Hello Monkeys, today I found quite an interesting article about using livestock as collateral on loans. As pointed out in the comments, this is not actually new but rather something that has been going on for years. Well it looks like Zimbabwe is planning to rewind their financial system to include the use of more esoteric assets to use for securing loans. This is strictly for individuals and small businesses.
As stated in the article by Bloomberg;
Commercial banks in Zimbabwe will soon be compelled to accept livestock such as cattle, goats and sheep as collateral for cash loans to informal business under a new law presented to Parliament Tuesday.
The article states that the Reserve Bank of Zimbabwe;
…will compile and administer collateral-security registrar in which small-business operators and individuals can register their movable assets as security for credit.
This registrar could include, vehicles, television sets, refrigerators, computer, and of course livestock.
Economic Development Minister Patrick Chinamasa’s thoughts on the matter are;
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.
I personally believe that this is a good step, as Zimbabwe’s currency is currently hyper inflated. They need something like this to stimulate banking transactions.
What are everyone’s thoughts? Is this a good move by Zimbabwe or will this back-fire?
*Edit:*
Seems like this is actually not something new, nor is it bartering. Thank you **BreakingOutOfPWM** for the correction.
Are credit analysts at these banks going to start weighing cattle, goats, sheep and other livestock to see how much the collateral is worth for loans? Will they start building excel financial models for valuation of cattle and livestock??
Do you depreciate livestock since say a cow that can be used for milking can only milk so much and for so long?
As silly as it may seem, in Asia and Africa cattle is a very important asset and is often used by rural residents as dowry for marriages. Also correct me if I'm wrong but don't they trade futures in livestock?
A quick google search shows that livestock lending is hardly a new practice.
http://www.cattlenetwork.com/drovers/features/collateral-control-114058… https://www.moneyweb.co.za/archive/cattle-can-be-used-as-collateral/
Nor is it bartering - this is assigning a loan to value to a secured asset. Cash for assets is lending 101, not bartering.
Nor is it moving towards the middle ages; if anything, the ability for banks to lend against more esoteric assets/provide more unusual securities (you know these cattle loans will be packaged and resold if possible) is a more modern practice.
Thank you for bringing that up, I've edited it into the original post. Apologies on the mistake.
... this isn't new. Agricultural loans: Breaking News
Anything of value can be used as collateral, even nudes.
Collateral in general. or collateral for a loan? Must be really good nudes if they're for a loan.
Chinese p2p lending
If the USD ever becomes hyperinflated (god forbid/god willing, your choice), I can only hope that the FOMC and Board of Governors' nudes get leaked to be used as collateral.
I don't think those would be worth much, to be honest. No thanks.
So begins the new Zimbabwe/Nigerian Prince email phishing method:
"I have seven thousand head of cattle as collateral on funds to be released by the bank; however, I need $50k cash to feed the cattle for another week to transfer the funds. If you wire me the money, I will split the released funds with you!"
or, I have 50,000 cattle that I would like to give you as you are my last living relative. Send me your bank info and I'll deposit them into their asset farm.
At least they won't mess up with cattle inflation...
I mean, Cows are basically an asset in those parts of the world. They can produce pretty constant cash flows for a good number of years through milk production
Don't know why this got so much MS. Look at agrarian economies, even Australia and New Zealand, where livestock are fairly considered as assets.
I remember reading an article a long time ago about how many cows and goats an AK47 costs in different third world economies.
I know that farmers in the states can secure their bin storage as collateral. I have a family member who was a rural banker he would count heads of livestock, look at the grain in storage and seal the silos if they were being put up as collateral.
Almost as good as the classic LSO post about Ghana's $14 economic stimulus plan: http://www.leveragedsellout.com/2008/11/ghana-reveals-14-economic-stimu…
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