Legal Discussions with Vengai Madzima: Chimbadzo or Loan Sharks in Zimbabwe

NewZimbabwe.com has invited Mr. Vengai Madzima, the Senior Partner at Madzima Chidyausiku Museta Legal Practitioners (MCM Legal) to discuss with us legal issues that affect Zimbabweans. The discussions are of a general nature and those seeking specific legal advice should contact their lawyer.

Reporter: Welcome back Mr. Madzima, this week we want to discuss the articles we saw circulating on your law firm’s social pages and website regarding Chimbadzo. Chimbadzo or loan sharking has become common way to access capital on our ‘streets’ if I may put it as such, why do you think that is the case ?

 VM: Thank you.

The essential nature of any business, is to fill up a vacuum or solve a problem.

It is common knowledge your average Joe or should we call him Tendai has no easy access to formal capital, at this stage, we are not talking about cheap or expensive capital, we are just talking about formal capital.

This may be attributed to the informalized nature of a sizable percentage of the businesses operating in our country.

That in essence is the first point, while we set the stage as to why such practices thrive, the second point stems from our hyperinflationary background, which I am happy to say, is in our past.

However, some of our business people still carry a hangover  from the hyperinflationary period of excessive profits in transactions. As was the case during this period, where profits hovered around 100% or even 300% of the cost price.

The co–existence of the two phenomenon,  allow loan sharking or chimbadzo to thrive, as you have a market that is hungry for capital on the one hand and business people that think they  are able to spin it and make 200 – 300% in profit and still be able to repay the loan which will be pegged at around 25% interest per month on the other hand. 

Reporter: Is chimbadzo or loan sharking illegal?

VM: To answer the question, we may have to go backwards a bit and explain a few things.

In our law, a money lender is any person who is in the business of lending money or advertises himself as such person. A person who is in the business of lending money is required to operate only after he has acquired a money lending licence.

To operate without a licence and be in the business of lending money for interest, is unlawful.

However, I may have to point out that I have come across some transactions, structured in such a way, that at first glance or on the face of them, they were not money lending transactions, thereby exonerating them from the harassment of this law or requiring the courts to unravel and establish the essence of the transaction.

Reporter: So, if the lender has no licence that makes the transaction illegal?

VM:  That may not be the only reason.

The issue of interest rates also come to play.

You will find that such transactions have usurious and unconscionable interest rates, which are then compounded monthly on the debt, making the debt almost impossible for debtors to pay.

There are laws that are in place to protect against such usurious interest rates.

Further, our courts normally frown against such practices while also weighing the debtor’s willingness to enter such an arrangement.

Additionally, collections under the chimbadzo practice do not take into consideration the common law principle that stipulates that a debt must not exceed 100% in interest if not supported by a court order.

Consumers of chimbadzo practices normally end up paying interest in excess of 100% of the debts and in most instances, collection methods for the debts are outside of the law.

Debtors are sometimes erroneously reported to the police, where the transactions will be purely civil in nature. Some are taken to debt collectors who do not interrogate the legality of the transaction and collect money forcibly without a court order, which is also illegal.

Long and short, one transaction may involve a series of separate illegalities.

Reporter: What then is the best method to enforce or seek recourse when affected by such arrangements ?

VM: These arrangements are often couched within clandestine structures or hand shake arrangements with no paper trail. In some instances they are reduced to writing making it simpler do understand what was agreed.

Where it is not in writing, enforcement or recourse for either the creditor or the debtor is difficult.

It is always best to seek legal advise from a lawyer when one is caught in the snares of a chimbadzo of arrangement as the chimbadzo structures normally  do not come clothed the same, each particular situation will have to be addressed in terms of its own idiosyncrasies.

Reporter: Thank you, Mr. Madzima we have to end here because of our time.

VM: Thank you.

You can contact Vengai Madzima on vengai@mcmlegal.co.zw or at www.mcmlegal.co.zw.

The post Legal Discussions with Vengai Madzima: Chimbadzo or Loan Sharks in Zimbabwe appeared first on NewZimbabwe.com.