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Why banks are the key to economic growth
2005-06-22 09:29:25
By Editor
Asking why banks are key to economic growth could sound as tautology. We are all aware of the presence of banks, and some of us operate savings, fixed or current accounts with one of the 30 banks currently operating in Tanzania. Some salaried workers` monthly emoluments are channelled through bank accounts.
Before the enactment of the Banking and Financial Institutions Act (1991), all banks were state owned with little competition among themselves.
Mismanagement, misappropriation as well as the flouting of basic principles governing the banking business saw most banks going down the drain. Privatisation was a necessary evil to save them from total collapse.
With the liberalization of the financial sector, we have witnessed the mushrooming of banks and other financial institutions.
We have merchant banks, retail banks, community banks, savings and credit co-operative societies (SACCOs) and bureaux de change.
But what is the economic role of banks and financial institutions? These are guided by the economic law of financial intermediation. Banks link savers with borrowers.
By using their expertise and experience, banks lend to projects proved to be viable, hence their critical role in fostering economic development.
Given Tanzania`s poor information and communication infrastructure, the public is starkly unaware of the various lending products on offer by banks.
Unfortunately, this is happening when banks are even more ready to lend than ever, owing to the declining rate of default on loans.
This apparent information gap can potentially be detrimental to development.
And, for this reason, this newspaper has decided to annually sponsor a banking fair that will go by the name of the Financial Times Banking Fair.
Some stakeholders erroneously translated the event as an infraction, suggesting that the code of banking conduct, which prohibits individual members from taking part in any advertising blitz, had been twisted. No thank you.
The aim is to bring under one roof a number of banks and financial institutions and showcase their services to the public in an atmosphere of free dialogue and trust. In this grand sense, we are not sowing the wind in order to reap the whirlwind.
This year, eight banks and seven financial institutions participated in the fair that took place on Friday and Saturday last week.
Hundreds of people from all walks of life visited the pavilions belonging to different banks and financial institutions, and some made informed decisions as who to do their banking with.
A cross section of visitors conceded that the fair was interesting and informative without being too technical.
Up to July last year, banks had in excess of Tshs.800 billion stashed in safes, while the economy is in dire need of investment funds to induce economic growth and reduce acute poverty and hunger.
Up to this moment, a money market surplus exists, because supply (deposits) is bigger than demand. In other words, the deposit base is larger than the amount loaned to the private sector.
Often banks place their surplus with offshore banks and with the Bank of Tanzania at relatively low yields but at the same time at lower credit risk.
This short sighted behaviour is totally untenable for an economy yawning for investible funds.
Our role is to inform and educate all stakeholders about the dynamics of the banking industry. We favour the industry by publishing lending and deposit rates free of charge.
We shall never in the future pull this rug from under the banks`feet as a matter of principle.
In addition, we use our solid skill base in knowledge and experience in business and journalism to turn financial reports into highly humanized and interesting stories or features for greater reach.
That is why most banks choose to advertise with us because they enjoy added value.
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