However, even where people understand the banking operations, the requirement for collateral by most financial institutions impedes provision of credits. Uneven distribution of lending institutions is too a problem to provision of credit services in the country as commercial banks are not evenly distributed the regions and districts, with most of them concentrated in urban areas leaving the bigger portion of the vast country without financial services.
Evidence and lesson from the developed nations show that access to overall financial services is crucial to economic growth and poverty reduction in the society. Where formal financial services are lacking, households rely on informal services which are associated with high transactions costs. Ultimately, instead of supporting the impoverished people from poverty alleviation, it becomes burdensome and others plunged into heavy losses.
Even those with bank accounts, physical distances to banks or points of financial service add unnecessary costs to the use of the services. High lending rates that characterises most commercial banks have become a stumbling block to access loans which could have helped entrepreneurs invest productively.
According to the Fin scope report conducted in 2009 basing on demand for, barriers and access to financial services, only 10 per cent of the population has access to the formal monetary operations whereas 54 per cent are basically excluded completely. In an interview with Business Standard, Fin scope’s Annette Altvater said over the weekend that the new report is yet to be compiled but probably would be ready before end of the year. Fin scope deals with national household surveys on the needs for financial services.
The coming of the credit bureau later this year is expected to play a critical role in the country’s financial infrastructure. Once in place, the bureau will help commercial banks to extensively scrutinise their borrowers; a move likely to curb loan defaults as well as boost lending services.
But financial analysts hold that the credit bureau would only work effectively when customers are knowledgeable about the information they collect and how it will be used. Therefore, financial literacy is a key component of all the strategies to empower people take action to improve their well-being as an ultimate goal.
It is a critical process for promoting access to finance by creating incentives and environments that promote desired financial behaviours such as saving, budgeting, or using credit wisely. Likewise, there is also a need to sensitize the community to undertake a saving culture so as to spare funds for future generation other than relying on loans with high interest rates.
It is evident that most people start to use banking services at advanced age and sometimes on situation where a bank account is needed as one of the requirements for getting certain services. This calls for the financial institutions to enhance financial literacy to create more customers.
The Barclays Bank has started to demonstrate practically and the 2.4bn/- investment on financial literacy creation countrywide has started to payoff with some individuals already transformed into bankable entrepreneurs. However, the beneficiaries express the need for the financial institutions to expand their services to the remote areas to avoid the risks associated with transferring money in long distances.
The Barclays Bank Head of Corporate Affair Ms Kati Kerenge said during the field visits to the three organizations in Kibaha and Mlandizi in the Coast Region that the bank is considering to initiate mobile banking to facilitate customers where financial services are inaccessible. “Establishing a new branch is long process and an expensive venture but mobile banking could be the most appropriate mechanism for the time being,” remarked Ms Kerenge.
Under a joint micro-finance initiative branded as Banking on Change (BoC), which focuses on savings-led micro-finance, a total of 2,400 village savings and loans associations (VSLAs) are to be created by the end of July 2012 reaching at least 60,000 beneficiaries in Tanzania alone. The BoC is also operational in Geita, Mwanza, Ifakara, Kisarawe and Dar Urban.
The groups are a result of the joint initiative between Barclays, Plan and CARE to bring together the independent interests of each partner, to improve the quality of life for poor people by extending and developing access to basic financial services. The three-year BoC project has become successful but also an important mechanism in the war against abject poverty with most families coming up with new sources of income generation that has enhanced the level of their living standards.
During the recent visits to the project sites, the appraisal programme of the joint microfinance initiative was graced by the Barclays Bank Retail and Business Banking’s Corporate Affairs Director, Ms Catharine French, as well as CARE International UK Chief Executive Officer, Mr Geoffrey Dennis and the CEO of Plan UK, Ms Marie Staunton.
The Economic and Planning Secretary Ms Frieda Gongi in the Input Marketing Associations in Mlandizi in the Coast Region asked the Barclays Bank management to consider establishing a branch or introducing mobile banking services to reduce risks encountered in the transferring process.
She said the initiative has changed their lives and have managed to establish small scale businesses as necessary sources to meet family obligations like school fees, food and accessing health facilities. The initiative focuses on savings-led micro-finance and demonstrates the new model of partnership between the public, private and non-profit sectors that is needed to meet developmental challenges.