...the banking community at your service
Tanzania Bankers Association
Newsletter of the Tanzania Bankers Association
Inside this issue:
March 2006 Volume 1, Issue 1
Chairmans Statement
What is TBA?
News/announcements
Get to know the facts...
Legal corner
Topical issue: SME
Need a laugh?
Our contacts
Page 3: Chairmans Statement
Page 4: Know what is TBA
Page 5: TBA Members news
Page 9: In case you didnt know...
Page 10: Banks and the challenges they face in a
regulatory regime: A story from an expect lawyer.
Page 12: SME: A Challenge to the Tanzanian Economy
Page 14: Need a laugh?, there we go
Page 15 Our Contacts.
Page 2 TBA Newsletter
Inside this issue: A word from the Editor: elcome to the first issue of the Tanzania Bankers Association Newsletter. A Newsletter intended
for all players in the banking and financial sector.
It is a quarterly Newsletter to be posted on the TBA Website www.tanzaniabankers.org.
The Newsletter is intended to feature various inter-esting banking topics such as legal issues, competi-tors issues, regulatory issues, SME and other topical issues of interest to the banking and financial sec-tor but then, once the time gets troubled the doc-tor says you need to rest your brain get a laugh for a while...from our jokes
Inside this issue, get to know which bank made more profit in the last two quarters in our column in case you didn t know .why banks are regu-
lated in our legal corner and an overview of SME in Tanzania.
Special thanks to the Editorial Board for their valu-able contribution to make this Newsletter a suc-cess!!!
Hopefully you will enjoy reading this Newsletter and feel free to send any article or news that could be of interest to the banking and financial sector.
Pascal L. Kamuzora - TBA Secretariat - Chairman
Arden Kitomari - National Bank of Commerce Member
Twisa Mwambona - Azania Bancorp Member
Juanita Mramba - Standard Chartered Bank Member
Wasia Mushi - Eurafrican Bank Member
Tuli Msirikale - CRDB Bank Member
Christine Manyenye - Exim Bank Member
Tuse M. Joune - TBA Secretariat Editor
Editorial Board:
Mr. Mayank Malik,
Chairman of the Tanzania Bankers Association &
Chief Executive Officer of Citibank Tanzania.
ank you for reading our first TBA Newsletter. Our mission is to ensure that the banking sector plays a more active role in the quest for continued improvement in economic performance of our country.
This newsletter will be published on quarterly basis and is intended to act as a tool for promoting the Associa-tion s activities as well as spearheading the continued and effective communication between the banking sec-tor, other economic sectors and the general public.
The "News and announcements" column gives well summarized news and announcements of member banks events that happened or about to happen in the past or coming quarter respectively. The main focus being on new developments in the banking industry as well as achievements and involvements in social activities.
Get to know the facts demonstrates a factual comparison between member banks in different areas with the aim of increasing more competition and compliment the ones who did well than the others leading to a more effective and competitive banking business.
The Association also thought of bringing awareness to bankers and the general public on legal issues via our Legal Corner . The Legal Experts will be giving highlights on different legal matters and their impact on the
Banking Industry.
Topical issue a column where topical issues/ exclusive interviews will be featured focusing on hot topics that are of interest to the banking industry, financial sector and the general public in reforming the country s economy such as SME, Lending, Mortgages, etc.
We hope, as you continue reading our newsletter, you will experience the same feeling for which it was intended for, communication between the banking sector and the stakeholders of the economic reform, being the investors, students, economic reform sectors and the general public.
Again, welcome, and let s work together in promoting our country s economic growth for the betterment of the entire Tanzania Society.
Mayank Malik Chairman
Page 3 Volume 1, Issue 1
TBA Chairmans Statement
The Tanzania Bankers Association (TBA) is an association of 27 banks and non-bank financial institutions registered in September 1995 under the Societies Ordinance Cap. 337 of 1954.
Objectives
To facilitate the consideration and discussion of matters of common interest to members.
To develop and maintain a code of banking practice for its members and to facilitate the harmonization of operations in the banking sector.
To facilitate the promotion of on-the-job training as well as professional training leading to professional banking qualifi-cations or other relevant qualifications in the banking indus-try.
To work closely with the Bank of Tanzania with a view to promoting and sustaining a vibrant banking sector in Tanza-nia.
To co-operate or affiliate with any organization or body, local or foreign, whose objectives are substantially similar to those of the Association.
To take any measures deemed desirable to further the interests of the banking sector in Tanzania.
Management:
The Management of the Association is comprised of the Chairman, the Vice Chairman, the Honorary Treasurer and the Executive Director. The first three principal officers are elected by the Annual General Meeting for a period of two years. The Executive Director is a full time paid officer re-sponsible for the day to day conduct of the affairs of the Association.
Page 4 TBA Newsletter
What is TBA?
Our Motto: The banking community at your service ..
Below is the current management team of the Asso-ciation:
1. Mayank Malik - Chairman
2. Charles Singili - Vice Chairman
3. Iddi Msonga - Honorary Treasurer
4. Pascal Kamuzora - Executive Director
S/No Name of the Committee Assignment/responsibility Chairman/Leadership
1. DECH (Dar es Salaam Electronic Clearing House) Technical Com-mittee
Take over plan for the clearing house and the entire National Payment System.
Mr. William Chola of Citibank
2. In house Lawyers Sub-Committee
All legal related matters Mr. Felix Kibodya of NBC
3. Bank Frauds and Forgeries Committee
Monitoring and taking measures best to combat Bank frauds and forgeries
Mr. Irving Manning of Stanbic Bank
4. Management Committee of the Credit Information Bureau
Management of the Credit Bureau Mr. Felix Kibodya of NBC
5. Public Relations Committee All matters relating to public relations activities.
Mr. G. R. Mwamukonda of Twiga Bancorp Ltd.
6. Money Laundering Control Issues related to money laundering Mr. Christopher Vuhahula of Barclays Bank
7. PPP Multisectoral Task Force Harmonization of Private Public Part-nership
NCC/ TIC
8. BOT/TBA Technical Committee Consultative Committee on BOT/TBA technical issues.
BOT
9. Basel II To modernize the banking system BOT
10. Inter-Institutional Committee on financial sector reform
Financial sector reform issues BOT
11. Card Payment Infrastructure Deepening card transactions and eventu-ally setting up a national switch to facili-tate Interbank payments using credit and debit cards.
BOT
Current Projects/Committees
Page 5 Volume 1, Issue 1
News and announcements
Got any banking news or announcements, send to: [email protected]
Exim Bank introduces Smart State-
ments and Opens a New branch in Dar
Smart Statement is a complete statement presentation, archival and retrieval solution over the Internet. I t al-lows customers to access current or historic statements online. Smart Statement gives customers the freedom of accessing statement details, daily, anytime, anywhere.
Recently, the bank has opened a full-fledged branch on Samora Avenue in Dar es Salaam. Speaking during the opening ceremony, the bank s Managing Director, Sabetha Mwambenja, said the new branch sets another mark of their physical presence on the map of Tanzania.
TIB becomes development bank
The Government has decided to restructure the Tanzania Investment Bank (TIB) to become the first development bank in Tanzania focus-ing on medium and long-term financing. In this regard, the Government will beef up the capital base of TIB from the current TZS 7.64 billion to TZS 50 billion.
Citibank launches Domestic Funds Transfer (DFT) product
Citibank Tanzania has launched a new product called Citidirect Domestic Funds Transfer. This product will enable the bank s customers to effect payments from the comfort of their offices directly to the beneficiary accounts in any other Com-mercial bank in Tanzania. Such payments include salary transfers, supplier pay-ments, tax obligations, utilities, and many more. The Citigroup Head of Global Trans-action Services, Isaac Kamuta, said more than 70 customers had already registered themselves for the service and that ap-proximately 100,000 payment transactions had already been effected since DFT was introduced in December 2004. Something unique about DFT is that you can instruct us to effect payments for you from any-where in the world by simply logging into our website , Kamuta explained.
