What the BoT’s measures mean for citizens

By Joséphine Christophe

By Rosemary Mirondo

Dar es Salaam. The productive sector will soon be able to easily access bank loans as the Bank of Tanzania (BoT) publishes new measures to reduce interest rates on loans and promote credit intermediation.

The measures were welcomed by bankers yesterday as soon as the central bank officially announced them.

Those who spoke to The Citizen said the BoT’s latest policy measures have established a solid framework for increasing liquidity and lowering the costs of lending to the private sector.

Under the measures – which were issued and went into effect yesterday – the BoT would introduce a trillion shillings special loan fund valued for banks and other financial institutions to access money to lend to the sector. private.

The money in the fund will be accessible by commercial banks and financial institutions at an interest rate of three percent per annum for the pre-financing or refinancing of new loans to the private sector, according to BoT governor Professor Florens. Luoga. “A bank wishing to access the special loan facility will be required to charge an interest rate not exceeding 10% per annum on the loan granted to the private sector. This measure aims to increase bank liquidity and reduce lending rates, ”he said. Speaking to The Citizen, the President of the Tanzania Bankers Association (TBA) Mr. Abdulmajid Nsekela said this strategy would provide substantial liquidity to enable the country’s commercial banks to lend to the private sector.

“We adopted it positively because it would increase the capital of banks and increase liquidity, but at the same time it would facilitate the reduction of interest rates,” said Mr. Nsekela, who is also the managing director of CRDB Bank. Plc. TBA Vice Chairman and Managing Director of Standard Chartered Bank, Mr Sanjay Rughani, said he was encouraging the BoT has come up with measures that he says will bring both stability and growth.

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This, he said, was vital given the fact that it comes at a time when the world was still grappling with the Covid-19 pandemic. “The measures described in the circular concerning the promotion of credit to the private sector and the reduction of interest rates were carried out thanks to a good and positive engagement with the members of the TBA. They will certainly support both future economic recovery and long-term economic growth and, as banks, we are committed to implementing related measures quickly and effectively, ”said Mr. Rughani.

In terms of impact, he said, the measures will surely lead to an increase in liquidity, an increase in the amount of eligible loans and, ultimately, an expansion of credit to the private sector.

“The relaxation of the eligibility criteria for banking agents also offers the industry an opportunity to expand its distribution network, which, in the medium and long term, will certainly be beneficial both in terms of stimulating the financial inclusion and deposit mobilization, ”he said.

Ruth Zaipuna, CEO of NMB Bank Plc, said the measures were encouraging, saying they would increase liquidity in banks, favor credit to the private sector and lower interest rates. She said the NMB has played a central role in financing the agricultural sector which employs the majority and is the backbone of Tanzanians.

“With the new measures taken by the Bank of Tanzania, the reduction in interest rates will lead to an increase in lending to sectors such as agriculture and its value chain. NMB will continue to work with the Bank of Tanzania to ensure that the targets are met, ”she said.

For the Agricultural Development Bank of Tanzania (TADB), Mr. Japhet Justine said it was encouraging that the policy brings more practical and timely measures to influence the financing of the growth of agriculture, a sector that employs nearly of 70 percent of the population.

“For many years we have been talking about facilitating the financing of agriculture, so we are very happy that the government has designed specific incentives for the sector,” said Mr. Justine. He said that the implementation of the strategies would eventually increase the income and productivity of farmers and improve the value of credits in the sector.

“Now is the time to launch projects because it shows that funding will be available,” he said. In its measures, the BoT also announced a significant relief to commercial banks which grant credits to the agricultural sector by reducing their minimum reserve requirements (SMR), equivalent to the loan granted.

“A bank is required to present proof of agricultural loan at an interest rate not exceeding 10 percent per annum. This measure aims to increase loans to agriculture, it also aims to reduce interest rates on loans to agriculture, ”Professor Luoga told Dodoma yesterday.

Other measures, announced by the BoT yesterday, include removing the 18-month professional experience requirement for applicants for agent banking.

From now on, the BoT said, applicants for agent banking will only need to have a national ID card or national ID number.

“This policy measure is expected to help increase funds loanable to banks through the mobilization of deposits,” Professor Luoga said. The BoT also designed a measure that intends to help reduce the costs of funds for banks, thereby helping to reduce lending rates, by limiting the interest rates paid on mobile money trust accounts. “The balances of mobile money accounts held with banks will be eligible for an interest rate not exceeding the rate offered on savings deposit accounts by the respective bank,” he said.

In addition, the Bank of Tanzania will reduce the risk weight on different loan categories in calculating banks’ regulatory capital requirements.

Good movement

Repoa’s executive director Dr Donald Mmari said the move was a good one as it aimed to increase liquidity in the economy. He said that due to liquidity issues, a majority of banks were reluctant to issue loans, but with the new measures, they can now lend without affecting their statutory requirements.

He noted, however, that the effectiveness of the measures will also depend on the current economic situation after the Covid-19 pandemic.

“At the end of the day, the cost of doing business and the business environment are the most important because no investor or businessman will go for loans if they are unsure of the business environment. “, did he declare.

An independent financial analyst from CFX Consulting Services, Christopher Makombe praised President Samia Suluhu Hassan for instituting the measure which he said was long overdue. He noted that loan interest rates between 16 and 18 percent were too high to support business growth.

“Banks should use the 1,000 billion shillings stimulus package to help businesses grow,” he said.

Meanwhile, University of Dar es Salaam economist Abel Kinyondo said the decision to introduce special loans in the amount of Sh1 trillion to banks and other financial institutions for co[1]loans to the private sector will have a huge impact on the economy.

He said the introduction of the Sh1 trillion ensures that banks will comply and reduce the interest rate to the expected 10 percent. “The loans will now reach not only the public, but also at affordable rates,” he said.

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