Excitement over loans through mobile phones

Dar es Salaam. Excitement is growing following reports that mobile phone subscribers may soon be able to borrow money through their phones and avoid the bureaucracy and stringent conditions associated with bank loans.

Some would-be beneficiaries yesterday said the facility could spur growth by encouraging individual savings and promote the culture of borrowing for economic productivity among millions of traders in the informal sector.

The Citizen revealed on Monday that the Bank of Tanzania (BoT) was considering a request by Commercial Bank of Africa (CBA) to lend through Vodacom’s M-Pesa platform.

If approved, it will be the first time subscribers would be able to access loans through their mobile phones. The potential and significance of the service is huge, considering the low financial penetration in the country, which has 28 million mobile phone subscribers.

Official statistics show that only 5 per cent of the more than 43 million Tanzanians have access to formal financial services.

Another 2 per cent are in the semi-formal class and 35 in the informal category. Tanzanians are also poor savers, with a record of only 12 per cent of the total national wealth.

But according to a trade association bringing together over 62,000 members, the planned loaning through the mobile phone could revolutionize the way financial institutions relate with medium and small businesses.

“We hail this move because it will bring relief to small traders who have been struggling to get low cost loans for many years without success.

Availing credit through the mobile-phone will come in handy for many,” said Mr Saidi Madanga, the executive secretary of the Association of Small Traders (Vibindo).

BoT is reportedly preparing guidelines for the entry of the lending facility through mobile money services such as M-Pesa, Tigo Pesa and Airtel Money.

“The cost of borrowing will be reduced not only in terms of cutting excessive bureaucracy associated with cumbersome procedures but also reducing time spent looking for the credit,” said Mr Madanga.

He said traders have often given up looking for guarantees such as title deeds, letters from witnesses, official stamps from ten cell leaders and local council leaders.

The Vibindo official noted that the process of formalization of small businesses will also be lifted as more people will venture into trading. “With mobile phone lending, even hawkers will be able to smile,” he said, urging for public sensitization ahead of the launch.

If approved, CBA Bank intends to expand in the region the mobile phone lending service that is already a hit in neighbouring Kenya under the brand ‘M-Shwari’.

M-Shwari has been described as revolutionary, allowing Safaricom customer to save and borrow money through their phone while earning interest on money saved.

Launched in 2012 jointly by CBA and Safaricom’s M-Pesa, M-Shwari has so far offered KSh8.7 billion (Sh165 billion) in loans with customers’ deposit of KSh24 billion (Sh456 billion), according to CBA report of February 2014.

With M-Shwari, Safaricom subscribers are also entitled to affordable emergency loans. It currently offers a maximum loan of KSh24,000 (Sh456,000), with a target of increasing it up to KSh100,000 (Sh1.9 million).

In Tanzania, CBA plans to start with quick loans of up to Sh500,000 to M-Pesa subscribers. BoT’s legal counsel, Mr George Sije, confirmed they were reviewing the CBA’s application before granting a licence.

The CEO of Zoop, Mr Manzi Rwegasira, was among those who also welcomed the initiative.

“This is a good move bearing in mind that many Tanzanians do not access banking services. This is expected to increase financial inclusion as more people will access financial services,” says Mr Rwegasira, who is also a financial analyst.

Currently, available mobile financial services include M-Pesa, Tigo-Pesa, Airtel Money and Zantel’s Ezy Pesa with monthly transactions of about Sh3 trillion, according to a report released early this month by the association of mobile phone operators.