NBC installs another ATM in Dar es Salaam
NBC has installed yet another VISA enabled Automated Teller Ma-chine (ATM) at the Kobil Service Station in Bugu-runi, Dar es Salaam. This is the third ATM NBC has installed in 3 weeks, the previous 2 being at the BP stations in Dar at Kinondoni and Mwenge.
Dar es Salaam Community Bank
(DCB) goes electronic
DCB will soon start issuing cards popularly known as fedha cards, currently being used by the Federal Bank of the Middle East (FBME) and Tanzania Postal Bank (TPB). Our customers will be in a
position to access money through ATM s of FBME and TPB located in various areas in the country , said Edmund Mkwawa the DCB Managing Director.
BOT clears Microfinance Institutions
The Bank of Tanzania (BOT) has lifted the restriction that barred microfinance institutions from mobilising customer deposits, a move geared towards low-ering lending rates. The microfinance institutions were not allowed to offer deposit services, which in turn pushed up the lending cost as most of them outsource the loan fund. Microcredit is said to be among the most expensive loans in Tanzania charging interest rates of between 25% and 40% p.a. as most microfi-nance institu-tions borrow from commer-cial banks.
Rabobank takes charge of NMB
The sale of 49% of Government shares in NMB was sealed on 30 September 2005. The signing ceremony saw the investors presenting a USD 29 million (about TZS 33 billion) dummy cheque to the Government in exchange for certificates of the shares.
Above: Launching of the TBA Credit Information Bureau and website; From left: Mr. Charles Singili (TBA Vice Chairman), Mr. Penieli Lyimo (former P.S. Treasury), Mr. Mayank Malik (TBA Chairman) and Mr. Mkila (Director of Banking Supervision, Bank of Tanzania, BOT)
CRDB Bank sees training as part of lending process
CRDB bank has embarked on in-vesting in SMEs business skills be-fore committing itself to any lending risks. CRDB is promoting its re-cently launched Bidii Loans , which are targeting SMEs hence, the pre-training initiative. The bank has launched an intensive training pro-gramme tailored to its SME custom-ers aimed at raising their business knowledge and skills. According to CRDB Bank SME Project Manager, Elibariki Masuke, the pilot project started with two branches i.e. Vijana in Dar es Salaam and Mwanza. We have trained them for about 6 weeks on various ways of achieving their business aims , he said. More than 40 SMEs based in Dar and Mwanza took part in the course.
Page 6 Volume 1, Issue 1
News and announcements
Barclays Bank, Kenya Airways support SME s
Barclays Bank Tanzania Limited (BBTL) and Kenya Airways have jointly supported 50 operators of SMEs for a trip to China where they attended the 98th Chi-nese Export Commodities Fair, which was held in Guangzhou City. The Tanzanian delegates are mem-bers of Barclays Business Club. More than 700 busi-ness persons in East Africa involved in SMEs took part in the Fair, known as Canton Fair.
BOT Governor launches Financial Sector Deep-ening Trust
The Financial Sector Deepening Trust (FSDT), which was launched in Dar es Salaam in October 2005 by the Governor of the Bank of Tanzania, Daudi Balali, has TZS 34 billion available to be invested in local micro-finance institutions for a five-year period. The Trust s investments will include research & develop-ment of financial markets, products and services training and other capacity building, strengthening smaller financial institu-tions to become credible and creditworthy counterparts for lar-ger ones, developing regulatory and supervisory frameworks and a new technology development, the FSDT Technical Direc-tor, Ian Robinson, said.
