Some time before China Huishan Dairy Holdings, China’s biggest daily farmer, became known as the most recent Chinese corporate fraud whose stock crashed 90% in seconds after a Muddy Waters report brought attention of many to its questionable shadow banking funding, uncovering the company as an empty sham and prompting the incite departure of four of its chief directors who trust (in vain) to escape jail time, the company was best known for being the first ever company to do cow-collateralize stock buybacks.
The above, very long preamble takes us to the “logical” continuation of the cows-as-collateral story, because less than 12 months after cow sale-leaseback transactions emerged in the “financial bubble banana” country, China, they have now stepped up and moved to the original banana republic: Zimbabwe.
New report from the original banana country (Zim) has it that commercial banks in ‘Zimbabwe will soon be forced to take as collateral for cash loans; livestock such as cattle, goats, and cows to informal businesses.
According to Bloomberg;
Most commercial banks in Zimbabwe will soon be forced to start accepting livestock such as cattle, goats and sheep as collateral for cash loans to informal businesses under a new law presented to parliament Tuesday.
Under the Movable Property Security Interests Bill tabled for debate by Finance and Economic Development Minister Patrick Chinamasa in the House of Assembly, the Reserve Bank of Zimbabwe will compile and administer a collateral-security register in which small-business operators and individuals can register their movable assets as security for credit.
In addition to cows, pretty much anything will soon be bank-eligible collateral as Zimbabwe desperately attempts to restart its monetary system. Vehicles, television sets, refrigerators, computers and other household appliances will become acceptable as collateral once they are evaluated and registered in the central bank’s register, according to Chinamasa.
“As minister in charge of financial institutions, I feel there is need for a change of attitude by our banks to reflect of our economic realities,” he said. Banks are “stuck in the old ways of doing things and failing to respond to the needs of our highly informalized economy.”
However, it remains unclear if this latest Zimbabwean monetary experiment will work: the southern African nation has mainly used the U.S. dollar since economic mismanagement and runaway inflation rendered its own currency worthless eight years ago. A liquidity squeeze ensued as growth faltered and a strong dollar eroded the competitiveness of Zimbabwe’s exports. The cash crunch has become so severe that banks are now limiting customer withdrawals. That’s exactly where the cows come in.
Zimbabwe’s economy is forecast to shrink 2.5 percent this year, after contracting an estimated 0.3 percent last year, according to the International Monetary Fund.
Nevertheless, in all of these, one thing is still not clear: what will happen, when the debtors are unable to repay the central bank, and the lien-holder collects on virtually every piece of livestock, as well as every “car, TV, refrigerators, computer and other household appliance” and nationalizes every asset that is and isn’t nailed down in Zimbabwe.