WHY BANKS ARE SHY ON UNSECURED LENDING AND THE WAY OUT

Bankers have expressed reasons why a big chunk of money is still in their hands and have proposed ways to enable many people access the money.

In an interview with this paper, a banking expert, Juma Songella, said banks had a big role to play in the development of any economy, particularly as regards lending to the productive sectors.

He conceded that banks in the country were not doing enough in this area.

`However, there are reasons for this phenomenon. We have to bear in mind that banks are in business and they do their business with depositors? money,` he said.

He said banks had to lend with caution, particularly in an environment like ours where a non-repayment culture was still common.

In addition, there existed excessive litigation, injunctions and court delays, situations which make banks incur unnecessary expenses in addition to loss of income and disrupted cash inflows due to delayed payments.

For instance, in the case of small loans, which have of late become a major thrust for many banks in an effort to supplement government efforts to reduce poverty, the cost of collection tended to exceed returns to the lending bank.

Statistics showed that as at the end of last year, total customer deposits stood at 5.3tr/-, an increase of 221 per cent from 1.7tr/- in 2002.

Total loans and advances, on the other hand, increased at a higher rate of 320 per cent from 566.6bn/- in 2002 to 2.4tr/- in 2006.

Speaking at a dinner hosted by bankers in April, this year, former chairman of the Tanzania Bankers Association (TBA) Mayank Malik said while that was a remarkable growth by any standard and reflected robust underlying economic expansion driven by good policies and governance, there was some distance to go to catch up with more developed economies where bank assets exceeded a country`s GDP and often by a factor of 1:5 or more.

He said banks had to have some assurance that a borrower would be able to repay a loan.

`Until recently, the country`s policies and regulations did not provide land as collateral for borrowers in the agricultural sector despite the fact that land is a critical security that farmers possess to offer for borrowing from banks,` he stated.

He confirmed that things had changed since farmers could now use land as collateral and many banks had gone public on what packages they could offer to farmers and agricultural investments.

However, he said banks still could not lend that effectively and in bulk to subsistence farmers and this was another area that needed to be worked on.

`We commend the government for the positive steps taken to remove impediments inhibiting development of the banking sector. Nevertheless, we think that the pace is not fast enough,` he remarke

SOURCE: Guardian