Research Journal of Finance and Accounting www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.7, No.8, 2016 166 Lending in Zimbabwe: Are Banks Using Enough Sources of Information to Make Lending Decisions? Loverage Chakazamba 1 Norman Marime 2 Munhumutapa School of Commerce, Great Zimbabwe University, P O Box 1235 , Masvingo, Zimbabwe Abstract The Central bank of Zimbabwe governor in his monetary policy statement of January, 2012 lamented that the deterioration in asset quality was of much concern to the monetary authorities. As a consequence of this statement this paper sought to investigate the adequacy of the sources of information used by Zimbabwean banks to make lending decisions. A qualitative research design was employed to enable the researcher to analyse the data using SPSS statistical packages. The data used in the study were collected from small to medium enterprises (SMEs), Commercial banks, and companies. The population sample of the study was 10 Commercial banks in Zimbabwe, 50 SMEs from 5 major cities of Zimbabwe and 10 companies listed on the stock exchange. The study evaluated the sources of information currently used by banks and came up with the following findings: the majority of financial statements the banks use are not audited and most of these unaudited statements are prone to manipulation, the clearance reports from the financial clearing bureau do not show any positive credit history, the bank reports are not adequate. The client may be tempted not to reveal where he/she has a bad name. In view of these shortcomings it is therefore recommended that financial institutions join together to form a credit referencing bureau which keeps all the borrowing records of all customers of the lending institutions. This will motivate the borrowers to perform better as they know that their history is readily available on the market. Even lenders themselves will shorten their turn around period as they will get the client’s comprehensive and up to date borrowing history within a short time. Keywords: Monetary Policy Statement, Non-Performing Loans, Microfinance Institutions, Small to Medium Enterprises, Financial Clearing Bureau. 1. Background According to Haynes (2012) information is the lifeblood of the modern economies. In many emerging countries, information about a business or an individual’s credit track record is simply unavailable resulting in difficulties in accessing bank credits and sometimes higher interest rates to offset the perceived risk. The Reserve bank of Zimbabwe Governor, Gideon Gono in his Monetary policy statement of January 2012 had this to say about the asset quality in Zimbabwean banks, “The Reserve bank has, however noted with concern the gradual deterioration in asset quality as reflected by the level of nonperforming loans which is now trending towards the watch list category. Asset quality challenges can potentially heighten liquidity risk given the current operating environment where credit is largely financed by volatile short term deposits. In this regard it is imperative that banking institutions enhance their credit management systems with special emphasis on credit assessment, origination, administration, monitoring and control standards.” This deterioration of asset quality appears to be the hallmark of the multiple currency regimes as the Reserve bank also in its 2009 stability report lamented the deterioration of the asset quality of the banking sector. This was reflected in the half year results of Commercial Banks in Zimbabwe which showed an increase in adversely classified loans from an average of 4.8% as at 30 June 2008 to 12.23% as at 30 June 2009. Even the Global Rating Company (2009) indicated that the asset quality of Premier deteriorated by 4.3% within a year. African Banking Corporation (2009) also revealed that asset quality deteriorated for a second consecutive year with the capital value in arrears position increasing from 10% to 14% of gross advances. Minister Biti (2012) lamented that the non-performing loans increased from 7.55% to 9.9% in 2012. Statistics released by the World Bank on Zimbabwe indicated that non-performing loans in the country increased from about 3.2% in March 2009 to 15.3% in May 2013. In its first half year results for 2014, NMB Holdings revealed that their non-performing loans figure doubled to 22, 8%. This is against the prudential threshold of 5% as stipulated in Basil II. The Bankers Association of Zimbabwe President George Guvamatanga in his address to the parliamentary committee in 2014 conceded that the average level of nonperforming loans has further deteriorated to 16%. This is at the backdrop of the non- performing loans figure released by the World Bank in December 2013 of 15%.However a consultant with Jack and Field Corporate Risk Advisory (2014) Mahlomakuru projected the level of nonperforming loans to reach 25% by end of 2014. This is against a situation where the majority of banks were no longer lending during the prevailing hyper inflationary period that existed prior to the introduction of the multiple currency system in 2009.As a result they only started lending in 2009. The above picture shows that there are high chances that these loans were granted with some inherent