Tanzania: Bot Pumps 1tri / – to stimulate the private sector
The Bank of Tanzania (BoT) injected 1tri / – to financial institutions for loans to the private sector with the aim of mitigating the macroeconomic impacts of the Covid-19 pandemic in the country.
BoT Governor Professor Florens Luoga said at a press conference in Dodoma yesterday that following the Covid-19 pandemic, the government has decided to come up with policy measures to promote credit to the private sector and cut interest rates “Before the outbreak of the Covid-19 pandemic, macroeconomic conditions in Tanzania were stable.
The economy grew robustly, which averaged 6.7% from 2010 to 2019 and inflation fell to 3.8% in 2019, ”he said.“ Credit extended to the sector private banks increased by 15 percent, while lending rates rose from over 20 percent to 17 percent.
The pandemic has affected economic activities, in part due to lockdown measures and travel restrictions implemented in countries that trade with Tanzania. In this regard, said Professor Luoga, the government has taken measures to mitigate the impact of the pandemic on economic activities and promote growth.
He noted, however, that the pace of growth had slowed to 4.8 percent in 2020 from 7 percent the previous year and that growth in credit to the private sector was also weak, ranging from 2.3 percent to 9.1 percent. Meanwhile, interest rates on loans charged by banks have remained high, at around 17 percent, despite monetary expansion and other measures adopted.
In order to give a big boost to the rapid increase in credit to the private sector and lower interest rates, from yesterday the BoT decided to implement several policy measures, among which the reduction of reserves mandatory mandatory (SMR). A bank that grants loans to agriculture may benefit from a reduction in the amount of the SMR, equivalent to the loan granted.
In addition, a bank is required to show proof that it lends to agriculture at an interest rate not exceeding 10 percent per annum.
This measure aims to increase lending to agriculture, which is the mainstay of Tanzanians. It also aims to reduce interest rates on agricultural loans. Other measures, according to Professor Luoga, are the introduction of a special loan in the amount of 1 tri / – to banks and other financial institutions for on-lending to the private sector.
“The Bank of Tanzania will grant a special loan to banks and other financial institutions at 3% per annum for the pre-financing or refinancing of new loans to the private sector,” he said, adding that a bank wishing to access the loan Special will be required to charge an interest rate not exceeding 10 percent per annum on loans made to the private sector. He said the measure is aimed at increasing bank liquidity and reducing lending rates.
Other initiatives are reducing the risk weight on loans. The BoT, according to Professor Luoga, plans to reduce the risk weight on different categories of loans in calculating banks’ regulatory capital requirements.
The measure will give banks the ability to extend more credit to the private sector than before. The Central Bank has also lifted the eligibility criteria for bank agents.
He said the BoT has removed the regulatory requirement of at least 18 months of business experience for applicants to agent banking. Instead, applicants for agent banking must have a National Identity Card or National Identification Number (NIN).
“This policy measure should contribute to an increase in loanable funds to banks through the mobilization of deposits. The measure also aims to lower lending rates,” he said.
The BoT also decided to remove the limitation on the interest rate paid on mobile money trust accounts.
According to the boss of the BoT, the balances of mobile money trust accounts held with banks will be eligible for interest rates not exceeding the rate offered on savings deposit accounts by the respective bank. This will help lower the cost of funds for banks, thus helping to reduce lending rates.