Tanzania: Meru Bank Gears to Start Business

Arusha — Shareholders of the Meru Community Bank are working on various strategies to increase their shares as the financial institution gears up to start operations.The strategy is among several measures in hand to increase the bank's capital base from the present Sh365 million to at least Sh1.6 billion by 2013.This was revealed here by Prof Justin Maeda, the chairman of a task force that has been spearheading the formation of the bank in the last couple of years.

He told business stakeholders based in Arusha that although preparations for the bank's takeoff were almost complete, funds for meeting the initial operation costs were inadequate.According to him, the task force has so far collected some Sh365 million from the shareholders as the initial operating costs. That was some Sh35million above the target given to them by the Bank of Tanzania.

However, he insisted during a monthly networking dinner at the Kibo Palace Hotel that the amount was inadequate given the high expenditures already made on pre-opening services and equipment."In fact, we anticipated from the very beginning that our bank would start operations with the initial capital of Sh500million", he pointed out.

Prof Maeda, said the founding members of the Meru bank, as well as residents of Arusha, should increase their contributions to increase the new financial institution's capital base.That would enable it to transform itself to become a commercial bank that provides all banking services, in a few years' time after starting operations.

He said in order to raise the bank's capital base to at least Sh1.6 billion (for it to operate as a commercial bank), all the shareholders must increase their current shares.The formula being proposed is that institutions and companies should increase their shares by 50 per cent; and shareholders with 1,000 or more shares (25 per cent) and those with 100 to 600 shares by 30 per cent.Shareholders with 50 to 99 shares would be requested to increase their shares by 25pct; those with 10 to 49 shares (35 per cent) and stakeholders with less than 10 shares to hike their contribution by at least 40pct.

"The requested increase in shareholding is a minimum amount. Shareholders can, and indeed are encouraged to, increase the percentage to 100 per cent or even more," he further stated. According to him, if all the present founding shareholders of the nascent bank were to increase their shares as recommended, the bank's capital would increase by at least Sh125 million.On the other hand, if new members are to be recruited and convinced to purchase 22,000 shares, the bank's capital will increase by Sh220 million.

And when a decision is made to secure funds from other sources, then the target will be Sh300 million from the private and public institutions, and another Sh255 million from donors and development agencies.

"We are certain that if we work as a team we shall manage to reach our targets in a short period of time," says the monthly business networking party now gaining popularity in Arusha. Efforts to establish the Meru Community Bank took off in earnest in 2005. The bank will be based at Usa River township, some 25 kilometres on the Moshi highway.Preparations for its opening are said to be in an advanced stage. A modern building has been secured for the purpose, and is located just on the busy highway.

Other preparations include office partitioning, purchase and installation of equipment and recruitment of all the key staff. "What we are now waiting for is a visit from Bank of Tanzania (BoT) to inspect and get satisfied that all the requirements and procedures for establishing a financial institution have been adhered to, and give us a permission to open the bank," the task force chair said.

Available record indicate that up to March 22 his year, the number of shareholders for the bank was 367, who purchased a total of 36,550 shares.

Institutional members were 12, who had bought 8,030 shares, or 22 per cent of total shares, while individual members were 355 who had purchased 28,520 shares, or 78 per cent of the total shares.The distribution of individual shares show that five people (1.4 per cent) purchased 1,000 or more shares while 19 people (5.3 per cent) purchased between 300 and 600 shares. Another 75 individuals (21.1 per cent) purchased between 100 and 250 shares and 43 shareholders (12.1 per cent went for 50 to 80 shares.

Some 118 people who constituted 33 per cent of all the shareholders so far purchased between 10 and 47 shares while 96 others (26.9 per cent) settled for less than 10 shares."This analysis shows that 28 per cent of individual shareholders purchased 100 shares or more and 27 per cent purchased 10 or less shares each," a brief report on the bank said.

Meru Community Bank Limited will be the first community bank to be established in Arusha region. Already some Sh200 million has been spent on the preparations, including paying salaries to the recruited staff. Among its major shareholders is the Meru District Council which made an initial contribution of some Sh30 million which it expects to stimulate development in the area.

The Arumeru Teachers' Saccos contributed Sh10 million as their shares, according to Prof Maeda, who is also one of the leading businessman in the area.

The idea to establish the bank was mooted several years because of the lack of any financial facility in Arumeru District which has a per capita income estimated at Sh650,000, one of the highest in the country. The district, besides being the most populous in Arusha Region, has great economic potential, especially in horticulture and dairy farming as well as in tourism and service sectors.

An investment 2008 profile identified the 2,996sqkm Arumeru District as one of the potential areas without adequate financial services. The only bank with a presence there is CRDB Bank which opened its first branch in Usa River, a fast-growing township on the Arusha-Moshi road in 2008.

Once established, the Meru Community Bank will become the eighth among community banks set up in various parts of the country since the 1990s. Members of the task force for the project include William Maeda, a communication consultant based in Dar es Salaam, retired General Mirisho Sarakikya, and Elishilia Kaaya, the managing director of the Arusha International Conference Centre (AICC).

Others are Mr Prudence Kaijage, the former principal of the Danish-supported MS- Technical Centre for Development Cooperation based at Usa River, Mrs Eliamani Pallangyo, a teacher, and Michael Leach, a tourist lodge owner in the area.