Author: SEBASTIAN MRINDOKO
AfricaPress-Tanzania: THE third phase government under former President Benjamin Mkapa set the pace on liberalisation of the financial sector leading to its substantial transformation into a diversified, competitive and vibrant sector.
According to the Bank of Tanzania (BoT), Financial Stability report 2004, the financial sector was until 1990s dominated by one publicly owned commercial bank and other financial entities comprising of 22 private commercial banks of which 13 were foreign owned, 12 nonbank financial institutions, pension funds, 14 insurance companies, and more than 63 foreign exchange bureaus.
Banks accounted for about 80 per cent of the financial sectors assets. The sector had more than 1,000 savings and credit cooperatives (SACCOs), other microfinance institutions as well as the Dar-es-Salaam Stock Exchange (DSE).
Therefore, the liberalisation of banking services resulted into a rapid rise in inflows of foreign direct investment (FDI) in the banking sector. With extensive changes in the ownership and market share of different banks, competition for creditworthy borrowers intensified.
This led to the reduction of gross interest rate spread for largest borrowers and fall of lending interest rates to 13.8 per cent in 2003/4 from 20 percent in early 2000/01.
Furthermore, during the reference period there was a substantial increase in bank credit to the private sector to about 6 per cent of Gross Domestic Product (GDP) in 2002 from 2.5 per cent in 1996.
The increase of credit to the private sector was in part reflected the expansion of both small, medium and large enterprises and on the other, the competition in the banking sector that forced banks to lend to small borrowers and a push into consumer loans to salaried secured by salary deduction.
Although the percentages were among the lowest in sub- Saharan Africa, they represented a marked improvement in the Tanzanian context in view of the non-market economy condition that prevailed prior to the reform period.
The considerable transformation of the financial sector is further evidenced by the marked improvement in the quality of the portfolio. During the period under review, reports from the Bank of Tanzania (BoT), show that the ratio of nonperforming assets to total loan assets improved dramatically to about 4.5 at the end of 2003 from 15.9 per cent at the end of 2000.
Other improvements and innovations include introduction of new products namely payment cards, primarily debit and cardbased electronic money, funds transfers, especially direct debit or credit transfers.
Four banks installed Automatic Teller Machines (ATMs), which increased to 43 in 2002 from only six ATMs in 1998. The number of cardholders rose from 11,000 to 83,000 during this period.
It was during this period that one bank successfully introduced electronic money services for its customers which relied on chip card technology used as a prepaid card.
The total clearing period for checks which is the second most popular form of retail payment in Tanzania after cash went down to two days from 4 days for cheques withdrawn on banks in Dar es Salaam and to seven days in the rest of the country from between five to 30 days in 1998.
This improvement was due to the establishment of an electronic clearing house by the central bank. Despite the inroads, a large part of the economy was working with little formal credit, in particular in agriculture and the rural economy.
The government passed into law a legal and regulatory framework to guide microfinance institutions, including the National Microfinance Bank (NMB), with the objective of enhancing access to credit, in particular in the rural sector, and of facilitating deepening of sustainable financial intermediation.
The NMB has about 40 percent of the bank branches in the country of which more than 50 per cent provide microfinance lending.
According to the BoT reported between 2000 and 2003, the NMB lent the equivalent of 58 million US dollars to finance activities that ranged from small-scale peasant agriculture to trade, manufacturing, and services provision.
The value of the NMB’s outstanding loans at the end of December 2003 was about 29 million US dollars. The government encouraged the development of SACCOs or microfinance-type institutions most of which were rural and community based.
The number of SACCOs increased rapidly between June 2000 and the end of 2003, from 803 to 1,264.9 At least five regional community banks the Kilimanjaro cooperative bank, Mwanga community bank, Kagera cooperative bank, Mufindi community bank, and Mbinga community bank—have been established through grassroots initiatives.
