Banks’ lowered loans interest rates key in agri revolution

TO jog memory of the citizens, on 25th and 26th November 2021 at the Jakaya Kikwete Convention Centre in Dodoma, there was a high-level Bank of Tanzania (BOT) hosting the 20th Conference of Financial Institutions (COFI) with the theme “Tanzania economy: Recovery from Covid-19 pandemic and beyond,” where President Samia Suluhu Hassan, for the second time reminded banks to rethink about lowering interest rates they charge to the public.

This matter resurfaced because despite effort taken, the then average lending rates amongst most banks was around 16 per cent and 18 per cent, making it harder for businesses to not only make profit resulting in high non-performing loans (NPLs) but make it harder to push the economy forward.

Again on 10th June 2022, she appealed to commercial banks to reduce interest rates charged in lending to farmers not to cross nine per cent, for the agriculture sector to obtain more investments and increase productivity.

Gracing the event, President Samia said proper private sector growth was dependent on adequate and affordable loans from the banking sub-sector.

“In June this year (2022), I touched on the issue of interest rates, and directed BoT to reduce lending rates – which they have worked on,” she said.

This is because the agriculture is the basic source of food supply of all the countries of the world—whether underdeveloped, developing or even developed. Due to heavy pressure of population in underdeveloped and developing countries and its rapid increase, the demand for food is increasing at a fast rate, meaning any obstacle to the growth of the industry must be addressed.

Equally, it should be noted that access to production credit and agricultural extension service are factors that significantly determine farmer’s participation in agricultural projects.

Again, agriculture provides employment for about two-thirds of the continent’s working population and for each country it contributes an average of 30 to 60 percent of gross domestic product and about 30 per cent of the value of exports.

Addressing this in Tanzania, debate on the reduction of interest rates has been ongoing, especially after the BoT introduced in July, 2021 some policy measures that were meant to lay a solid framework to increase liquidity and reduce the cost of lending to the private sector.

Among the measures, the BoT said it would introduce were a 1tri/- special loan fund for banks and other financial institutions to access money for lending to the private sector.

The BoT Governor, Prof Florens Luoga, said that, to ensure sustainable economic growth, the banking sub-sector’s regulator has implemented a number of policies that aim at reducing loan interest rates, increasing liquidity in banks and increasing loans in the agriculture sector. The BoT was also sensitising on the use of digital payments, including a reduction of statutory minimum reserves.

As a result, he said, the banking sub-sector continues to be profitable and well-capitalised.

“The ratio for liquid assets-to-demand liabilities grew to 33.3 percent for 2020/21, compared to the required 20 percent. This means that banks had adequate liquidity to issue loans to the private sector,” he said.

Similarly, NPLs have gone down to 9.3 percent in June 2021, from 10.8 per cent in June 2020. However, he said, BoT wants them to go down further: to five per cent, even!

“Our hope is that the economy will grow fast to reach 8 percent in the next five years- and the estimates are as a result of growth in use of resources and productivity,” he said.

“It is our hope that banks and other financial institutions will support us to reduce loan interest rates. That is why we will be discussing a topic on scaling up private sector credit beyond the Covid-19 pandemic, responsibilities of the government, financial institutions and the private sector,” he added.

With the above background, Prime Minister Kassim Majaliwa recent meeting with financial institutions in Simiyu to address the issue of further lowering the interest rates to the public, especially farmers must be supported.

In his address after a short ceremony to launch a new National Bank of Commerce (NBC) branch in Bariadi, Simiyu Region over the weekend, Mr Majaliwa noted that reduced interest rates and other deductions banks charge would be a solution to mobilising a large number of the citizens fearing taking loans as capital for their businesses.

“The good news is that we have sat and discussed with the financial institutions including NBC Bank hosting this occasion and they are ready to work on the matter as much as possible… so let’s hope for the best. Today NBC have come here with a solution to your financial challenges that include access to business loans, so make proper use of them as they are here to help,” he pointed out.

He further appealed to the bank as well as others to fast-track lowing interest charges of the loans, adding that the approach would open up more opportunities for agricultural growth that employs many youths in the countryside in the wake of the government’s vision that though crops’ cultivations, Tanzania can feed the continent.

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