Why the banking system in Tanzania must switch its focus

Rev Victor Machad

What you need to know:

What I witnessed there is that even the poorest can easily access bank services. So, there are banks working in the most remote parts of the country. When one visits there, one won’t find imposing infrastructure or any other limitations normally associated with banks. Bankers go from house to house soliciting deposits because a huge target is set before every branch manager to procure certain number of accounts within a specified period.

I have spent nearly 25 years in an NGO that I helped found. This worked in the most backward parts of India where people live below the poverty line. I know a few other banks that function in the area.

What I witnessed there is that even the poorest can easily access bank services. So, there are banks working in the most remote parts of the country. When one visits there, one won’t find imposing infrastructure or any other limitations normally associated with banks. Bankers go from house to house soliciting deposits because a huge target is set before every branch manager to procure certain number of accounts within a specified period.

Even the savings accounts fetch interest from the bank. This motivates the poor to open accounts in a bank. Banking is a regular activity for people from all walks of life.

Upon coming to Tanzania, I have observed quite the contrary. There are no banks in rural areas. They are all based in urban centres. Their infrastructures are endowed with luxurious complexities which make them appear elite.

I have not seen the poor going in these banks. In a number of villages that I have visited, it is rare to find a household that runs a bank account. Banks on the other hand charge money from the people for their deposits. This is the primary factor that discourages people from depositing their money in the banks.

Banks in India are designed such that they can serve people even in remote areas. It is, therefore, no wonder to find a bank manager seated on a wooden chair and table in the open. There is neither air-conditioning nor an imposing building. Bank operations are conducted in small rented houses in the rural areas. People feel quite comfortable to enter these banks. The bank staff are very friendly and extend personal attention to their customers.

The banks in Tanzania are pro-elite. We had a very bad experience towards these banks when we first started our secondary school in Mwanga District, Kilimanjaro Region. We went from one bank to the next requesting for a loan when we fell short of finances for putting up the infrastructure. No bank came forward to help us. What they wanted from us was 200 per cent guarantee that we would be able to repay it!

If one has such a strong financial position, why would they go to borrow money? If the banks do not help those who seek credit for new ventures, what is their contribution towards nation building? They are there to help only those who borrow for the sake of appearance in their balance sheets!

The banks in India are regulated both by the Reserve Bank of India and the government to accelerate credit to the poor. The government has initiated various schemes for the economically weaker populations which are offered through the banks. Negligence of the poor by the banks invites the wrath of the government. There are clear instructions to start branches in the most rural areas. It is mandatory for the bank staff to give service for a certain period in remote areas.

What is most consoling to see in India is the starting of the self-help groups in the villages which are known as people’s banks. About ten to fifteen people come together to form a group, carry on regular savings and lending activities and deposit their money in the banks. The banks in turn foster such initiatives and offer credit facility to the groups.

Once the trust is built up between the groups and the banks, a bigger amount of credit facility is given. There is an economic revolution in the rural areas because of these people’s banks.

In Tanzania too there are people’s groups which are called Village Community Banks (Vicoba). But rarely do you see them getting encouragement from the banks or the government. They are left on their own to fend for themselves. Many times these groups are misguided and end up in disaster.

Indian Prime Minister Narendra Modi has started a scheme where every household is encouraged to open a bank account. This has brought about miraculous results and hundreds of thousands of rupees are being deposited in banks. Even the subsidy money from the government for various beneficiaries goes directly into their bank accounts. Perhaps, such a facility for the poor in Tanzania is a distant reality.

We need revolution in the banking sector in Tanzania. The following are required:

Firstly, banks should go out to remote areas and enhance participation of the poor. Though it may not be possible to start banks in every village, it can be done at ward levels. Though there exist in some places the saving and credit co-operatives , they do not exactly become a good substitute for banks. Many times these co-operatives are mismanaged.

Secondly the banks should offer incentives to the poor who deposit money in the banks. A small interest rate should be offered.

Thirdly, the banks should issue loans to the people to start small enterprises. Efforts should be made to strengthen the Vicoba groups through awareness and capacity building. Fourthly, banks should cut down expenditure on extravagant infrastructures. More branches should be started with minimum expenditure. The government should offer security to these banks.

Fifthly, it should be made mandatory for bank staff to work in rural areas for a certain period. They should initiate the people towards banking and facilitate economic activities in the villages. More staff should be assigned for rural development. Banks can bring about a turnaround in Tanzania’s economy if they are mobilised to achieve economic objectives. Otherwise they will remain as the servants of the rich only.

Rev Victor Machado is the trustee of St Joseph Boys’ Science Secondary School, Kituri, Mwanga District, Kilimanjaro Region