The Bank of Tanzania (BoT) has issued the first license to the credit reference bureau (CRB) which is owned by Tanzania Bankers Association (TBA).
The bureau is tasked with improving the banking industry and economy as a whole.
A press statement issued by TBA and signed by its chairman, Lawrence Mafuru, said yesterday: “It is gratifying to see for the first time in the history of Tanzania’s financial sector the first Credit Reference Bureau has been licensed and it will be operational next year.
He said that could not have been possible if it was not for the joint efforts made by TBA and the BoT.
“I want to commend the Bank of Tanzania for playing the central role of ensuring that the requisite reference system that will house the data is established, the regulatory environment to govern the Credit Reference Bureau activities is in place and the subsequent licensing of the credit reference happens,” the statement said.
With the establishment of the bureau, TBA envisages an improved credit quality in the banking industry, more inclusion of the informal sector in the banking system, and most importantly, a better and managed economy for the country.
“I want to send some greetings to people who have track record of borrowing money from banks with the intention to default that their days are numbered and at the same time to assure those who have a track record of honouring their obligations that they must look forward to start enjoying prime borrowing rates in the market,” he said.
In a nutshell, some of the expected benefits accruing from the establishment of the Credit Reference Bureaus include broader and inclusive access to credit, better performing loans, reduced cost of lending due to low risk premium and hence low lending rates.
Others are improved profitability and hence sustainable growth of the banking sector, stability in the financial sector, reliable credit history of clients, integration with other consumer/retail sectors such as telecommunication, power, health care, insurance, automotive and registries and retail outlets.
According to him, the banking sector has always been accused of charging customers high interest rates but the reality is that on average, the interest rate that the borrower ends up paying includes between 5-10 percent of risk premium that is paid by all borrowers regardless of the behaviour simply because there is no any system of identifying prime borrowers and sub-prime borrowers but this will now be addressed through credit reference bureaus.
Mafuru said: “I think what makes this even more exciting is the fact that the national identification project is also in top gear and once each Tanzanian is identified then there will be nowhere to hide.”
He further added: “At TBA we are pleased to be part of this long awaited milestone and we urge our clients and the general public at large to welcome this development positively as a solution to financial inclusion of the informal sector, assurance to reduced cost of lending and eventually alleviation of poverty amongst our people.”
He said TBA recognises the important role that banks play in the development of any economy, particularly lending to productive sectors of the economy.
“However, in our country, the non-repayment culture has, to a marked degree, been a major challenge facing banks and financial institutions, hence leading to cautious lending at relatively high interest rates,” he noted.
Following increasing rate of nonperforming loans, TBA members in 2001 agreed to share negative information on customers so as to minimise the growth of nonperforming loans and reduce cost of credit.