The Bank of Tanzania (BOT) recently issued a Public Notice on Policy Measures to Promote Private Sector Credit and Lower Interest Rates (the Notice), as part of its drive to boost economic recovery and stability in Tanzania. In this article, we summarize the measures outlined in the Notice and what they mean for financial institutions in Tanzania.
Prior to the Opinion, the BOT’s Monetary Policy Committee had introduced and approved policy measures to maintain stability in the financial sector and provide guidance on increasing non-cash transactions. Click here to go to our previous article for more information.
The opinion sets out five targeted considerations in agriculture, agent banking, mobile money trust account balances, special loans and reducing the risk weight on loans.
Compulsory compulsory reserve (SMR)
The BOT promotes loans in the agricultural sector by allowing a reduction in the SMR. According to the opinion, banks that extend loans to agriculture at an interest rate of less than ten percent (10%) per annum are eligible for a reduction in the amount of the SMR. The reduction would be equivalent to the loan granted and would reduce the interest rate on loans in the agricultural sector in Tanzania.
The BOT has relaxed the eligibility criteria for bank agents. Prior to the Notice, applicants for banking agent activity had to have at least eighteen (18) months of business experience. The notice removed the eligibility criteria related to experience, but what is required is the applicant’s national identity card or national identification number. This measure would have the effect of increasing the funds that can be loaned to banks by mobilizing deposits. Lending rates would also be lowered as a result of the implementation of this measure.
Mobile money trust accounts
The notice also states that the interest rate charged on mobile money trust account balances should not exceed that of the relevant bank’s savings deposit accounts. This measure aims to reduce lending rates by lowering the cost of funds for banks.
The BOT further promotes the private sector by introducing a special loan of TZS 1,000 billion (equivalent to USD 431,237,830) (the Special loan). The special loan would be advanced to banks and financial institutions for on-lending to the private sector. The special loan is granted to banks and financial institutions at the rate of three percent (3%) per annum and banks must apply an interest rate not exceeding ten percent (10%) per annum on loans in the sector. private. The BOT measure aims to increase bank liquidity and reduce lending rates through advancement of the special loan.
Risk weighting on loans
The Opinion also provides for a reduction in the risk weight on different categories of loans issued by banks in order to allow banks to extend more credit to the private sector.
Banks and financial institutions have been tasked by the BOT to ensure that strategies of lowering lending rates and increasing deposit mobilization are implemented.