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Loans for business start-ups no preoccupation of banks-TBA

28th November 2012
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Lawrence Mafuru

Local commercial banks do not wish to become stakeholders of any start up businesses and so they have denied extending loans to infantile businesses and experts say, it is only logical for they would be undertaking great risks with little or no insurance.

Tanzania Bankers Association (TBA) chairman Lawrence Mafuru made the remarks recently in Dar es Salaam during an exclusive interview with The Guardian, saying that most banks do not inject loans for capital to a start-up business because, in his explanation, the loans capital will only serve as equity.

“…capital loans are offered by investment banks like the Tanzania Investment Bank (TIB) …,” he explained and further elaborated that, commercial banks are ready to offer working capital loan which is entitled to be returned after sell of goods or services not start up capital loans.

So commercial banks offer loans to bridge the gap between production and sales say, payments for imbursement of salaries and tax after submission of contracts and invoices, expounded the chairman who acknowledged that “…it is unfortunate that we do not have enough investment or equity banks to provide capital loans….”

According to him, Tanzania’s stock exchange is not vibrant and that is reflected in the lack of capital but also, stock market is where equity can be raised.

On a different but related topic, the chairman denied allegations that banks are losing business to mobile financing systems saying that is not the case since after all, banks could only reach 10 percent of the over 45 million Tanzanians.

“…as bankers we compliment the telecommunication companies…they have made the transfer of money much easiest….,” he conceded.

Mafuru warned Tanzanians to stop defaulting on loans if they are to enjoy lower interest rates which are determined by, amongst other things, the price of deposits, network coverage cost, cost of landing and share holder interest profit.

Share holders require particular interest return annually in order to return capital. Therefore, banks tend to look for the risk free investment such as government treasury bills because the government never defaults.

“…most banks have been having problems with defaults from their customers then a potential percentage for default is also included to the normal interest rate to get some form of security from non-payments…,” said the chairman who also noted that the generalization of high interest to all clients due to a few defaulting ones will soon end given that this year, the first credit reference bureau has been licensed to operate with effect from next year, which will identify prime and bad borrowers in order for prime borrowers not to pay the default charges.

SOURCE: THE GUARDIAN