Of Banks and Men

Sorry.  That title is terrible, but it beat Bankwars:  The Interest Rate Strikes Back.  This article is about banks and people, so the title is a little fitting and we are all just going to have to live with it.  I'm really just picking up from the last entry about investment, so I would advise you to read that first.

Yesterday, Chiimba asked me if I wanted to go to the bank in Mutoko with him.  Being an economics major, the idea of going to a bank in Zimbabwe actually excited me, so off we went.  Mutoko is the closest town to Nyadire and is only a 15 or 20 minute drive (I think, I keep falling asleep in the car).  We finally arrive at a little strip mall that has a couple banks, a couple general stores and an internet cafe.

While waiting in line, Chiimba started complaining that bank charged too much for his account.  As an economics major, my first reaction was a loud "WHAT?".  He then explained that the bank charged $20/month for having an account and that he wanted to switch banks because the one across the street charged $10 less a month.

Thats not how banks work.  At least, not in the US.

In the US, banks provide an interest rate as an incentive to put money into their accounts.  They then invest that money into different types of loans.  The money that the banks makes is the return off of the loans.

So why do the banks in Zimbabwe work differently?

I have several different theories.

First.  Defiantly in the rural area, with a low wage rate, individuals are not saving much.  Most of their incomes go to necessary purchases.  With a low saving rate, banks have little funds available to turn around and invest.  Secondly, according to my research, Zimbabwe has still have a high interest rate, so the loans are expensive.  With little disposable income (I am redefining this term to include the income available to an individual after taxes and buying all necessary item, like food) individuals would be unable to pay back loans if they did take them out.  Therefore, banks in Zimbabwe are unable to operate in the ways banks normally operate.  Without the profits from loans, banks must use charges on saving accounts to create a profit.  

Weird.

Ok.  The power is out again and we are using the generator, but we decided to close early so I have to go.  Thanks for reading,

Ben