DODOMA: INCREASING trend of micro loans with exploitative interest rates attracted a heated debate in Parliament yesterday, with the government calling on individuals to abstain from taking such loans.
The high-interest loans are offered by some institutions and individuals, among them are unregistered and operate without licences from the Bank of Tanzania (BoT).
Initially, Special Seats Member of Parliament, Shally Raymond wanted to know about government measures to control loans and interest rates given without following procedures including those which are provided through mobile phones.
In her basic question, Ms Raymond demanded to know when the government will direct mobile telephone firms which provide financial services to provide education to the people before giving them loans.
This triggered a hot debate as several other legislators demanded to know what the government was doing to protect its citizens from the loans which they said have been pushing people into abject poverty.
Vunjo lawmaker, Dr Charles Kimei, who is also the former Managing Director of CRDB Bank, said that for any microfinance institution to operate, they must submit their lending policy to the Central Bank which assesses the interest rates before issuing a licence.
Special Seats MP, Ms Sophia Mwakagenda (CHADEMA) told the Minister for Finance, Dr Mwigulu Nchemba to take time to look into individual loans notoriously referred to in Kiswahili as ‘kausha damu’ (blood draining loans), which are wreaking havoc because of their unfair lending terms.
Manyoni West Member of Parliament, Mr Yahaya Massare (CCM), said the exorbitant interests on loans through mobile companies have been a big challenge.
He said the money sharks are not operating officially, that is why the government should come up with strategies to curb their operations to protect Tanzanians.
Chairing the debate, National Assembly Speaker Dr Tulia Ackson, tasked the Minister for Finance, Dr Mwigulu Nchemba, to explain why mobile telephone companies and individuals offer loans without following proper procedures, including having licence from the Central Bank.
Dr Nchemba responded by saying that since most banks do not have branches in all parts of the country, they have allowed telecommunication companies to offer loans by partnering with banks.
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He said that in order for a company, institution or individual to be able to provide loans to citizens, they must have a licence from the BoT and meet the requirements of the Banking and Financial Institutions Act, 2006 and the Small Financial Services Act (Microfinance Act, 2018 ).
He said that telephone companies that provide financial services have been licensed to provide mobile money services in accordance with the requirements of the National Payment Systems Act, 2015 (The National Payment Systems Act, 2015) and its regulations.
“Loans provided to citizens through mobile phones are provided in partnership between institutions licensed to provide loans and mobile phone companies licensed to offer mobile money services.
This cooperation defines the responsibilities of each service provider where lending institutions provide loans according to the rules and regulations of lending licence while mobile companies provide facilitation,” he said.
“This has helped citizens to access loans without having a bank account or a loan guarantee,” he said.
He said according to the 2019 Financial Services User Protection Regulations, all financial service providers under the Central Bank of Tanzania are required to provide financial education to their customers on the services they provide, including credit education.
The regulations require them to provide loans after the borrower agrees to the relevant loan terms. The BoT has at different times been providing education to citizens on financial services and asking them not to engage in financial services from service providers who are not licensed.
In addition, he said the Central Bank of Tanzania has taken various measures to prevent these loans, including asking mobile companies to ensure that their systems are not used in any activities related to these loans, as well as continuing to provide education to the public so that they avoid taking these loans.
“Likewise, the Central Bank continues to monitor the parties so that appropriate measures can be taken against those who violate the established procedures,” said the minister.
However, he said among the factors that contribute to the high cost of digital loans are the fact that these loans are given instantly and without the need for collateral, thus part of those costs reflects the risk of non-payment of this type of loans to the lender.
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