Small scale loan seekers increase

LOW-END money lenders are fighting to fill the gap left by mainstream financial institutions that have slowed on lending to households for fear of a possible rise in cases of loan default.

The drop in mainstream institutions like banks to lend was largely necessitated by effects of the financial crunch that had clouded their prospects of giving out credit starting end of 2008.

Latest reports indicate that micro-finance institutions are witnessing an upsurge in the number of customers looking for small to medium value short-term loans.

The Head of Finance and Verification at 'Real People', a microfinance firm, Anita Mushi, told 'Business and Finance' yesterday that the climax of the crunch had kept servicing of loans in doubt but the situation had normalized in the last three month.

''The rate of loan servicing has stabilized and we have been doing well in the last months as more people come to access the service,'' she said.

The Minister of Finance and Economic Affairs, Mr Mustafa Mkulo, says that the expansion of micro finance institutions is as good as banks as it increases the choice for credit giving to interested entrepreneurs in towns and rural areas.

The latest realignment in the banking circles comes at a time when most commercial banks reduced on their lending in the first half of 2009 to mitigate the financial crunch effects.
In terms of profit, even the biggest banks are said to have posted modest single-digit increases in profit last year.

Barclays bank Tanzania, one of the fastest growing banks, had embarked on expansionist strategy and joined rivals who had for years moved aggressively to rope in low-end customers.

But with the crunch, Barclays suspended personal loans as all other banks have since taken a conservative approach in giving out credit.

Even as the 1.3trn/- Presidential stimulus package came in half way last year, banks did not find it rosy in their hunt for low-end clients, aside from those which had remained loyal to their traditional clients, saw hefty increases in profit.

As such, the current changed approach - to slow on the aggressive hunt for low-end clientele - has been a blessing in disguise for microfinance institutions that fortified their position in this market segment.

Low-end lenders like Faidika, Bayport, Blue Financial Services and PRIDE have seen a number of people applying for loans going up almost tenfold, as many seek alternative ways to address short-term cash flow issues in the face of harsh economic conditions after banks went easy on lending.

''The number of applications for loans has been scaling up since mid last year,'' said Robert Mugisha, a manager who deals with customer enquiries and processing of loan requests.

This, he said, is attributed to the fact that most people confiding they are opting for such services after attempts to secure loans from mainstream banks prove futile.

The trend has seen the low- end lenders like PRIDE, Bayport and Blue Financial Services open more branches across the country to offer credit facilities to entrepreneurs and Civil Servants.