PRESIDENT Samia Suluhu Hassan yesterday ordered the Bank of Tanzania (BoT) to take appropriate measures to address high interest rates, calling for reasonable levels for lenders.
The President said financial institutions needed to cut real interest rates in line with measures implemented by the Central Bank, and suggested that rates for short term loans should be cut to below 10 per cent.
Ms Samia also urged the central bank to put in place strategies to encourage and create a conducive environment for financial institutions in the country including banks so that they can provide long-term loans.
The Head of State issued the directives after inaugurating the BOT new zonal office building in Mwanza, wondering why banks were still charging high interest rates despite measures taken by the government to lower interest rates.
“Many Tanzanians are unable to borrow because of the tough conditions and high interest rates offered by financial institutions. Bank interest rates are 12-19 per cent, these rates are very high for the average person,” President Samia said.
She added: “Despite having a Credit Reference Bureau yet the interest rate is still high, BOT should work on this and if the bureau has a problem, then it should be worked on but if there are other problems then find solutions so that the interest rate drops to at least 10 per cent.”
In recent years, the BoT has introduced various policy measures to ease lending rules, which include lowering the statutory minimum reserves requirement, lowering the discount rates as well as providing regulatory flexibility on restructuring of loans.
For instance, last year, the Central Bank lowered its benchmark lending rate from 7 per cent to 5 per cent to cushion banks from Covid- 19 impact.
The policy change aimed to provide additional space for banks to borrow at a lower cost, thus signaling lower rates by banks.
To spur liquidity, the regulator also resolved to lower Statutory Minimum Reserves (SMR) to six per cent, from seven per cent, effective June 8, last year.
The bank also imposed haircuts on government securities and treasury bonds; from 10 per cent to 5 percent for treasury bills and from 40 per cent to 20 per cent for treasury bonds.
The measure sought to increase the ability of banks to borrow from the bank of Tanzania with less collateral than before. But interests have remained high, with some financial institutions charging above 20 per cent interest rates.
President Samia also noted that in the past years the problem of high interest rates was aggravated in microfinance institutions where there was a time when a person could borrow 1mil/ - and be required to repay 1.5mil/ - within 6 months.
She said, looking to address the challenge in 2017 the government enacted the Microfinance Act, policies, and regulations to provide for the licensing, regulation and supervision of microfinance institutions.
“But there are still institutions that continue to charge high-interest rates, BOT should continue to work on that as the informal sector is so big now with high-interest rates and tough conditions, they will not be able to continue to grow,” she said.
According to a report Assessment of IFGs in Tanzania by the Financial Sector Deepening Trust (FSDT), 10.6 million Tanzanian adults continue to access finance informally.
Such informal or less formal groups include Savings and Credit Cooperatives (SACCOs), Rotating Credit and Savings Associations (ROSCAs), Accumulating Savings and Credit Associations (ASCAs), and other microfinance institutions (MFIs).
President Samia said it was crucial for BOT to also work on long term loans as many banks in the country offer short-term loans which make it difficult to develop the industrial and agricultural sectors but also to improve the housing of Tanzanians.
The president further said financial inclusion has especially enabled young people to start various businesses so it is important for the central bank to focus on encouraging online payments to reduce the use of cash.
She asked BOT in collaboration with the finance ministry to quickly complete the Tanzania Instant Payment System (TIPS).
Ms Samia said with the advancement of technology in the world there is an emergence of blockchain and cryptocurrency technology; hence it is high time the BOT starts working on these developments to avoid being caught off guard.
Earlier, BoT Governor Prof Florens Luoga said the presence of Central Bank branches in major economic zones seeks to ensure financial services grow closer to the people and stimulate economic and social services.
According to Prof Luoga in 2019, the Lake Zone output was 34bn/- equivalent to 25.9 per cent of GDP.
In addition,he said, the Lake Zone regions produced more than 90 per cent of all gold in the country, 50 per cent cotton and coffee and more than 95 per cent of fish for domestic consumption and export.
He said the building constructed at a cost of more than 42bn/- is designed to increase service efficiency and enhance security in line with technological change.
The branch was initially opened in 1980 and serves seven regions which are Mwanza, Mara, Shinyanga, Simiyu, Geita, Kagera and Kigoma.
Speaking after the inauguration, Mwanza Regional Commissioner Robert Gabriel said BOT’s decision is an indicator of economic growth recorded in the region and the Lake Zone in general.
“It is an indicator of the expansion of economic activities for the people of Mwanza region and the Lake Zone with a strong commitment to the management of the financial sector, especially major financial institutions, to ensure the security of capital,” he said.