I used to be in banking once upon a time. With a team of seven people, I helped set up what used to be called the Zimbabwe Banking Corporation (ZIMBANK) Small Business Services Division (SBSD). The late eighties to early nineties was one of the most illuminating periods of my life. I learnt about people, honor and entrepreneurship in a way that has stayed with me up to this day.
For many countries through out the world, the promotion of small and medium sized businesses (SME’S) is a cornerstone of economic policy. Government support for small enterprise appears to be based on the widely held perception that the SME sector is an incubator of economic growth, a place where innovation takes place and new ideas become economically viable business enterprises. In addition, policymakers routinely point to SMEs as important sources of employment growth. It is not surprising, then, that there was widespread political support for government programs and other subsidies aimed at encouraging the growth and development of SMEs in Zimbabwe during the late 1980’s and throughout the nineties.
A particular area of concern for Zimbabwe policymakers was whether small businesses where accessing enough credit and if there was credit extended to them at all, to fund their business operations. After all, many SMEs at inception have little or no credit history, no collateral and questionable capability as many aspire to venture into areas they have no experience in. Lenders have ordinarily been known to be reluctant to fund SMEs with new and innovative products because of the difficulty associated with evaluating the risk of such products. These difficulties are classic information problems; obtaining sufficient information about the parties involved in a transaction; and they may prevent otherwise creditworthy companies from obtaining credit. If information problems are substantial, they can lead to declining of loans or credit rationing. Credit rationing is when loans are allocated by some mechanism other than price. To the extent that credit rationing significantly affects SMEs credit markets, a rationale exists for supporting SMEs through government programs aimed at improving SME access to credit.
During that the late 80’s and early 90’s, the government of Zimbabwe (GOZ) introduced many enabling initiatives, the most generous of which where located within the former Credit Guarantee Company (CGC), which was a subsidiary of the Reserve Bank of Zimbabwe. Millions of Zimbabwe dollars (long before hyperinflation and the Zimbabwe dollar was still regarded decent and tradable currency) where placed within the CGC to act as a guarantee for all loan advances to SMEs through the five commercial banks. This was before the financial services industry was deregulated to allow new entrants into the market place and therefore there were just five banks, ZIMBANK, Standard Chartered, Barclays, Commercial Bank of Zimbabwe and Standard Bank of South Africa (STANBIC).
As these banks (referred to then as “traditional” banks because of their being averse to lending to the SME sector) jumped onto the bandwagon of setting up small business divisions as a result of the increased guarantee scheme within CGC, the entrepreneurial market responded accordingly. Many people set up businesses and accessed financing from the different banks.
As bankers targeting SMEs at ZIMBANK SBSD, one of the criteria, albeit very traditional that we used in appraising business proposals from the SME sector were the three C’s, Collateral, Capability and Character.
Collateral is the security, preferably immovable, which if available, for example, the Bank would secure the title deed and register a first or second mortgage on the property as security. We became creative and if the business loan was going to be used to buy equipment for the business, the Bank would have a lien over that property. This is a rather simplistic example but forms the essence of what collateral we secured from the SMEs.
Capacity involved assessing for managerial capacity to run the business, including analyzing the skill sets the project promoter and their employees had in the business to be funded. For example, if a lawyer wanted to set up a construction business and they were going to do the work themselves, we would obviously be worried and probe the applicant further. The complexion of the application would change if for example, the lawyer project promoter had a foreman and brick layers, carpenters, engineers, roof technicians and so on who were qualified to execute all the construction projects.
Character entailed investigating the level of indebtedness of the person with other people, organizations and financial institutions. We also tracked down people who had transacted with the person and asked them to provide objective opinions. The personal interview also provided a lot of clues about the nature of the project promoter. During the interviewing process, I personally worried, about people who did not answer the questions asked, body language and reading in between the lines. This is all very subjective stuff but I believe that when one acquires experience over time on interviewing potential borrowers, one hones their skills on hearing clearly what the other person is not saying during that communication process.
For example, we realized that many men who wanted to access these interest low and guaranteed loans had bad credit ratings. They then submitted their project proposals in the names of their wives, sisters or girlfriends, who were acting as fronts for them. During the interviewing process, we quickly picked up from discussing the essence of the business that the wife, sister or girlfriend was being set up as a front. When we probed enough, they owned up as it became increasingly apparent that it was not their business idea to start with. It is very difficult to be passionate about business when you are not business minded or to be passionate about a business idea, which you did not generate. The entrepreneurial zeal was therefore a key factor in our determination of the character of the entrepreneur.
Personally for me character assessment was the most exciting part of the project appraisal process. I remember recommending to the Advances Committee borderline SMEs whose project promoter characters were sincere and abundant with integrity. There are many who came with viable projects but whose characters were shady whom I did not give favorable recommendations.
I observed that, at about ninety five percent of the time, I was right in giving Character, the largest weight amongst the three Cs, because I saw many borderline SMEs whose promoters were genuine, grow from strength to strength and obviously viable SME projects whose promoters lacked credibility struggle or fail completely.
