While plenty was being raised in relation to the changed format for pensions and withdrawal benefits, the microfinance changed format was more discreet, and its effects when in use will sort out lingering confusion as to its merits and demerits. The preliminary outlook is that it is just all merits, as it seeks to protect the borrower or consumer of its products against wanton charges.
There is a slight problem likely to arise in the legal architecture because its principal stakeholder is the Bank of Tanzania, and at times it has demonstrated inability to grasp how money operations ought to be conducted at the primary level. On the basis of the juridical norm, ‘faute in uno, faute in omnibus,’ (error in one, error in all – used in determining the credibility of witnesses) it is likely that the same outlook will be found in the new look microfinance architecture. The main issue is that there is often incomprehension of levels of risk acceptable at different levels of monetary operations, and thus different senses of equity.
Sometimes in the past two years or so the central bank sought to modify the way banknotes are changed for coins in the streets, where coin vendors issue 900/- (nine coins of 100/-) for one thousand shilling note to bus conductors. The central bank said in a statement that the change isn’t supposed to be charged as it is obtained for free, which implicitly meant that the vendor ought to do the job without payment, or that the 100/- he obtained as a commission was a bit on the higher side. It isn’t difficult to see that if this view was implemented say by the traffic police vendors would disappear, operations disrupted for a 500/- fare.
So a person changing cash at the bank teller will have the right amount of change because the teller needs no commission for that operation, not a roadside vendor, and in that case charges that are routinely applicable to banks may not be easy to maintain for microfinance operations. Their capital base is small, their employment often high in comparison with the output (in per capita terms, compared with banks). And as the banks or BoT realize, often those who seek loans in microfinance aren’t remotely qualified to seek such credit in banks, therefore microfinance operators need legroom to accommodate most of them.
BoT thus ought to ensure that either in the specific legal provisions or in accompanying regulations they strike a chord of realism on the microfinance sector. The danger is to see things in terms of lenders making ‘huge’ profits, or being inordinately sentimental about losses of property under the terms, as if the borrower didn’t grasp what it entailed. Borrowing is a calculated risk; padding or soft pedaling won’t do.