Banks urged to observe basic roles in order to empower Tanzanians

THE National Economic Empowerment Council (NEEC) has outlined five major areas as key roles which if followed by Banks operating in the country, the initiatives could enable to empower Tanzanians in all aspects of economic development and ultimately reduce their poverty stricken situation. NEEC's Executive Secretary Dr Anacleti Kashuliza said in his paper presentation titled “The Role of Banks in empowering Tanzanians” during a meeting with Tanzania Bankers Association (TBA) stakeholders which was held last week in Dar es Salaam. According to Dr. Anacleti, the suggested areas that the banks can play as major key role are in Product and services, Bank outreach, Technology uptake, Financing in key economic areas and Banks' involvement in Micro-finance, saying that, are the most crucial for empowering Tanzanians. He says, banks should design products and services which suit Tanzanian market to enable more Tanzanians to access it. Currently most of the products are designed basing on the banks requirements rather than being customer driven. “Banks' products such as mortgage and leasing finance should be at the fore front to transform lives of Tanzanians”, he said adding that, by accessing such products it could attract the large population as many would like to have their own houses so as in the long run, they could be in a position to improve their livelihood and accelerate economic growth. On Banks' Outreach programs he said that, “access to finance is limited for both urban and rural population. Most of the banks tend to concentrate in urban areas and leave potential untapped market in the rural areas”. In view of this, he therefore insists that, Banks should go to the rural areas and increase the reach and coverage of consumer outreach initiatives. This can be done through agency and the technological support. Technological innovation has played a transformative role in extending affordable financial services, particularly to the rural population. Technology has offered financial institutions the means to reduce transaction costs and hence allowing financial services to be delivered more rapidly and more conveniently to broad sections of the population. In view of the above factors, Dr. Anacleti says that, “Banks should exploit the advancement of technology in reaching more population in the country at affordable costs. Under the role of 'Financing in Key economic sectors', Commercial banks concentration of loans is in quick turnover businesses, and according to him, they should focus more on financing key empowering sectors such as agriculture and manufacturing which employ the majority of Tanzanians. In view of this, NEEC is urging the TBA members to deliberately support the growth of key economic sectors which employ majority of the population such as agriculture. This could be through creating agriculture window financing which match with the agricultural conditions in the country. On Banks' involvement in Micro-finance, the paper is quoted as saying that, Commercial banks in the country dominate the financial markets in Tanzania as they have not extensively participated in micro finance activities which touches a large section of middle and low income groups. The demand of funds in micro-finance can be met if commercial banks change their attitude towards the micro-finance market and become important players. In view of this, NEEC has commended the role played by five major banks in the country in their effective facilitation. The banks are CRDB Bank Ltd, Akiba Commercial Bank, The Tanzania Postal Bank, The Mkombozi Bank and National Micro-finance Bank which have shown some interest and participated in this market by offering Micro-finance Services and products for the purpose of not only making profit but also to alleviate poverty of the customers, and create opportunities for change and growth. In order to take economic empowerment forward, sectoral and multi sectoral initiatives are required to realize the desired results. Though the Banking sector in Tanzania has shown tremendous growth in volume and complexity during the last few decades, there are challenges which can be turned into opportunities as joint efforts are deployed. The Limited access to finance of both urban and rural population is partly due to lack of financial literacy which enhances financial inclusion and consumer protection. According to Finscope survey of 2009 on access to financial services which NEEC quoted in its paper, only 10 percent of the population has access to formal monetary operations whereas 54 percent are basically excluded completely.

NEEC's Executive Secretary Dr Anacleti Kashuliza. There are low levels of awareness and high levels of ignorance about various financial products and terms. Most people say they understand what a loan is, but less than 60 percent understand what interest rate is. 60 percent of people say they understand what a SACCOS is, but only half of that number understand what an interest on savings means. Banks can collaborate or support financial literacy program which aims at empowering more individuals to make informed financial choices and increase the reach and coverage of consumer outreach initiatives. In view of this, NEEC is therefore urging TBA members to set aside part of their CSR budgets to support financial literacy awareness campaign countrywide through different channels such as electronic and printing media and sensitization programs. This will facilitate capacity building and assist in creating a bankable society. With these recommendations, under the implementation of financial literacy, NEEC has commended some Banks which have started to implement this program. One such banks is the Barclay Bank under the project dubbed Bank on Change (BoC) which it conducts with its partners namely Care and Plan International focusing on financial literacy creation through developing access to financial services. NEEC through its guarantee scheme fund known as Mwananchi Empowerment Fund (MEF) welcomes Banks to join forces with the Institution in boosting the capital of this Fund but also in developing innovative products aimed at small and medium business growth in the country. This arrangement can be through business plan contests, venture capital funds for small and medium business. Presently MEF is operational in Lindi, Mtwara, Manyara, Singida, Rukwa and Ruvuma, guaranteeing SACCOS business focusing on agriculture, livestock and trade. In the SACCOS programme NEEC is collaborating with CRDB. Finance for transition graduates is one of the areas NEEC is looking forward to collaborate with Banks to empower graduates for self employment and job creation instead of being job seekers on the streets when they leave Universities and Training Institutes. NEEC has already prepared a proposal for this program and are on the way looking for interested financiers. The banking sector in Tanzania has undergone substantial structural change since the liberalization of the sector in 1991.The financial landscape is comprised mainly banks, pension funds, insurance companies and other financial intermediaries. However the sector is dominated by banking institutions particularly commercial banks which account for 75 percent of the total assets of the financial system. There are over 42 financial institutions operating in the country as of December 2010. Statistics shows that, total deposits for the banking sector have expanded rapidly in the past decade to a total of shilling 12.5trillion at end of September 2011 equivalent to 39 percent of country’s Gross Domestic Product. Despite the rapid growth in banking sector, the financial inclusion remains low and access to finance is limited for both urban and rural population. The NEEC's policy states clearly that the availability of capital for investment and operations remains a major constraint due to many reasons including limited sources of savings due to low incomes as well as lack of a saving culture, constraints that discourage banks from issuing credit such as high credit management costs caused partly by the lack of national identity cards and the absence of a credit information bureau where information concerning borrowers could be easily obtained, and weaknesses that make most borrowers uncreditworthy (lack of knowledge and experience in preparing bankable projects as well as lack of collateral and equity funds to start business). NEEC concludes that, the uptake of financial services remains low due to limited concentration of financial institutions in the rural areas and low level of knowledge on financial products and terms. Therefore in view of the above reasons, NEEC recommends that banks should expand their services to the rural areas to enhance convenience of their services and join efforts with other stakeholders in the community in providing financial literacy to the unbanked and under banked population. The training will help the disadvantaged people improve their financial literacy and money management skills, thus empowering them to make informed decisions. NEEC is ready to collaborate and support financial institutions in empowering more Tanzanians to access financial services. The NEEC is the apex body established following the formulation of National Economic Empowerment Policy and subsequent enactment of National Economic Empowerment Act No 16 of 2004, charged with the responsibility of supervising, monitoring and coordinating all economic empowerment activities. The Council works under the Prime Minister’s Office and was established in 2005 while its Secretariat employed in May 2007 to perform the day to day operations of the Council.