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Banks’ right to foreclosure is fair dealing
2006-02-22 07:11:22
By Editor
There seem to be some economic syndromes here, which are truly, and quite uniquely, Tanzanian. They are not to be found anywhere else on the globe.
An individual or a firm would borrow from a bank, place as collateral a particular fixed asset, say premises, to secure a loan.
The common banking practice throughout the world demands that an asset provided as guarantee by an applicant for a specific loan must have a value greater than the principal, so that in the event of default, the bank would foreclose the assets to recoup its resources.
This core principle enables banks to survive as institutions as well as sustaining the lending-borrowing relationship.
Now, bankers are lamenting that their operations are being frustrated by lack of assured legal protection borrowers default.
Their experience attests that courts of law would come forward to shelter loan defaulters, more often by issuing injunctions against attempts by any respective bank to take possession of assets previously declared as collateral.
Although these allegations, in their totality, may be taken with a pinch of salt, the reality remains on board.
The 30 plus bankers are not happy with the manner in which the judiciary is handling their loan contracts to the private sector.
Because lending-borrowing is a contractual, voluntary, relationship between two parties, bankers seem to be reluctant to extend big loans to the private sector because they fear the obvious risk of losing their hard earned assets.
As a result, going by the financial statements of the last quarter for year 2005 released last week by all banks, bankers have heavily opted to lend to the risk-free government securities.
Undoubtedly, government papers are not only the safest, but have also recently emerged as lucrative financial instruments.
This stand and direction professionally taken by the bankers is, in fact, a national disgrace, taking into account our resolve to nurture the private sector as the engine of development.
Failure by the judiciary to honour foreclosures in their own right has knocked all the stuffing out of the commercial banks.
While it may be unwarranted to blame the judiciary as being ham-fisted on this very sensitive issue, an educated guess points to an immediate resolve to further deepen respective institutional reforms.
Laws, rules and regulations pertaining to foreclosures needs to be better refined through a legal reformation process that would involve both bankers and draftsmen of financial laws with a view to arriving at a position where both parties would feel comfortable in the end.
It is pitiful that banks are awash with cash, but owing to institutional weaknesses, they become anxious to lend to businesses to the detriment of growth, job creation, entrepreneurial development and poverty alleviation.
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