In Summary
There would be job cuts in the process, of course.
But the economic impact of these redundancies would be minimised as,
with lower interest rates, some laid-off workers would happily start
their own small businesses.
The fact that lenders are behind the failure of
many start-up businesses should raise the red flag. Basically, lenders
are meant to supplement the growth efforts of small-scale enterprises.
Yet, with exorbitant lending rates – ranging
between 17 per cent and 24 per cent for commercial banks and twice as
much or more for microfinance institutions – some borrowers end up
losing even the little that they had before they got loans.
A quick glance at the reasons bankers cite for the
high lending rates raises more questions than answers. Members of the
Tanzania Bankers Association have repeatedly attributed the trend to
these factors: A high rate of loan defaulters and uncreditworthy
customers, depositors with no business acumen, instability in the
financial market and the high cost of loan administration.
But lenders can be innovative in working on these
issues rather than use high interest rates to penalise everyone who
knocks on their doors. With mobile phone money transfer platforms
becoming part of everyday life for the average Tanzanian, for example,
why would the chief executive officer of a serious bank run hundreds of
branches – at tremendous cost – when clients can be reached easily by
mobile phone money transfer systems?
There would be job cuts in the process, of course.
But the economic impact of these redundancies would be minimised as,
with lower interest rates, some laid-off workers would happily start
their own small businesses.
The idea of credit reference bureaus was to make
sure that lenders got information about borrowers so they could guard
against the unscrupulous ones and, ultimately, lower interest rates and
boost access to credit to deserving ones.
Two years down the road, little seems to be
happening. All we hear is the same old song about working on these
issues. We must march to a different beat if bank loans are to make a
serious impact on small businesses.
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