What many people do not realize is that your character is your passport to opportunity as it determines your credibility and integrity. It impacts on everything you do at home, socially and particularly in business. It is impossible for a person to have a different personality for the home, with friends and at work. If that is the case and you are a potential lender to this person, be very very worried. Consistency is a key ingredient in good character development. When you are not consistent, it is my considered opinion that you must be doubted.
Character is everything. As an experienced lender, you ignore your intuition at your own peril. That is the fundamental reason why after everything is said and done, people prefer to transact with either people they know or who have been recommended by people they know. Why? Because the person who is being referred or who is already known to you or others has had their character qualified or validated by one means or another. Just because you hold an MBA or a Doctorate in your field of expertise does not necessarily qualify you to have the right of passage to participate in certain transactions.
It is said that a lot of business deals are generated, discussed, apportioned and concluded on the golf course. Why? Golf players spend a lot of time together, walking the course, talking and of course playing the game. An 18 hole course, I understand might take some five or so hours to play. If say two teams of two people each play just twice a week, that is forty hours of sharing and of course bonding which is necessary in business. Escalate that to twice a week for say forty weeks per year, that amounts to some one thousand and six hundred hours of talk and bonding time. Perhaps that is why golf mates first seek each other out when opportunities present themselves than accommodate someone from “outside”. This is because, when you spend one hundred and sixty hours per month of playing, walking, talking, bonding, laughing and so on, you are bound to know each other fairly well. If you change your playing partners every month, it means you are expanding your territory of networks, people who can vouch for you. After everything is said and done, it is the intangibles that matter and character determination is an intangible.
In order to successfully defend your character for prosperity, here are three concise suggestions to nibble on:
1. Meet your financial obligations when they become due: If you cannot pay your debts or bills on time, do not bury your head in the sand like an ostrich hoping your incapacity to pay on time is going to go away. It will not. Contact the lender first before they contact you and renegotiate the terms of payment. Be honest by advising them that you are experiencing a temporary cash flow situation. Do not lie by telling them long stories that you are waiting to be paid from the liquidation of your shares or something like, you are waiting to transfer money from your offshore account. Lenders are patient. They will document what you have said and wait for another excuse until, you have eroded your integrity and widened the credibility gap with them. The truth is the only way out. It is easier to remember the truth, than to remember a lie. Those who are now financially secure know all too well the challenges of cash flow when a business is still in its infancy and struggling to pay its bills. When you keep quiet, the lenders’ mind starts to become fertile with imagination; has the borrower run away? are they dead?, does the borrower have no intention of paying back?, and so on, etc.
2. Live within your means: Whether you are in business or not, you need to postpone consumption, be frugal, save and live within your means. This is easier said than done. If you are unable to do it now, make it an aspirational goal. The media is one avenue solely responsible for people living beyond their means by encouraging conspicuous consumption and the “I want it, I must have it right now” mentality. Someone once said, “it is a crazy world out there, when we buy what we do not need, with money we do not have, to impress the people that do not care about us and then spend the rest of our lives regretting it.” When you tarnish your financial credit worthiness, it becomes very difficult for you to transact in a highly networked society. We are living in the information age where people underestimate the movement of information from one place to another and the sharing taking place amongst people.
Our families’ trust recently walked away from a potentially viable business transaction we wanted to invest in because of the character of one of the business owners. She borrowed money from a mutual friend and under the veil of moral superiority and all kinds of misrepresentations, is now delaying paying that debt back. This is totally unacceptable. Refrain from masquerading, tell the truth, explain your circumstances, whilst living within your means and ask for more time to regularize your financial matters with the lender. It pays to be truthful.
3. Embark on any journey, business or otherwise for the long haul: Short-termism a term I use to describe those people who like short-term results, short-term businesses, short-term relationships and so on has led many a people down the narrow road towards despair and desperation. Getting into business, stay in business and making a success of it is no easy fit. Sometimes one needs nerves of steel, a sense of humor to laugh at ones’ self, sheer grit, tenacity, perseverance, commitment, timing, working both hard and smart, sometimes luck and sometimes knowing somebody who knows somebody who knows where to get something that you want. You must be hungry enough to want it so badly but remaining mindful of the fact that the rewards do not come overnight. You have to be in it for the long haul. That means not quitting when it becomes tough and unbearable, hanging in there when its easier to walk away, staying the course when perhaps all you see is a hazy ray of light far away into the pitch black unknown space. If you do not have these character-istics, then you are not suited for entrepreneurship and you are better off staying away from it as far away as possible. Never listen to anyone who tells you that they made money in their first year or two years of operations. It is not a business they are running, but a quick buck dealer-ship and during that year, they have participated in several deals.
I am now calling years 2000 -2010 in Zimbabwe the lost decade. Cultural values, business ethics and most importantly personal governance of the self have been diminished and minimized. Every nation in the world has got its barbarians waiting at the gate that it never allows to let in because they are deviants. During our lost decade, the barbarians were erroneously allowed in and they have taken over and redefined the character-istic of the Zimbabwe value system landscape we all used to be proud of. Choose not to subscribe to the ethos of the barbarians in your courtyard. Reclaim your space. Take back your power and fight hard to redefine your character so that it stands for trust, honor, credibility and integrity by following these three above-mentioned suggestions and watch the positive changes in your life.
