Banking in Tanzania: New measures to promote credit to the private sector

The Bank of Tanzania (BOT) has recently issued a public notice on the policy measures to promote credit to the private sector and lower interest rates (the Notice), as part of its drive to spur economic recovery and stability in Tanzania. In this article, we summarise the measures outlined in the Notice and what they mean for financial institutions in Tanzania.

Prior to the Notice, the BOT’s Monetary Policy Committee had introduced and approved policy measures to maintain stability in the financial sector and ensure guidance in relation to increased non-cash transactions. Click here to access our previous article for more information.

The Notice

The Notice sets five considerations targeted in the agriculture sector, agent banking business, mobile money trust account balances, special loans and the reduction of risk weight on loans.

Statutory minimum reserve requirement (SMR)

The BOT is promoting lending in the agriculture sector by allowing a reduction of the SMR. According to the Notice, banks that extend credit to agriculture at an interest rate below ten percent (10%) per annum are eligible to a reduction of the SMR amount. The reduction would be equivalent to the loan extended and would reduce the interest rate on loans in Tanzania’s agriculture sector.

Agent banking

The BOT has eased the eligibility criteria for agent banking. Prior to the Notice, applicants for the agent banking business were required to have not less that eighteen (18) months business experience. The Notice has removed the experience eligibility criteria, instead what is required is the applicant’s national identity card or national identification number. This measure would have the effect of increasing loanable funds to banks through deposit mobilisation. Lending rates would also be lowered because of the implementation of this measure.

Mobile money trust accounts

The Notice also directs that the interest rate charged on mobile money trust account balances should not exceed that of savings deposit account by the respective bank. This measure is intended to reduce lending rates through lowering the cost of funds to banks.

Special loans

The BOT further promotes the private sector through the introduction of a TZS 1 trillion special loan (equivalent to USD 431,237,830) (the Special Loan). The Special Loan would be advanced to banks and financial institutions for on-lending to the private sector. The Special Loan is provided to banks and financial institutions at three percent (3%) per annum and banks must charge an interest rate not exceeding ten percent (10%) per annum on private sector loans. The BOT’s measure is intended to increase liquidity to banks and reduce lending rates through advancement of the Special Loan.

Risk weight on loans

The Notice also directs the reduction of risk weight on different categories of loans issued by banks with the intention of allowing banks to extend more credit to the private sector.
 

Other measures

Banks and financial institutions have been directed by the BOT to ensure that strategies of lowering lending rates and increasing deposit mobilisation are implemented.