|
FINANCIAL WATCH: How to ensnare banks into private sector lending
2006-04-12 07:21:52
By Mireny John
The last fifteen years have seen dramatic changes in the country’s financial sector. Right from 1991, when the financial sector was liberalization for the first time in the country’s post-Arusha Declaration, both the number of financial institutions and corresponding services have sparked up.
In addition, the quality of financial services has tremendously improved through the deployment of information and communication technologies (ICTs).
Some urban areas now enjoy Internet banking while mini-statements for a number of banks can be obtained by pressing a button on a mobile phone.
All these positive developments notwithstanding, the present public uproar which blames financial institutions for their persistent resolve to lend massively to the government at the expense of the private sector, needs strategic attention.
Last week, this similar issue raised tense debate in the parliament as some MPs blamed bankers for failing to channel loans to rural areas where poverty is rampantly located.
Government borrowing from the banking sector through the sell of treasury bills has of late constituted government’s key short-term strategy for raising revenue and stabilizing inflation disturbances.
But why should banks prefer government papers instead of lending to the private sector? The one obvious practical reason advanced by financial pundits is security; as the risk of lending to governments is almost not there. Secondly, the cost of processing and participating in treasury bills auctions is again negligible.
On the other hand, though lending to private sector is nominally more lucrative to bankers compared to government papers, yet the practical and potential risks involved deter banks from putting lion’s share of their assets into private sector’s portfolio.
Treasury Bills earn at best 15 percent over their specified period, while lending to businesses earn 18 percent interest and beyond.
The rate of default on loans in Tanzania has been estimated at 11 percent while experience shows that big loans end up becoming bad, in the sense that possibilities of recovery is not in sight.
In simple words, there is a thin cloud of mistrust between bankers and the private sector operators, although both camps are in business.
This relationship is not constructive in the long-run, and it is not proper for think-tanks to sit down and look on.
How could someone borrow and get away easily without any restraint? The Tanzania Bankers’ Association (TBA) claims that the judiciary, in most times, comes to the defence of defaulters through endless injunctions to the chagrin of the former.
Property laws are yet to be refined so that loan defaulters are not sheltered anyhow when it becomes necessary to implement foreclosures.
Even the current laws are short of enabling the establishment of lease financing.
So, what is needed is to further deepen the cross-cutting institutional reforms with a view to re-building the lost confidence amongst bankers.
We are now experimenting with the Business and Property Formalisation Programme (BPFP), the Small and Medium Enterprises Guarantee Scheme, as well as the Export Guarantee Scheme.
While these efforts are commendable, yet they are not essentially comprehensive by their own right.
The right direction is to implement a strategy that ensures banks are confident about the possibility of recouping their loans and interest by at least ten percent or more.
Otherwise, the government will remain the haven avenue for bankers’ lending.
This way jobs would not be created, income poverty not addressed and, agriculture will permanently become stagnant.
|
