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Cassava Smartech reels under ZW$100m regulatory fines

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CASSAVA Smartech Zimbabwe Limited, trading as EcoCash Holdings Zimbabwe, has had a tough year which has seen the company fork out ZW$100 million in penalties to regulatory authorities while full-year profitability also remained depressed.

ALEX MHANDU

The group’s earnings report for the year to 28 February 28 2021 shows that on 29 January this year, the Reserve Bank of Zimbabwe (RBZ), through its Financial Intelligence Unit (FIU), levied administrative penalties on EcoCash of ZW$100 million, based on an onsite inspection that was done from 24 October 2018 to 22 November 2018. According to the group, the onsite inspection report noted certain administrative deficiencies and the FIU took note of the progress that the business had made to address the administrative deficiencies that had been noted.

Last year, the central bank announced a ban on mobile money agents in the country on allegations they were unlawfully trading in foreign currency on the illegal parallel market. Cassava executives were also charged for failing to rein in agents within the mobile money platform.

According to the RBZ mid-term monetary policy statement last year, mobile money operators “allowed illegal foreign currency dealers to use multiple individual wallets as a means to bypass the transaction limits and continue with their illicit transactions. Mobile money operators shall, with immediate effect, close all multiple wallets, and allow just one wallet per individual.”

EcoCash is the country’s biggest mobile money operator, accounting for more than 90% of total market share. Cassava, whose shares were temporarily suspended from trading on the Zimbabwe Stock Exchange for two weeks this month, has bemoaned inflationary pressures worsened by effects of Covid-19 and the limited access to foreign currency as major factors weighing on the business.

In June last year, the central bank re-introduced the foreign currency auction system as part of efforts to tame inflationary pressures fuelled by the runaway exchange rate on the parallel market, as well as increase its accessibility to businesses on the formal channels.

However, indications from Cassava show otherwise, as the group has bemoaned the stringent measures for accessing the scarce greenback. This, coupled with the adverse effects of the Covid-19 pandemic, have made business operations difficult, with the group recording depressed earnings performance for the full year to February 2021.

“The board is concerned about the challenging operating environment as indicated by hyperinflationary pressures in the economy, global and local uncertainties created by the impact of Covid-19 and the strict criteria to be met in order to access foreign currency,” Cassava said in a statement accompanying the group’s financials for the year to 28 February 2021.

During the prolonged Covid-19-induced lockdowns, the group’s entities were recognised as essential service providers, which allowed parts of the business to continue operating despite the restrictions.

Cassava says it will continue adopting mitigatory measures, within the bounds of the country’s laws, to minimise the adverse impacts of the challenging operating environment which saw the group report a ZW$1 billion loss for the full year to February 2021.

Said Cassava: “We continually evaluate the impact of the pandemic on our business over the short to medium term.”

During the full year, Cassava’s total revenue went down 26% to ZW$14.3 billion.

The fintech business unit is the group’s largest operating unit, constituting about 80% of total revenue.

Within the fintech business unit, 80% of the revenue comes from the mobile money business unit, EcoCash, and an analysis has been made on both the ability of the group and the biggest cash-generating unit, EcoCash, to continue as going concerns.

This also comes as mobile money subscribers decreased by 22% to 8.4 million for the full year.

According to the group, business performance for the period 1 March 2021 to the date of authorisation of the financial statements has been in line with forecasts at the beginning of the year, after taking into consideration the negative impact of the Covid-19-induced restrictions on business performance.

“Management is confident that the 12-month forecasts used in arriving at the going concern assessment are attainable,” Cassava said.

The group has ZW$2.7 billion of related-party payables which relate to debentures which were assumed pursuant to the demerger of the group from Econet Wireless Zimbabwe Limited on 1 November 2018. A total of 1 166 906 618 unsecured redeemable debentures with an annual compounding coupon rate of 5% were issued at a subscription price of US4.665 cents per debenture and these are accounted for as a long-term related party payable.

By close of its financial year, the banking subsidiary — Steward — capitalisation level was at ZW$600 million and based on the bank forecast at that point, did not appear to be able to achieve the revised minimum capital by 31 December 2021 through organic growth.

The RBZ announced a new capital requirement for banking institutions, pegged at US$30 million in equivalent, which must be met by 31 December 2021.

The group and the bank communicated to the RBZ in relation to the capitalisation plan to allow for compliance with the capital threshold by the set deadline.

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