Standard Chartered Bank to train SME s, Corporate Banks
Standard Chartered Bank has embarked on providing training with new business skills to SMEs and Corpo-rate Banks as one way of empowering them to cope with global trade challenges, the bank s Executive Director, Consumer Banking Division, Heri Bomani said. For many years, this sector suffered much and was isolated from traditional financial institutions mak-ing them live like orphans. Opening a one-day busi-ness workshop in Dar es Salaam in October 2005, Bomani said that the bank intended to rescue SMEs by giving them practical solutions to their daily busi-ness problems.
Tanzania lending rates down Tanzania s lending rates declined from 31% to 16% between 1996 and 2004. The information is contained in a Bank of Tan-zania (BOT) statement, which explains how BOT has contributed to a sound macroeconomic performance in Tanzania. Some of BOT s major achievements have been mainly in reducing and stabilizing the inflation from about 28% to 4%, ensuring a safe and sound banking system and well functioning financial mar-kets. However, despite these achievements, BOT recognizes that there are a number of remaining challenges that would have to be addressed in the near future in order to enhance the contribution of the financial system towards supporting a higher rate of economic growth in the country. The measures that would be taken would be carried out through the Second Gen-eration Financial Sector Reforms and would mainly focus on areas such as improving the monetary policy framework, im-proving the legal and regulatory infrastructure, improving the supervisory function of the financial system, and establishing and promoting a viable and sustainable microfinance industry.
Left: A cross-section of participants in one of the workshops organised by Tanzania Bankers Association
Page 7 Volume 1, Issue 1
News and announcements
Citibank provides TZS 100m to Finca
Citibank Tanzania Limited pro-vided more than TZS 100million to the Foundation for Interna-tional Community Assistance (Finca) since 2003. The money lent to Finca, a microfinance insti-tution is for providing Microcredit to groups of small scale business people. The move is aimed at stimulating small businesses and alleviating poverty. The Citigroup Chief Executive Officer, Mr. Ma-yank Malik, told the Daily Times in Dar es Salaam late 2005 that the bank also worked with Habi-tat, a non-governmental organi-zation, in financing the construc-tion of scores of low-cost houses for rural people in Dodoma and Tanga regions.
Bank of Baroda to pro-vide student loans and
start lending to farmers
The Bank of Baroda (T) Ltd. has shown its efforts to develop human capital in the country by pledging to provide full scholar-ships to local students for further studies abroad at degree level. Baroda s Executive Director, Avinash Majan, said in Dar es Sa-laam in November 2005 that the program is intended to help meet the country s Millennium Develop-ment Goals (MDGs). He explained that up to-date, the bank has of-fered full sponsorship for three students for further studies in the UK. He added: Their parents must have the ability to pay back the loan over a three year period after the student completes his studies.
The bank has also decided that it will be setting aside 25% of its total deposits in support of agricultural activities under its new special project called the Agricultural Loan Facility Program (ALFP). The bank made this deci-sion to support farmers after real-izing that the agricultural sector in the country is still lagging behind.
NBC donates TShs 4,000,000 to Kawe Primary School and supports Albino Enterprises in Dar es Salaam
NBC has given a donation to transform the Department for the Mentally Handicapped at Kawe A Primary School in Dar es Salaam, as part of its Corporate Social Responsibility Strategy. The plan for the donation of TShs 4,000,000 (USD 3,500) is to set up the school with its first electricity supply and fully equip it with a TV, radio cassette player, books, chairs, mattresses, carpets, office chairs and tracksuits for the 40 chil-dren who attend the school.
The bank has donated four sewing ma-chines valued at TShs 356,000 to the sup-port group, Albino Enterprises in Dar es Salaam, as part of their Corporate Social Initiative area of job creation. The donation was part of a concerted effort on the part of NBC to try and help the most sidelined in society to make a living, and the sewing machines in particular offer members of the Albino Enterprises the means to start their own business.
Western Union network expands in Tanzania
The Western Union, a worldwide leader in money transfer services, announced the expansion of its network in Tanza-
nia in November 2005, with the ap-pointment of a new agent, Diamond
Trust Bank Tanzania Limited (DTBT). The Western Union money transfer service is available through DTBT s
branches in Dar es Salaam and Mwanza and will be extended to their new
branches, which will soon be opened in Kariakoo and Arusha.
