EXPLOITATIVE money lending and loan shark operators could be in for a tough time from next year when the Bank of Tanzania (BoT) starts implementing new regulations aimed at keeping in check the mushrooming micro-finance credit institutions in the country, it has been revealed.
BoT Governor Prof. Benno Ndulu told THISDAY in an exclusive interview this week, that the bank is currently awaiting the regulations to be put in place, in order to enable a regulatory mechanism to start supervising the activities of non-banking microfinance institutions.
His statement comes in the wake of growing public complaints over a number of local micro-finance companies offering so-called ’easy finance’ loan deals at interest rates and loan processing fees that are said to have been excessively hiked.
It is alleged that some of these companies and other ’rogue’ lenders tend to prey on lower-rank civil servants and small-scale private businessmen/women, who apparently have difficulties accessing loans from established banks.
Apart from charging the high interest rates and fees for loan processing, the same companies are further alleged to be auctioning motor vehicles and other assets belonging to defaulting borrowers without notice when they fail to meet a single repayment schedule.
According to Prof. Ndulu, the central bank presently does not regulate the bulk of micro-finance institutions that are not part of the licensed commercial banks set-up in the country.
’’We hope to introduce a mechanism to regulate these enterprises from next year, after the necessary regulations have been put in place,’’ the governor told THISDAY.
A number of Dar es Salaam residents who profess to have fallen victim to alleged loan shark activities by microfinance companies say the government should intervene and investigate these firms.
’’Many of these companies offering so-called easy finance are simply pure criminals,’’ said Mohamed Abdallah of Sinza suburb in the city.
A survey by THISDAY has shown that both licensed and unlicensed money lending firms with low-income households forming their main clientele tend to charge exorbitant interest rates - some as high as 200 per cent of the principal amount.
Borrowers end up paying dearly with high annual percentage rates (APRs) of interest, leaving some with very little idea of how much money they owe at a given time.
However, financial experts say the proposed new regulations should help bring such loan shark operations under control.
The 2003 Financial Laws (Miscellaneous Amendment) Act, enacted by Parliament in February and accented by the president in April, mainstreams micro-finance in the country’s financial system by incorporating amendments of the Bank of Tanzania Act of 1995, the Banking and Financial Institutions Act of 1991, and Cooperatives Societies Act 1991.
Some years later, however, all four Acts were repealed and replaced with the new Bank of Tanzania Act 2006, Banking and Financial Institutions Act 2006, and Cooperative Societies Act 2003.
The Mbozi East Member of Parliament on a CCM ticket, Godfrey Zambi, recently made a call in Parliament for the government to look into complaints by teachers especially that they were being taken for a ride by micro-finance lending firms like Bayport Financial Services Limited.
Contributing to the debate on the 2008/09 budget proposals of the Ministry of Education and Vocational Training, the MP accused Bayport of lending money to teachers and other civil servants ’’at exorbitant interest rates that surpass those of the commercial banks.’’
He said this firm was responsible for turning hundreds of civil servants into paupers by overcharging them through this manner and other hidden costs.
Zambi's sentiments were echoed by Tanzania Teachers Union (TTU) President Gratian Mukoba, who accused the government of being an accomplice to the practices of companies like Bayport ’’by remaining silent.’’
Teachers are understood to be the single biggest group of microfinance company borrowers from within the civil service.
Speaking in a later interview with THISDAY, Bayport’s Chief Executive Officer, Etienne Coetzer, explained that the company charges 10 per cent interest rate to those who borrow money to be repaid within a month, but ’’for those who acquire big amounts of money repayable in 36 months, we normally charge them between three to 5.5 per cent.’’
He also said the company has official backing letters from State House allowing it to solicit civil servants for loans.
THISDAY’s survey also established that commercial banks tend to charge around 20 per cent interest on savings account loans plus other processing fees, while non-bank financial institutions charge between 30-50 per cent interest.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment