Tanzania: Lenders cautioned on best ways to recover loans from defaulters

Banks and financial institutions which have launched crackdown on loan defaulters have been cautioned to conduct the campaign more carefully as it might put them in a bigger risk.

Nowadays there is an increasing number of banks demanding that loan defaulting customers, especially former employees, repay the money borrowed some years back.

“These banks have been using various ways to get back the borrowed money from their customers,” he said.

One of the most common methods used is the announcement of account holders and their pictures on various media, particularly the newspapers.

“This is not a recommendable method, since the law does not allow them to do so. Also, there is danger that the banks will be at risk of losing since they might not have detailed information about the loan defaulters,” he said.

Mambia, said this lack of information on part of the banks, might lead them to announce the loan defaulters who had already agreed pay or have been repaying loans. In the circumstances, this might lead them to be sued over defamation or get embarrassment.

He urged commercial banks intending to recover their loaned money to employ debt collectors.

Financial experts say lack of a credit reference bureau (CRB) is one of the reasons why many financial institutions remain with unpaid loans for a long time.

Lenders in Tanzania, particularly banks, cite the absence a credit reference bureau as the major factor behind the high lending interest sates.

They say lack of the bureau deprives them of the requisite assessment of borrower’s creditworthiness-hence, they are therefore compelled to lend at a very high rate to cover the possibility of losing incase of defaulting customers.

It was recently reported that the Bank of Tanzania is finalising procedures for the establishment of the CRB, a facility that will enable lenders to access information on borrowers.

The bank in collaboration with the Ministry of Finance has already drafted the regulations for the CRB.

Once in place, it is expected that BoT would support commercial banks to establish whether debtors are creditworthy or not, a move that is also expected to curb loan defaulting.

Tanzania like Uganda has one of the highest interest rates on money borrowing in the region, ranging between 12 and 25 per cent.

Most Tanzanians are currently alienated from the banking system with only about 10 per cent of the 40 million having access to this financial sector.

SOURCE: THE GUARDIAN