Stanchart freezes personal loans
Irregularities in offering loans to individ-ual borrowers has left the company
loosing hundreds of millions of shillings. This has prompted the bank to freeze
personal loans for an unspecified period beginning 5 October 2006, as it seeks more effective ways of managing the
loans. Internal sources said the loss follows high levels of default in its unse-
cured loans category, which provides personal loans to various companies
employees. Sources said defaulters in-clude ghost individual borrowers, a
situation that implicates some untrust-worthy employees within the bank itself.
Tanzania Postal Bank intro-duces Pesa Chapchap service
Tanzania Postal Bank has intro-duces Pesa Chapchap
service that allows Uhuru card and Fedha card holders to get cash from se-lected TanPay merchants. Pesa Chapchap enables one to access cash at selected TanPay mer-chants.
Akiba Bank trains over 40 petty traders
In an effort to empower small and Medium Entrepreneurs, Akiba Commercial Bank (Akiba) over a weekend in October 2005, offered training to over 40 members of SME group known as VIBINDO based in Temeke District, Dar es Salaam. The training was aimed at equip-ping VIBINDO members with basic business concepts and skills, small business finance management and proper ways of accessing loans from Akiba were run by two Akiba officials.
Page 8 Volume 1, Issue 1
News and announcements
Stanchart targets more business in SME sector
Standard Chartered Bank Tanzania, which has invested about USD 23 million in the economy, plans to increase its business with small and medium-size enterprises from around 5% to 15%. A recent UNC-TAD report shows that currently about 90% of the bank s business in the country is corporate. The document on investment opportunities in the country has it that 75% of the corporate customers are do-mestic companies and the remaining 25% foreign ones. The bank expects to in-crease its capital by 3% to 5% and its employees by 10% to 15%. Currently, the bank s corporate business is mainly in oil, trading, agro-processing and manufactur-ing. The report adds that it would like to do more in the areas of infrastructure, real estate, mining as well as consumer loans. Opportunities exist in expanding product and service portfolios in non-traditional services such as brokerage, asset management, real estate financing, lease finance and agriculture finance , the report notes on banking in Tanzania.
CRDB, DAWASCO sign deal for bills settle-
ment Dar es Salaam Water and Sewer-age Company (DAWASCO) in No-vember 2005 signed a contract with CRDB Bank, under which DAWASCO customers would be able to settle their bills through the bank using its ATM s. The CRDB Managing Director, Charles Kimei said that the programme started in 2004 when Multi-Choice became the first company to adopt the settlement system and in May 2005, CRDB signed a simi-lar contract with the Arusha Water and Sewerage Authority (ARUWASA).
Dragnet in pipeline for bank loan defaulters
Loan defaulters may soon find themselves running around in circles following a decision by the newly created Credit Information Bureau (CIB) to embark on estab-lishing a list of defaulters, which will be accessible to financial insti-tutions countrywide. So far, CIB has more than 350 names of loan defaulters who do not qualify for loans from any local banks. The number of banks visiting CIB to find out loan defaulters has been increasing since the bureau was launched in 2004.
Federal Bank of the Middle East Changes its name and starts online banking
Federal Bank Of Middle East has changes its name to FBME Bank Limited and has positioned TanPay for further growth. Speaking in Dar es Salaam during end of 2005, the bank s Executive Chairman, Ayoub Farid Saab, said that the changes result from its presence in three continents as well as a huge success of its TanPay system.
FBME Bank has recently launched a new online banking service called FBME Di-rect , which allows some banking transactions and transfer of payments to be ef-fected electronically. The bank s General Manager, Andrew Stephens, said initially, Direct will be available for free for a period of 6 months. He said the service will be
availed in three formats including personal customers and joint account holders, cor-porate and business accounts as well as a master format. FBME Direct enables users to view and download account statements. Loan repayment schedules can be viewed directly from Internet Cafes, while VISA and MasterCard statements can also be downloaded from personal computers. Other services include transfers to other FBME accounts or to any bank worldwide, to get access to deposit rates, currency rates, to initiate documentary credits.
