Tanzania: Efforts to Close Financial Disparities in Place

By Business Standard Reporter

The government has been implementing various strategies aimed at reducing economic and financial disparities via financial inclusion for those groups that are traditionally excluded from the formal

financial sector.

The need to build an inclusive and effective financial system led to establishment of the National Financial Inclusion Framework initiative, phase one (2014-2016) and second phase 2018-2022 implemented under the Financial Inclusion National Council.

The first framework focused on building infrastructure to facilitate access of financial services ready to be used by Tanzanians.

They sought to improve the levels of financial capability of Tanzania so that individuals are better equipped to act with confidence in making optimal choices in the management of their personal financial matters.

The frameworks provide mechanisms and the critical steps that allow users to derive value from using financial solutions regularly.

Key achievements under the first framework was the increase of the percentage of adults who access formal financial services to 65 per cent in 2017 from 58 per cent in 2013, as well as reduction of adults solely reliant on informal financial services from 16.9 per cent to 7 per cent in the same period.

The need to enhance accessibility of formal financial services to underserved populations is one of the government top priorities with ultimate goal to alleviate poverty.

Some analysts argue that inaccessibility to formal financial services, especially microfinance loans, has a dampening effect on economic growth, which can result in financial instability at the household and national levels.

Statistics show that apart from major strides in the overall levels of financial inclusion in Tanzania over the past decade, 27.4 per cent of the adult population remains completely excluded from any formal or informal financial services.

Lack of knowledge among borrowers on how to spend and make the loan productive is one of the setbacks that at most time fail to honor their payment obligations.

This has created the dire need for financial literacy in order to bring economically vulnerable populations into the financial mainstream. Knowledge and skills on financial matters will create financial discipline among the people.

The knowledge and skills on financial matters have at best being provided by lenders particularly commercial banks and others taking further step to guiding their borrowers on how they spend their loans.

Recently the Mtwara Regional Commissioner, Gelasius Byakanwa graced Teachers' Day 2020 by challenging teachers to have financial and investment discipline in order to avoid taking loans beyond their means.

The Teachers' Day was organised by NMB Bank to inculcate in them financial discipline and impart skills to educators to avoid unintentional borrowing for their wellbeing.

"You are one of the leading people in terms of unproductive loans... this platform is going to change you," Mr Byakanwa said.

The platform brought the bank and the teaching community together, focusing on listening to and addressing their challenges, receiving their views and working on them as well as strengthening their banking services.

Making the revelation recently, the RC noted that his research had shown that there had been aimless loans among some teachers, something that should end.

However, he requested them to use the acquired skills for their career development and also advise members of the public on the importance of planning before applying for a loan.

Productive loans are given for setting up industries or business which not only increase business and economic activities but also eradicate poverty by giving employment to a large section of people.

A debt is called productive, if the loan is financed for the projects which bring revenue to the government such as irrigation and power projects. A debt is called unproductive, if the loan is financed for war and other relief operations in case of emergency.

The Bank of Tanzania (BoT) monthly economic review for August shows that the outstanding credit of personal loans was 32.4 per cent, higher than all the other sectors that benefitted from the loan.

According to the Bank report, the interest rates on bank loans maintained a general declining trend in July this year, reflecting impact of accommodative monetary policy and reform measures implemented to make loans affordable.

The lending rates averaged 16.55 percent in July this year, slightly lower than 16.87 percent in July 2019. One-year lending rate decreased by 87 basis points to 15.38 percent.

NMB Senior Private and Central Customer Manager Ally Ngingite assured the RC that the bank was still strong in financial discipline and protecting its customers from negative borrowing, while educating its clients on wise loan use.

"The pride of NMB Bank is not only to lend teachers, who want loans or other groups of borrowers in the community, but also to find borrowers with goals and the vision to benefit them," he pointed out.

NMB has over 3.2 million customers, where about 2.5 million of them have been connected digitally, citing some of their products as NMB Mkononi and NMB Pamoja Account and NMB Mortgage Loan.

Ms Sophia Luani, a teacher from Tandika Primary School in Mtwara Municipal Council noted that the teachers were among the top beneficiaries of non-productive loans.

"This forum has helped us to change our mindset. We are going to be good ambassadors not only for NMB Bank, but also to use the education we have received," she said.

Many of us were taught how to make money but not how to manage it, and at home, we did not talk about it beyond noticing that 'money does not grow on trees.'

Financial discipline refers to how well you are able to conform your spending and saving to the plans that you have set for yourself.

It is a continuous process and it evolves as your priorities change over time. It is also based on the understanding that money is just a tool and that you control your money, money should not control you.