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Wanted: a strong financial sector to support growth
2005-07-22 07:21:50
By Editor
A strong financial sector is required to mobilise national savings for investment in various productive sectors of the economy.
The third phase government has done a good job in the financial sector by developing modern instruments in capital and money markets.
The Banking and Financial Institutions Act of 1992 liberalised the financial sector by licensing private local and foreign banks.
To date, there are over 30 commercial banks and financial institutions in the country.
The banks have been competing in providing better customer services by investing in new technology.
They have also been competing in innovating new financial products and services for the convenience of their customers.
These services include the hedging scheme introduced by CRDB Bank to help guard exporters against price fluctuations of commodities in the world market.
Competition among the banks in mobilizing savings has increased national savings as a percentage of Gross Domestic Product (GDP).
It is estimated that up to September 2004, about 800bn/- was available to lend to borrowers if they met the laid-down conditions.
Banks and financial institutions are now playing a crucial role in the implementation of the National Microfinance Policy by lending to savings and credit co-operative societies (Saccos) which in turn provide loans to their members.
Recently, banks have also supported the Small and Medium Enterprises Policy by increasing lending to SMEs. It is expected that with the launch of the SMEs Credit Guarantee Scheme, banks will be more willing to lend to this sector which is vital in the creation of jobs and poverty reduction.
Banks and financial institutions have also done a good job in increasing lending to the external sector and the value of exports have increased from US$750m in 2001 to US$1.3bn in 2004 after the introduction of the Export Credit Guarantee Scheme.
We urge banks to reduce lending rates and become less risk averse in order to increase financial intermediation in mobilising savings and lending to productive sectors of the economy.
The money markets have also played an important role in stimulating economic growth.
The Capital Markets and Securities Act (CSMA) of 1994 introduced the Capital Markets and Securities Authority.
This has been responsible for development and regulation of capital markets and its efforts culminated in the formation of the Dar es Salaam Stock Exchange (DSE) in 1998.
Having listed eight equities, four corporate banks and 14 Treasury bonds, the DSE has been a vehicle for providing investors with an alternative source of cheaper capital than bank loans.
The DSE has also inculcated a culture of saving and is an alternative investment avenue for savers.
After starting off with just one listed equity in 1998, the DSE now has a market capitalization of over 2bn/- (US$2m).
The CMSA was amended in 1997 to provide for the establishment of collective investment schemes like the Umoja Fund.
The schemes also inculcate a saving culture and provide a majority of Tanzanians with the opportunity to participate in capital markets.
The achievements in the financial sector need to be deepened and enhanced through establishment of venture capital funds and sectoral development banks, especially an agricultural development bank, to provide finance for agriculture which contributes 48 per cent to GDP and employs 80 per cent of the population.
The growth rate of the sector currently stands at 6 per cent and if it rises further, the goal of attaining GDP growth rates of between 8 and 10 per cent will be realised and this will enable Tanzania to attain the Millennium Development Goal of halving poverty by 2015.
So far, the Bank of Tanzania (BoT), Treasury and Capital Markets and Securities Authority have done a good job in modernising money and capital markets to stimulate economic growth.
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