Banks to boost access to credit
Two local banks have joined a project by the Netherlands Financial
Sector Development Exchange (NFX) that seeks to increase access
to finance for small and medium sized enterprises in developing countries. An NFX official Maria
Verheij said Eurafrican Bank and Akiba Commercial Bank would through the project be able to
increase lending to SMEs in the country.
Page 9 TBA Newsletter
In case you didn t know: Get to know which was the most profitable bank in the Year 2005 (Dec 04 Dec 05); By Arden Kitomari
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compliance versus carrying on profitable businesses
By Godwin Ngwilimi (advocate), Former Head of Legal Services and Compliance, Stanbic Bank Tanzania Limited
T oday, in almost all financial systems of the world, devel-oped and developing alike, the
banking sector is one of the highly regulated and supervised activities - meaning that governments through government agencies exert a consider-able amount of control over the affairs of banking institutions. Yet, interna-tional banks belonging to international banking groups are subjected to both home-country (where the parent or holding company is located) and host-country (where the subsidiary or branches are lo-cated) regulations. I t is important to note right from the outset that it is the law and a variety of other regula-tions (in the forms of local as well as international stan-dards) that give such government agencies such power to regulate and supervise banks.
The question whether or not banks should be regulated and supervised as such has always been a subject of much debate by the academia and banking practitio-ners, though, without significantly effecting governments measures to their respective banking sectors.
To the banks, this has been a reality and, indeed a challenge along with conducting businesses profitably, at times in highly competitive environ-ments.
Nonetheless, when looked upon from a different angle, banking regulation and supervision partly explains the impor-tance of banks in the economy and the risk they are likely to pose when left unregulated and the rationale behind government regulation.
This column discusses briefly why and how are banks regulated, outlines the banking regulatory and supervisory framework in Tanzania and examine the challenges banks and their regulators face.
Why are banks regulated?
(i). Historically, the banking business has always been a subject of some controls, restrictions, directions and guidance by governments; let s call the totality of this regulation. Regulation has until now re-mained; what keeps on changing are its the forms and techniques. Notably, bank-ing business has ever since been viewed as one of most valued
economic activi-ties, as banks trade in money and its various forms, these being the key me-dium through which wealth is mobilised,
sometimes measured and the exchanges of goods and services are facilitated.
(ii). In today s world of sophisti-cated and fast-moving financial services, banks do not just open accounts, collect and pay cheques and grant overdrafts; they are part of the world s pow-erful financial institutions and systems; which institutions and systems operate within national boundaries and internationally through branching and corre-spondent networks, mobilising resources and moving capitals internally and cross-boarders. In their daily activities, these institu-tions generate huge payments and returns at times more than the wealth of many countries (in
this respect, one may just consider as an example, the published after-tax profits made quarterly by banks operating in the country
a few banks make billion plus, many others make hundreds of millions, while others make tens of millions). I t is the totality of these movements and pro-gress that have necessitated govern-ments, their monetary authorities and banking regulators to make every effort to understand this phenomenon at all times monitoring what is happening, why and what would be the impact in the eco-nomic lives of their countries. The most important aspect in relation to all this is the stability of the financial sector.
(iii). Owing to the speciality of banks in the economy, more so in relation to their roles as storage of wealthy (liquidity), providers of credit (finances) and maturity
transformation, banks have always been of great interest to central banks to control, particularly rela-tive to the central banks monetary function of formulating and imple-menting monetary policies which have the effect of affecting banks
reserves, levels of interest rates, credit conditions and consequently affecting the supply of money in their entire economies.
