Bayport loses over Sh5bn in ghost worker defaults

Dar es Salaam. Ghost workers have hit the financial sector hard with rising defaults following the removal of non-existent employees from the government’s payroll.

Bayport Tanzania, a non-banking financial institution, has registered Sh5 billion in defaults as the government cracks down on phantom workers.

The financial service provider, which offers unsecured retail credit, mainly to salaried workers, said it discovered that over 2,000 loan recipients were ghost workers whose accounts and salaries were suspended following the verification of public employees ordered by President John Magufuli last November.

The government said in May that it had struck more than 10,000 ghost workers off its payroll after a nationwide audit established that Sh4.5 billion was being paid to non-existent employees every month.

“It’s a very big challenge which increased the default rate from an average of five per cent to seven per cent,” Bayport CEO John Mbaga said at a media workshop yesterday.

Default rates are said to be much higher among commercial banks, which have bigger loan portfolios. A leading commercial bank is said to have registered Sh50 billion in defaults due to ghost workers. Major commercial banks were not immediately available for comment yesterday.

Bayport issued Sh47.9 billion in loans in 2015 and expects to issue Sh60 billion in 2016, said Mr Mbaga.

The firm, which has 82 branches countrywide, is celebrating 10 years since it started operating in Tanzania.

The company offers financial services ranging from personal credit and mortgage and insurance products, but its lending interest rates are higher than those of banks.

However, Bayport says it has no control over lending rates. The firm charges interest rates of up to 32 per cent,while many banks charge below 25 per cent. “We should understand that Bayport does not take deposits like commercial banks. We actually borrow from commercial banks and lend to our customers. We have to charge higher rates to cover the cost of loans were take from commercial banks,” said Bayport Chief Operating Officer Ally Abdallah.

“One could ask why a borrower should come to Bayport with its higher interest rates, but it should be understood that commercial banks have stringent conditions for individuals, while we only need one’s salary details to offer them unsecured credit,” he added.

Mr Mbaga said that the company was talking to development financial institutions such as the World Bank’s International Finance Corporation and KfW of Germany, which offer cheaper loans.

“Once we agree and access loans from these institutions, our interest rates will fall significantly,” he said.

“The level of the rates will depend on the strength of the shilling as these loans are pegged in dollars.”