SMEs appeal for interest rate caps on bank loans

Dar es Salaam. In a fresh bid to lower the costs of borrowing, investors are calling for capping of interest rates for Small and Medium Sized Enterprises (SMEs).

The call to regulate the interest rates was made yesterday at an event to unveil the findings of the ninth Tanzania Top 100 Mid-Sized Companies Survey, whose winners are set to be announced today during a gala dinner.

The survey, which aims to identify the fastest growing mid-sized companies and reward them, is a brainchild of Mwananchi Communications Ltd (MCL) through The Citizen brand, and KPMG, an audit, tax and advisory firm.

Presenting the findings, Dr Remidius Ruhinduka, ZA Advisory research lead, quoted the participants as saying: “The government should regulate interest rates for SMEs.”

The Bank of Tanzania (BoT) is however on record as saying that it did not favour interest rate capping, instead preferring commercial banks to compete in attracting clients through better offers. The central bank has also provided several relief on inter banking interest rates and minimum strategic reserve in order to stimulate lending to the private sector. Average lending rate for all maturities of loans, was 16.77 per cent in August 2019, lower than 16.86 in the preceding month.

Mr Ruhinduka further said the participating companies also called for an increase in the range of assets accepted as collateral.

The findings of the survey to find out whether mid-sized enterprises were grappling with challenges in securing finance, show that 85 per cent of credit applications were approved, with only 15 per cent being rejected.

“Out of the rejected credit applications, 76 per cent were turned down due to lack of collateral and security,” revealed Dr Ruhinduka.

Furthermore, 55 per cent of midsized companies were able to secure finance within one month of loan application.

To increase accessibility of loans, investors are also calling for financers to come up with innovative and affordable products.

“We appeal to financiers to reduce financing requirements to a minimal level, to fuel our appetite in borrowing,” they said.

Industry and Trade minister Innocent Bashungwa advised commercial banks to sit together and discuss on ways to share risks so that they could lower the costs of borrowing.

He said large commercial were likely to lose clients in future should they not change their strategy in attracting Small and Medium-Sized Companies (SMEs).

Mr Bashungwa said majority of large lenders were afraid of taking risk when it came to giving loans to SMEs. Surprisingly, he added, small commercial banks were willing and ready to lend the group in question.

CRDB Bank corporate banking director Prosper Nambaya said the problem with majority of credit applicants is how to prepare a workable idea.

“We need to be more innovative. Before even thinking about a collateral, the big challenge is how to prepare a well-organised idea,” he noted.

While CRDB Bank is the main sponsor of this year’s Top 100 Mid-Sized Companies Survey, other sponsors are Financial Sector Deepening Trust (FSDT), Azam TV and Serena Hotel.

Chairman and chief executive officer with Infotech Investment Group Ali Mufuruki believes it was hard for the manufacturing sector to grow, if they kept relying on loans from only commercial banks.

He backed up his concern with the fact that their rates are high and cannot enable them compete in international markets.

“There is a need to put up banks that provide affordable loans that will take the manufacturing sector to the next level,” opined Mr Mufuruki.

He appealed to the government to form favorable policies that would increase investors’ confidence.

The Bankable managing partner, Mr Lawrence Mafuru, called for the companies to automate their operations if they were to grow.

“There is no way you can grow without embracing technology,” noted Mr Mafuru. His sentiments were echoed by the MCL managing director, Mr Francis Nanai,

The CEO Roundtable executive director, Ms Santina Benson, called for closer collaboration between vocation institutions, education sector, government and private sector, to produce skills needed in the market.

In another development most of medium-sized enterprises, who took part in the survey, showed confidence in the economic growth.

The findings show 49 per cent said the economy was improving compared to the past six months.

In the same vain, 69 per cent are positive the economy would improve even more in the next six months.

Furthermore, 35 per cent and 19 per cent believe that the economy is stagnant compared to the past six months and would remain the same in the next six months respectively.

On the other hand, while 16 per cent of the participants said the economy was getting worse compared to the past six months, 12 per cent maintain that things would remain the same (worse) in the next six months.

For eligibility in the Top 100 Mid-Sized Companies Survey, firms are required to have an annual turnover of between Sh1 billion and Sh20 billion.

They must also provide financial performance statements for three years, among others.

They also have to have audited books of not less than three years, should not be listed, not be a bank, insurance or legal company.

While 66 per cent of the participants in this year’s survey are locally owned, the rest are owned by foreigners and others are in form of joint venture.