basis of the researcher’s judgment that the relevant information or data could be sought easily from the selected subjects .This would have the advantage of saving time and limiting financial costs by seeking information from subjects who naturally by exposition and education are deemed to have unlimited knowledge on asset allocation or the operations of financial institutions in general. Generally Microfinance officers from Homelink would be interviewed as well as Customer Service Officers (CSO) personnel who are naturally the trend followers of the clients to whom the loans are issued. Snowball sampling involves identifying a person for sampling and the get referred to someone else in that sequence. By merely identifying a microfinance officer in an institution, the researcher would be routed to the Chief Micro Finance Officer who has the right information on loans extended to private investors.
1.12 Data Collection Methods
1.12.1 Secondary Data
Secondary data is that data which is already available prior to a study because it was collected for some other purposes some other time, not for solving the current problem. In gathering secondary data, the researcher will have to go through already existing records, statistics and other publications. Published magazines on economic performance and trends as well as Central Bank Monetary Policy Statements for the past five years are to be sifted through to gather secondary data. Other sources of secondary data included the press, the Internet, Fiscal Policy Statements, the Quoted Companies Survey magazines for the years 2000 up to the year 2011 and Banks and Banking Survey magazines.
1.12.2Justification for Use of Secondary Data
The researcher will use secondary data gathering techniques because of the following reasons: * It is cheap * It is convenient as it does not directly involve a third party. The researcher will not need any officials in going through records and files. * It gives a widely available data base as data is found in the library records and files which spans for years, thus making it widely available.
1.12.3 Primary Data
This is data collected by and for the data users without any intervening party to summarize the original data. Most of the data in this research is primary data obtained from questionnaire and structured interviews. Primary data if expertly analyzed yield very reliable results.
1.12.4 Qualitative data
It involves the use of descriptive write-ups of the findings rather the use of numeric indices. Effectively, personal evaluation and data interpretations are key factors as well as factual comments on research data on private investments without loss of the original meaning, thus the context is taken into account to prevent deviating from the actual implications. In this research, personal involvement would be adopted where the researcher had to rely on critical analysis of data provided by respondents.
1.12.5 Quantitative data
Tables and figures and percentages would be used in presenting and summarizing the quantitative aspect of data in questionnaire and interview analysis and checking of all returned questionnaires for completeness.
1.12.6 Research Instruments
Research instruments are the tactics to be employed by the researcher to gather primary data will include interviews and questionnaires.
This is a purported discussion between two or more people. The interviewer will ask questions designed to obtain answers pertinent to the research. Personal interviews would be conducted.
1.12.8 Justification for Use of Personal Interviews
Personal interviews will give direct contact with the respondents and this will give the researcher a chance to note and interpret the interviewee’s gestures. Also its cheaper and quicker way of seeking data especially if conducted in one geographical area like Bulawayo.
The researcher is going to design some questions and put them in written form and then hand distribute them to the targeted respondents in the selected banks and CSO. The researcher will design simple, direct and familiar questions so that no ambiguity in the questions would be met by the respondents.
1.12.10 Justification for use of questionnaires
It gives the respondents more time to give well thought answers, to consult records and other people before answering, therefore the researcher will be guaranteed of satisfactory answers.
1.13 Data Collection Procedures
The researcher will hand distribute the questionnaires to the selected respondents at Homelink Pvt Ltd and also to CSO staff. The researcher will then collect them when they are completed.
The researcher will conduct personal interviews with the selected interviews at the Homelink and CSO offices. In cases where the interviewees do not have time during the week, the researcher would be prepared to carry out the interviews even over the weekend.
1.13.1 Data analysis and presentation procedure
Data analysis is going to be qualitative but the presentation will be in the form of tables, graphs, charts, figures and percentages which will be showing the impact of technological challenges on asset allocation strategies in Zimbabwe Financial Institutions. The arrangement, ordering and formatting of data would be done as per question to enable easy and objective analysis of the data findings. Data pertaining to questionnaires would be summarized and where feasible, corresponding quantitative measures in the form of percentages would be worked out and provided to enhance quick interpretation of results. Qualitative literature would be employed to give a reasonable view of the data findings especially where quantitative methods could not provide sound analysis of the data. Comments would be provided to anchor the results depicted by tables, figures, graphs, charts and percentages.
1.14 Limitations of the Research
A number of challenges will be expected to be encountered while carrying out this research. Personal interviews will be quiet difficult to conduct because a number of respondents requires appointments. This will be a drawback to the researcher since it will delay data collection, considering that the researcher will have other academic commitments to fulfill during the research period. However, the researcher appreciates the clarity of thought that characterizes most personal interviews.
The drop and pick survey, that will involve leaving questionnaires and following up responses at a later date will be extensively employed. This however, involves the risk of having a lower response rate than personal interview surveys. There will also be cases in which questionnaires might be misplaced and thus failing to reach intended individuals. The researcher however, will have to make frequent visits and numerous phone calls as part of the follow up process. This will be costly to the researcher but will go a long way in improving the questionnaire response rate.