Hilary Muza 
FINANCE is a vital ingredient for economic growth. It is also the lifeblood of any business. How to raise finance in the form of the various sources of capital (such as debt, equity, derivative and hybrid securities) is part of the core functions of small to medium companies (SMEs) and major going concerns alike.
In this week’s piece, I will look at how capital can be raised in Zimbabwe, as well as proposing new avenues for raising capital.
In particular, I will look at how financial technology (fintech) can be leveraged to spur the securing of capital from non-traditional sources.
The Victoria Falls Stock Exchange
The Victoria Falls Stock Exchange (VFEX) is a stock market, a place where people buy and sell shares, or stock, in companies on the basis of how much they think they will be worth in future.
It is a subsidiary of the Zimbabwe Stock Exchange (ZSE) and was established in 2020. Its trading currency is United States dollars, meaning that dividends are paid out in US$ or any other convertible currency.
How companies raise capital on VFEX
By listing securities on VFEX, companies are guaranteed capital in US$ or a convertible currency when those securities are traded.
The Exchange Control (Special Provisions for Securities Listed on Victoria Falls Stock Exchange) Regulations, 2020, however, provide that a company cannot list on the VFEX unless it is also listed on the ZSE.
Companies also cannot list on the VFEX more than 20 percent of their capital (or stock) on the ZSE at any given time.
The regulations go on to confirm that any capital raised shall be from an offshore source or from free funds. This essentially means that the capital gained from listing on the VFEX shall solely be US$ or a convertible currency.
There is also a dispensation for companies not listed on the ZSE. An application can be made for listing on the VFEX in accordance with the listing rules provided by the Securities and Exchange Commission.
Companies that successfully apply for listing on the VFEX are compelled to re-invest or use 20 percent of the capital raised in Zimbabwe within five years from the date it was raised.
The use of the word “use” suggests that the 20 percent can be used for any purpose whatsoever, be it settling overheads or paying service providers, just so long as it is used locally.
The VFEX provides companies with peace of mind because they do not have to worry about local currency volatility.
Equally important, the VFEX opens the door for international investors and stock traders to invest in Zimbabwe with substantially minimised risk.
The fear has always been how to get money out once the investment matures. This problem is answered by the VFEX mechanism. This in turn translates to faster and more efficient means of raising capital for local companies.
Advantages of the VFEX
Companies can raise much needed hard currency. This is especially beneficial for companies whose business is export-import oriented and for those whose business is heavily forex-reliant like mining.
For instance, local tech companies that service the local market using products from international suppliers. These suppliers normally refuse to extend credit facilities to local companies because of the difficulties in raising foreign currency to pay for products and services. For this reason they demand cash upfront, which is far from ideal for business.
Raising hard currency from the VFEX can potentially help companies negotiate better payment terms and opening more mutually beneficial lines of credit. Even the sole fact that a company is listed on the VFEX can be leveraged to create some wiggle room at the negotiating table.
Dealing in US$ also means that inflation is kept at bay. A number of securities can be used to raise capital. Remittances are also easier, which means that offshore investors are guaranteed they will receive their return on investment easily.
Crowdfunding
Crowdfunding is the practice of funding a project or venture by raising money from a large number of people who each contribute a relatively small amount, typically via the Internet.
I want to talk about this avenue for raising funds particularly as it relates to tech-based companies. Fintech solutions tend to have local application but universal appeal.
This means that investors can find local fintech start-ups attractive to invest in but do not have the means to do so, especially in small and incremental ways.
For example, Tile, the company whose technology was simulated by Apple’s Air Tags, received a crowdfunding boost and managed to make an imprint on the market. Crowdfunding can potentially be a great source of funding for companies that do not yet have access to financial markets.
If legislation is created that can facilitate crowdfunding, a vibrant and viable alternative to money markets can be created that ensures that fledgling companies are not starved of capital early on.
Muza is a duly admitted legal practitioner and litigation specialist. He writes in his personal capacity and is reachable at hilarykmuza@gmail.com and at 0719 042 628
