INTERVIEW: Sixteen years since it was established, the Kilimanjaro based Mwanga Community Bank (MCB) is now consolidating its position with a view to expanding its services beyond the region. In this interview, the bank’s managing director, Mr Abby Ghuhia, explains more.
Mwanga Community Bank Limited (MCBL) has its branches in different parts of Kilimanjaro Region. Kindly tell us the bank’s expansion plans away from Kilimanjaro – if any.
Currently, the bank’s licence, granted by the Bank of Tanzania (BoT), allows it to operate only within Kilimanjaro Region. However, we are in the process of raising our core capital so we can apply for a licence to operate outside Kilimanjaro.
How will you do that?
We are being guided by our five-year business and capital growth plan. (The plan seeks to see the bank increasing its core capital so it can apply for license to operate as a Microfinance Bank from the BoT and thus be able to go beyond Kilimanjaro). Within our strategic five years business plan our bank formulated strategies for growth including increasing our market share, investment, technology and capacity building. Projected variables including capital are targeting our stakeholders for uptake of our products and utilization of our services which are definitely cost effective and competitive.
MCBL currently has four branches – located in Moshi, Same, Hedaru and Mwanga. The bank is also in the process of establishing Agency banking in which our services will be offered through business outlets of agents located in various strategic and remote areas within Kilimanjaro and beyond.
Our big and growing market share is based on village servers through linking Savings Groups/VICOBA. Moreover, we are increasing our outreach to the communities by providing efficient and affordable financial services that cater for their needs.
You once hinted on listing MCBL’s shares on the Dar es Salaam Stock Exchange as a way of raising capital and brining the bank closer to the people. Any updates on that?
We are still in the process of joining DSE as our board and shareholders have approved the move. We are in the initial stage of studying the process and planning.
In your view, how would you describe the future of the banking sector in general and that of MCBL in particular in the coming five to ten years?
The banking subsector will benefit from fair competition given that no commercial bank is enjoying free government deposits and all players will move to the community for deposit mobilization and prices equilibrium will be achieved in the sector through equal competition in the market. Banks will also be competing with mobile network operators who are offering financial services at much affordable and convenient to small and micro enterprises especially in rural areas. This competition will force banks to acquire and utilize alternative delivery channels in order to be competitive in terms of technology. Through this transformation, formal financial inclusion will increase with increase of usage of services and products at affordable cost to the clients.
MCBL will not be left behind in the growth of the subsector. We shall mobilize resources in terms of capital and deposits to ensure that we are competitive in the market especially in rural areas. Through usage of alternative delivery channels (branchless banking) we shall be able to penetrate market segments beyond our frontiers.
The financial sector as a whole will benefit from the multiplier effects of the government’s industrialization drive.
So in short, what would you comment on a directive by the government to ensure that all its institutions should transfer their funds from commercial banks to the BoT?
That directive has had no impact on MCBL since we did not hold such funds. was not holding such funds. However as explained above, the move will create fair completion in the industry for product pricing.
There are constant cries from borrowers over the exorbitant interest rates charged by banks on loans. Don’t you think banks would attract more borrowers by charging considerable interest rates and therefore benefit from a larger base of borrowers?
Community banks were established to enhance financial inclusion through offering affordable financial services to the community which consists of large number of adult population not served by the formal banking industry. All banks and financial institutions charge interest on loans based on Cost of Funding, risk premium, administrative cost and profit margin. Banks including MCBL could charge low interest rate if it could lend out of mobilized savings from customers but due to high demand for loans banks are borrowing from financial market at high interest rates ranging from 16 to 20 per cent. If clients could repay their loans according to repayment schedule could lower risk premium which is pegged at five to seven per cent but many clients default in repayment which increases risk coast to the banks and therefore increases interest rates.
As MCBL, we are working hard to lower costs so as to be able to lower interest rates charged on loans. However, it is worthy to note that interest rates charges has low impact on demand for loan product offered by banks and financial institutions. According to a study conducted, accessibility is the factor which determines loan product usage and not interest rates.
What are the main challenges that your bank faces and what is the solution?
Four first challenge is that of operating in one region. Due to the fact that we are licensed to operate in Kilimanjaro region only we cannot open a branch in other attractive markets like Dar es Salaam, Arusha and Mwanza among others.
In dealing with this challenge, we are promoting agency banking so as to remove the boundaries. We are also in the process of increasing our capital in order to be licensed as a Microfinance Bank which is allowed to operate in more than one region.
Our second challenge is that demand for loans is higher than deposits/savings growth. After opening service centres, the number of clients has increased from 24,000 to 70,000 within a period of three years. The growth increased demand for loans as compared to growth in deposits. Clients only save in their accounts in order to meet requirement for borrowing. This phenomena increased liquidity pressure which forced us to borrow from other Financial Institutions at high interest rates in order to meet the demand.
We are mitigating this challenge by intensive marketing of our community based savings products.