18 December 2017

Tanzania: Interest Rates 'Cap' On Loans March Next Year

BANK of Tanzania (BoT) is set to introduce interest cap on loans policy before March next year. The policy, the second of its kind in East Africa after the Kenyan one, was on the final writing stage.

The BoT Deputy Governor - Financial Stability and Deepening, Dr Bernard Kibese, told 'Daily News' in Dodoma that the policy envisaged to bring lending fair level in the country. "I cannot reveal much at the moment, but the policy will be out in as early as March," Dr Kibese said.

He said the central bank has learnt a lot from Kenya and South Africa and is expecting the capping policy would foster instead of backpedal banking sector growth. "We have gathered other experiences which will assist us to mitigate risks and challenges they faced.

The rate and modality will be known once we launch the policy," he said. President John Magufuli while opening CRDB Bank super branch in Dodoma directed BoT to speed up preparing interest rate cap on loans so as to bring fair level on rates.

"(BoT) speed up the capping policy for all banks to have uniform rates on loans... this way many will be able to lend," Dr Magufuli said. The President acknowledged that loan's interest rates were high and that there was a number of associated risks but pleaded to the banks to lower them.

"High interest rates back tract investment in the economy... we have introduced a number of strategies to help banks lower the rates. Please use them," he said. Among the strategies introduced are credit interest rateand the ongoing issuance of the national ID.

Dhow Financial Chief Executive Officer Prof Mohammed Warsame said the interest capping policy is common in the world, what matters most is the policy content. "I cannot comment further until we see the cap policy first. But a number of countries in the world have the cap rates.

The most common is US Fed rate. "Also our cap policy differs in preparation nature with Kenya. The Kenyan was the outcome of 'Bunge' but ours is BoT initiative... but let's wait and see the policy first... " Prof Warsame said.

The Kenyan capping law introduced last year requires banks to charge four per cent above Central Bank Rate (CBR) -- currently at 10 per cent and directing banks to pay interest on deposits at a rate of at least 70 per cent of the CBR.

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