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Listed firm shares offer ample trade, CMSA tells banks

17th May 2012
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Financial institutions have been censured for lagging behind in grabbing opportunities associated with sale of shares of listed firms thus pulling back efforts to promote capital market investment.

Although the legislation provided by the Capital Markets and Securities Authority and the Dar es Salaam Stock Exchange does not compel banks and other financial institutions to trade listed shares in their businesses, some of these institutions are still reluctant accept them, particularly from investors who want to use the certificates as collaterals for loans.

Speaking to The Guardian in an interview, CMSA Public Relations Manager Charles Shirima, said some commercial banks have been accepting shares of listed companies to be used as collateral but other s have not been providing this vital service.

“This is a world wide practice whereby banks accept share certificate as collateral in order to promote capital markets, but in Tanzania many financial institutions are reluctant to take it up for their own causes,” he added.   

Experts in financial management and investment have however called on the government to review the legislation to enable bourse investors to use their share certificates as collateral when look for loans from financial institutions.  

This was said in Dar es Salaam on Monday by Samson Liwenga, a stock market expert, when speaking on the current challenges facing the development of capital makrtes.

He said by allowing share certificates from listed companies to be used as collateral for loan procurement, for example, it would enable the investors to expand their business horizons.

“We all know that loans play a crucial role in development, time has come for all the commercial banks to accept share certificates to be used as collateral for loans inssuance,” he insisted.
Liwenga, who is based in Malawi said some commercial banks in African countries have started to accept shares as collateral for money borrowing.

“We have countries such as Nigeria, Ghana, Ethiopia where their commercial banks are already using certificates as loan guarantors,” he added.

He said, in Tanzania, already only few commercial banks have started to accept share certificates as guarantee for loan issuance.

Even the CMSA  acknowledge that financial institutions are increasingly accepting shares, particularly of listed companies, as collateral for loans, he said.

The authority said central depository system based process to mortgage shares has proved beneficial for both lenders and borrowers as it is transparent, not time consuming, has no valuation costs and chances of forgery are minimal.

“Treasury bonds and bills and listed corporate bonds are equally acceptable to most by lending institutions as collaterals, “ he said.

UTT board chairman Prof Joseph Kuzilwa was recently quoted as saying that the institution is planning to enable its shareholders access bank loans using their share certificates as collateral.

He said some banks including CRDB, Barclays, StanChart and Azania have also approved the programme to allow UTT shareholders to acquire loans through their savings.

Another expert, Jerome Kanama urged the DSE to provide information and educate Tanzanians on the benefits of investing in the stock market.

"Trading at the DSE would benefit only a few people, especially those residing in Dar es Salaam. People from the rest of the country seem completely unaware of the significance of participating at the bourse," he noted.

He outlined the direct benefits in investing in the stock market as dividends, selling and trading stocks and using shares as collateral to access bank loans.

"This is a long-term investment that shareholders should focus their attention on for their own economic benefits," he said.

However, the bourse admits that few privatised firms are listed, saying the main reason is that most of them are not making profits.

Another reason for the few listings is that a firm is required to conform to bourse regulations, among which is making profit for three years in a row, a prerequisite most of privatised parastatals lack.

SOURCE: THE GUARDIAN
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