According to the International Monetary Fund’s Country Report, bad debts dropped to eight per cent of the total loans as of September 2011, from nearly 10 per cent at the beginning of the year. Bankers have attributed the positive trend to rising financial discipline and growing awareness among borrowers on the need to repay loans.
Trainings on business management by commercial banks, microfinance institutions or other government agencies - have as well helped loan takers to use borrowed money wisely. While we wholeheartedly support the new financial development and ask all stakeholders to join forces to ensure its sustainability, we too believe that there are benefits accrued from the growing positive loan repayment culture that should be shared among all players in the financial sub-sector.
High loan defaulting rate used to cost the lending institutions dearly in terms of revenues, lost as bad debts or extra costs to enforce repayments. However, it’s also true that borrowers do share the burden of defaults in terms of high interest rates. Bank borrowers pay as high as 30 per cent interest rates on loans although subscribers to micro financial institutions cough up to 100 per cent interest!
And, the excuse is to cover for the high default risk. Now that the default rate is coming down, we would wish to see similar drop in interest rates. That way, the benefits of a creditworthy society will be fairly enjoyed by all stakeholders -loan providers and loan takers. With reasonably priced credits, many entrepreneurs will take loans and invest profitably to generate sufficient revenues to keep the business going and repay the loans.
For, one of the problems with credit facilities in Tanzania is that they have substantial hidden costs that an ordinary borrower can hardly identify. No wonder people have blindly signed loan contracts only to realise later that they cannot service the facility. The central bank says it is in final stages of operationalising the credit reference databank from which lenders will get key information about their potential borrowers for informed decision making, reducing the default risk in the process.
The reference databank and the Credit Reference Bureau will facilitate easy access to borrowers’ information by bankers.
Through the credit bureau, borrowers will have their positive credit history as collateral to access loans at competitive terms.