Financial services consumers urge BoT to act on interest rates

30Jul 2020
The Guardian Reporter
Dar es Salaam
The Guardian
Financial services consumers urge BoT to act on interest rates

SMALL scale financial services consumers have urged Bank of Tanzania to take responsibility and address growing concerns relating to hiked interest rates charged on loans while deposits attract far lower.

Bank of Tanzania Governor, Professor Florens Luoga

Responding to concerns expressed by BoT’s Monetary Policy Committee report which also denounced continued prevalence of hiked interest rates in the market, consumers said its high time that the regulator takes action.

“If everyone is expressing their concern including Finance Minister, Dr Philip Mpango, Agriculture Deputy Minister, Hussein Bashe and now the central bank’s MPC, then who will take responsibility and address the problem?” wondered Ronald Usubi, a 62 year old retiree who is currently doing timber business at Goba in Dar es Salaam.

Usubi said small businesses with no credit history are suffering hefty interest rates of up to 21 percent on loans obtained from commercial banks while their deposits attract less than 10 percent interest rate.

He said the MPC’s latest statement bemoaning hiked interest rate charged on loans clearly understands that such factors contribute to slow business growth which gradually affects economic growth of the nation.

“Recently Tanzania Agriculture Development Bank gave coffee farmers in Kagera region a loan with nine percent interest rate after intervention by Deputy Agriculture Minister, Hussen Bashe which clearly shows that we can have single digit interest rates if banks are held accountable,” said Halima Msafiri, a poultry farmer based at Kibaha in Coast region.

Msafiri said she is struggling to repay a 10m/- loan she took from a bank over three years ago because it attracts 19 percent compound interest. “It’s abnormal how we survive with small businesses that have no credit history, the central bank should swiftly take action because banks are making super profits,” she lamented.

The 36 year old mother of two who started her business with money received after being retrenched at the defunct Usafiri Dar es Salaam almost a decade ago, said growth of the economy depends largely on small businesses which in turn rely on banks to get capital for further investment.

The MPC’s latest report directed BoT’s governing board and management to devise appropriate ways to ensure that consumers of financial services are protected against hiked interest rates charged by financial institutions.

In its statement issued this week and signed by BoT Governor, Professor Florens Luoga, the MPC expressed concern over continued hiked interest rates being charged by financial institution including commercial banks.

The MPC which met last Friday to review performance of the economy, said there have been poor impact of financial services which offer loans to consumers due to unrealistic and hiked interest rates charged by lenders.

“High interest rates have negative impacts on growth of financial services and its beneficiaries hence holding back economic growth particularly of the private sector,” the MPC said in its statement. Notwithstanding, the committee observed with concern the sluggishness in the pace of reduction of interest rates among commercial banks in the market.

According to BoT’s Monthly Economic Review for June, interest rates charged by banks on loans and those offered on deposits exhibited a general declining trend, reflecting the impact of sustained accommodative monetary condition but the MPC sees it as discouraging borrowers.

The Central Bank stated that overall lending rate decreased by 38 basis points to 16.83 percent from 17.21 percent in the corresponding month of 2019 while one-year lending rate declined by 22 basis points to 16.86 percent as deposit rates softened to an average of 6.8 percent from 7.35 percent recorded in the corresponding month of 2019. One-year deposit rate declined to 8.57 percent from 8.75 percent registered during the period.