Tanzania: What Bot Measures Mean to Citizens

Dar es Salaam — The productive sector will soon find it easy to access bank loans as the Bank of Tanzania (BoT) issues new measures intended to reduce interest rates on loans and promote credit intermediation.

The measures were well received by bankers yesterday as soon as the central bank officially announced them.

Those who spoke to The Citizen said BoT's latest policy measures laid a solid framework to increase liquidity and reduce cost for private sector lending.

Under the measures - which were issued and came into effect yesterday - the BoT would introduce a Sh1 trillion special loan fund valued for banks and other financial institutions to access money for lending to the private sector.

Money from the fund will be accessed by commercial banks and financial institutions at an interest rate of three percent per annum for pre-financing or refinancing of new loans to the private sector, according to BoT's Governor Prof Florens Luoga. "A bank wishing to access the special loan facility shall be required to charge an interest rate not exceeding 10 percent per annum on loan extended to the private sector. This measure intends to increase liquidity to banks and reduce lending rates," he said. Speaking to The Citizen, chairman of the Tanzania Bankers Association (TBA) Mr Abdulmajid Nsekela said this strategy would provide substantial liquidity to enable commercial banks in the country to lend to the private sector.

"We have embraced it positively because it would increase banks' capital and raise liquidity, but at the same time, it will facilitate the reduction of interest rates," said Mr Nsekela who doubles as CRDB Bank Plc managing director. The TBA deputy chairman and Standard Chartered Bank chief executive officer, Mr Sanjay Rughani, said it was encouraging that the BoT has come up with measures that, he said, would bring about both stability and growth.

This, he said, was vital considering the fact that it comes at a time when the world was still grappling with the Covid-19 pandemic. "The measures outlined in the circular in relation to promoting credit to the private sector and lowering interest rates have been through good positive engagement with TBA members. They will surely support both future economic recovery and long-term economic growth and as banks we are committed to implementing related measures swiftly and effectively," said Mr Rughani.

In terms of impact, he said the measures will surely see an increase in liquidity, expansion on qualifying lending amount and ultimately expand credit to private sector.

"The relaxation of agent banking eligibility criteria also avails an opportunity for the industry to expand its distribution network, which in a medium to long run will certainly be beneficial both in terms of driving financial inclusion and mobilising deposits," he said.

NMB Bank Plc's chief executive officer Ruth Zaipuna, said the measures were encouraging, saying they would increase liquidity in banks, promote credit to the private sector and lower interest rates. She said NMB had played a pivotal role in financing the agriculture sector that employs the majority, and is the mainstay of Tanzanians.

"With the new measures taken by the Bank of Tanzania, the reduction of interest rates will stir increased lending to sectors such as agriculture and its value chain. NMB will continue to collaborate with the Bank of Tanzania to ensure the intended objectives are attained," she said.

For Tanzania Agricultural Development Bank (TADB), Mr Japhet Justine, said it was encouraging that the policy brings more practical and timely measures to influence financing growth in agriculture, a sector that employs nearly 70 percent of the population.

"For many years we have been talking about facilitating agriculture financing, so we are very excited that the government has designed specific incentives for the sector," Mr Justine said. He said implementation of the strategies would eventually raise farmers' returns, productivity and improve the value for credits in the sector.

"It is now the time to initiate projects because this shows that funding will be available," he said. In its measures, the BoT also announced a significant relief to commercial banks that extend credit to the agriculture sector by reducing their statutory minimum reserve requirement (SMR), equivalent to the loan extended.

"A bank shall be required to submit evidence of lending to agriculture at an interest rate not exceeding 10 percent per annum. This measure intends to increase lending to agriculture, it also aims to reduce interest rate on loans to agriculture," Prof Luoga said in Dodoma yesterday.

Other measures, announced by the BoT yesterday, include removing the 18-month business experience requirement for agent banking businesses applicants.

From now on, the BoT said, applicants for agent banking business shall be required to have National ID Card or National ID Number only.

"This policy measure is expected to contribute to increasing in loanable funds to banks through deposit mobilization," said Prof Luoga. The BoT has also designed a measure that intends to contribute to lowering costs of funds to banks, thus helping lending rate reduction, by limiting the interest rates paid on mobile money trust accounts. "Mobile money trust account balances held with banks shall be eligible to interest rate not exceeding the rate offered on savings deposit accounts by the respective bank," it says.

Moreover, The Bank of Tanzania shall reduce risk weight on different categories of loans in computation of regulatory capital requirements of banks.

Good move

Repoa Executive Director, Dr Donald Mmari said the decision was good because it aimed at increasing liquidity in the economy. He said due to liquidity challenges, a majority of banks were reluctant to issue loans but with the new measures, they can now loan without affecting their statutory requirements.

He however noted that the effectiveness of the measures will also depend on the current economic situation after the Covid-19 pandemic.

"At the end of day, the cost of doing business and the business environment, are the most important because no investor or businessperson will go for loans if they are not sure of the business environment," he said.

An independent financial analyst from CFX Consulting Services, Christopher Makombe congratulated President Samia Suluhu Hassan for instituting the step which, he said, was long overdue. He noted lending interest rates of between 16 and 18 percent were too high to nurture the growth of businesses.

"Banks should use the Sh1 trillion stimulus package to help businesses to expand," he said.

Meanwhile, economist from the University of Dar es Salaam, Abel Kinyondo said the decision to introduce special loans amounting to Sh1 trillion to banks and other financial institutions for co[1]lending to the private sector will have a huge impact on the economy.

He said the introduction of the Sh1 trillion ensures that banks will comply and reduce the interest rate to the intended 10 percent. "The loans will now not only reach the public but reach them at affordable rates," he said.

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