While there are arguably some design and control issues in how that program is implemented, it is also unavoidably the case that bank credit has become a major stumbling block for all but the most profitable short term cash demands. By definition money demands which needs large amounts and repay quickly are speculative.
In other words there is a danger here of the government pushing for industries but institutions creating conditions for little more than trade-based speculative activities, some of which rhyme with fiscal needs of the government.
This is for instance the case when one considers the special place that Treasury bills and bonds are taking in the Dar es Salaam Stock Exchange (DSE), where it is increasingly difficult to find portfolio holders who are rushing to purchase industrial stocks, implying that there is less confidence in industry owing to declining purchasing power. It indicates a market failure syndrome for industrial shares.
Market failure is a situation where the factors of production hen left alone, or merely inserted into the medium of competition, fail to produce desired results on account of overarching considerations at a macroeconomic level.
Two elements of such consideration are at work here, one is market-based in the sense of a perceptible decline in the consumption power of the market, and another is structural, that the finances that industry relied upon for borrowing, surplus funds in commercial banks tied to term deposits of public institutions were removed. That is why a recapitalization formula is needed to end the doldrums.
At present there is disquiet at upper levels of the government over the credit situation in the country, but its focus deviates from the principal issue, namely in its concern with high rates of interest. Vice-President Samia Suluhu Hassan said at a microfinance policy launching ceremony that lenders (commercial banks, chiefly) ought to reduce interest rates to align the financial sector with government plans for financial inclusion.
That is where the shoe pinches because difficulties of accessing credit are in that view capable of being resolved by regulation; it is unlikely to work, given that even major companies fail to get loans.
The problem at hand is how two interrelated problems can be solved together, so that no new problem is created, namely ensuring that credit is available on the one hand, and that producers have markets for the goods they seek to bring out.
The latter issue is also being examined at top levels as another regulatory problem, for instance getting national institutions to purchase goods (medical drugs for instance) put out by local industries.
That too would fail the sustainability test, as in the final analysis producers must rely on the market, survive the competition. This requires quality goods, low prices, higher purchasing power.
If policies that lead to vast recapitalization of banks by liquidation of existing loss making entities can’t be figured out, it means that banks have to do with current levels of financing available, and that means the funds are loaned out prudently.
That is where the use of interest rate instruments comes up, and thus inclusion becomes an issue of lateral funding of microfinance institutions or groups, not via a regulatory option like cutting back interest rates generally. That is why Treasury has to solve these issues rapidly.