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JK is honest on domestic lending
2007-11-20 09:25:55
By Edit
President Jakaya Kikwete must apparently have felt uneasy over the weekend while inaugurating a cashewnut processing plant in Lindi region.
No sooner had he finished officiating at the project than was informed by the board chairman Adrian Mpande that the plant was running on ageing and consequently inefficient technology.
It was eventually unraveled that plant`s management had earlier tried to address the technological malaise, but failed to exactly do so because of failure to access loans for the purpose of upgrading machines and parts of the plant.
Indeed, it is encouraging to hear that the President once more has taken up an issue with domestic financial institutions who traditionally seem to be distrusting local traders and investors.
However, it sounds a noble idea when someone volunteers to strike a balance of issues and interests between lending and borrowing units of the economy.
In strictly business terms, financial institutions would like to lend out their liquid assets as much as possible and maximize returns, as long as the economic and legal climate allows that to smoothly happen.
In fact, their incessant crave for lending is globally restricted by financial laws with the aim of protecting depositors` saving assets.
Like all other profit-driven investors, private banks aggressively opted for trading in risk-free and hotly lucrative government papers instead of lending to an emerging, and mostly credit unworthy private sector.
As a reminder, the transition from state-owned banking system to a liberalized one has been a challenging experience indeed, the worst legacy of all being the unfettering culture of defaulting on loans.
One of the basic reason leading to the collapse of state banks was high rates of default by parastatals, individuals and domestic companies.
Regrettably, some laws of the land had been favouring the defaulting agents, like the legal obligation for spousal consent as when buildings are placed as collaterals against loans, as well as the lack of freehold land owning system.
To-date, several banks have lost court cases involving loans that were genuinely extended to borrowers, but whose principal and interest amounts had never been recovered.
The fears that banks and other financial institutions harbour is the habitual failure to enforce foreclosures and recover their assets and guarantee their own business sustainability.
To this extent, it would be immature to conclude that we are in favour of the existing situation of difficult and unyielding lending-borrowing relationship in Tanzania.
Instead, we are supportive of the ongoing government efforts to legislate and enforce second generation financial sector reforms, in the upshot bringing in such lending products as mortgage financing.
Definitely, a new positive lending climate is gaining ground, and has started to stir up banks into actions that are geared to increase lending to private sector operators.
Not long before even term lending products are introduced onto the country`s financial sector, lending rates will necessarily have to trim down because the government has already refrained from buying Treasury Bills and Bonds.
This far, patience is needed, and potential both borrowers and lenders need to exercise fair play.
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