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Why cutting interest rates, improving loan servicing key

Wednesday July 21 2021
Interest pic

The Headquarters of the Bank of Tanzania, which is the main financial regulator in the country. PHOTO | FILE

By Gadiosa Lamtey

Dar es Salaam. At a time when the government was urging commercial banks to reduce interest rates, stakeholders say there was also a need for concerted efforts to raise repayment rates.

Achieving the desired lending interest rates would require more than commitment from the banking sector, some stakeholders argued yesterday, noting that members of the private sector would also require a certain degree of self-regulation in as far as loans were concerned.

Speaking during a breakfast meeting between the Tanzania Bankers Association (TBA) and the Minister of the State in the Prime Minister’s Office (Investment), Mr Godfrey Mwambe, the analysts said a rise in repayment rates would enable banks to finance more projects at reduced lending rates which is vital for economic growth.

“The bank can identify an opportunity for investment and find people who are capable but unfortunately, even among good traders there are some dishonest individuals who are clever at applying court injunctions to the property that was used as collateral for the loan,” observed Mr Daso Mussa, who represented Amana Bank at the meeting.

He said: “We request the government to put more effort in mechanisms that would boost repayment rates because at the end of the day we can lend more if we have the assurance that the money will be returned.”

NMB Bank Plc’s chief finance officer Juma Kimori said some financing models that, once deployed, would boost economic growth, needed coordination by different players, including the Ministry of Agriculture and that of Finance.

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“We all know that there are certain challenges that the sector is facing and the critical issue is how to finance individual farmers who were earlier being financed through Amcos [Agricultural Marketing Cooperative Societies],” he said.

He said to effectively finance the farmers, the lenders needed to critically analyse the models that work better for their finances especially as the behaviour and attitude towards loan repayments were different.

“The money we issue out as loans comes from shareholders and depositors and therefore, it is important that we get support from the government especially when things go wrong. It is a question of how we refund the money to depositors after borrowers failed to repay the same due to misconduct or mismanagement,” he said.

He added taht the government has guaranteed to pay some of the funding, however, this has not been garnered. Therefore it becomes a risk and needs coordination in terms of how to create an environment that is conducive and ensure government honours its pledges on guarantees.

Businessman-cum politician Silvestry Koka said the private sector needs to be smart in its self-regulation mechanisms to ensure that loans were repaid on time.

“By doing, so it will help other people to get loans and improve the economy further,” he said.

Mr Koka, who doubles as Kibaha Urban Member of Parliament, said at some point, some businesspeople took their proposals to the bank, detailing how the loan would be utilised but on the contrary, some ended up spending the cash on personal needs, thus defaulting on the loan.

In his remarks, Mr Mwambe called on banks to be fully involved in large projects, saying chances of quick loan recovery were high in such projects.

“I don’t have a specific agenda but I have seen it’s high time for the government to increase engagement with the private sector and the banking sector is very important to see how to help investment issues in the country,” he said.

Mr Mwambe said banks were very important in investment that was why it was crucial to meet with them and discuss the roles of banks in fostering economic growth. “I had a meeting with Confederation of Tanzania Industries (CTI) and today, it is the turn of bankers.”

He said: “Banks can buy machines, for example, for adding value to cashew nuts. This can help the products to be sold early and at the end of the day the loan will be repaid on time. It is for this reason I say there is a need to participate directly in development projects.”

TBA chairman Abdulmajid Nsekela said it was high time for the bankers to be partners and work together with the private sector without fear of each other in ensuring the economy was developed.

Moreover, he noted that it was important for bankers to find appropriate models of financing startups, which would in turn create more business for banks and contribute to the country’s economic growth through the creation of more wealthy people.

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