(iv). Learning from the costs of bank failures and crises in the world in the 1970s through to 1990s (for example the secondary banking crisis in the UK in early 1970s, the Asian financial crisis of the 1990s, the problems and collapse of a few banks in Tanzania in the 1990s, namely Tanzania Housing Bank, Meridian Biao Bank, First Adili Ban-corp, Trust Bank and Greenland Bank) governments have not per-mitted their banking systems to go unregulated.
Experience has shown that bank failures have been associated with public loss of confidence in financial systems and in worst situations, entire systems of governments; loss of employment, loss of business opportunities to those who depend on banks for finance, governments use of public funds to rescue failing banks or to repay customers (depositors) of troubled banks, at times in the absence of systems of deposits insurance or guarantee, depositors loose their money and, lastly the possibility of such failures affecting other sectors of the econ-omy thus resulting to what is called systemic crisis.
Page 10 Volume 1, Issue 1
Banks and the challenge they face in a regulatory regime:
...when looked upon
from a different angle,
banking regulation and
supervision partly
explains the
importance of banks in
the economy and the
risk they are likely to
pose when left
unregulated and the
rationale behind
government
regulation
Experience has shown that
bank failures have been
associated with public loss of
confidence
funds that should specifically target SMEs, the current Eq-uity and venture capital target exclusively big business cate-gories.
(v). Protection of banking con-sumers is also one amongst these reasons. The policies be-hind consumers protection in banking business are that banks should not be allowed to enrich themselves at the expense of their customers and, all banks should operate on the same playing ground, thus guarantee-ing their customers certain lev-els of acceptable services and prices. In relation to this bank-ing systems in some countries, like South Africa and the UK have es-tablished the banks om-budsman to handle bank-customers complaints against their bankers. In the absence of an ombudsman system, bank regulators have been expected to partly play this role.
(vi). Lastly, banking systems are regulated to ensure that banks are not used to foster or dis-guise and legitimise criminal activities, under this regard, money laundering control and now financing of terrorism have been the buzzwords.
How then are Banks regu-lated?
In the most and generally, bank-ing regulation has taken the form of statutory standards, that is, laws are enacted and a vari-ety of regulations are made under the authority of such laws; which laws and regula-tions are enforced by govern-ment agencies, mostly central banks. One of the characteristics of such laws and regulations is that they give much power to such government agencies (the regulators) to authorise or ap-prove businesses (for example to issue banking licenses), con-duct prudential regulation and supervision in a variety of ways
(like carrying on off-site and onsite examinations), enforce the laws and regulations by sanctioning non-compliance by banks and manage crises whereby they are empow-ered to devise means to rescue problem banks or declare their insolvency.
Fairly, therefore, the life of a bank will always be at the hands of its regulators relative to the level of compliance with the terms and conditions of its license, the re-quirements of the laws and regula-tions and to various regulatory decisions and directives issued by the regulators from time to time.
The law prescribes both preventive and proactive techniques of regula-
tion, like authori-sation (licensing), disclosures, pru-dential regulation and supervision and customers compensation systems. Under authorisation the law/regulators
control the right of entry into the business; this right is restricted, one must lodge an application for a banking license, meet certain basic criteria like having sufficient capital, fit and proper management team, and whether the business is gone contribute to the economic devel-opment of the country. By so doing the market is protected from ran-dom intrusion.
Prudential regulation involves a variety of measures designed to monitor the continual soundness, conduct of business, ability of man-agement teams of banks to manage their businesses, control excessive risk-taking, and empowers the regulators to intervene in the affairs of banks to protect the interest of depositors and the entire banking system.
The regulators are also given en-forcement powers including the right to mete out penalties to non-compliant banks, take possession of the business and management of banks where it is appropriate (this is commonly known statutory man-agement) and even revoke licenses.
Besides, the law establishes sys-tems of deposit insurance or guar-antee whereby in an event of bank
failures depositors are guaran-teed of being repaid either in full or in part their balance deposits with the failing banks.
In Tanzania the banking regu-latory framework is specifically comprised on the following laws: -
(i). the Companies Ordinance, Chapter 212 of the laws of Tanzania mainland, as all banks are to be incorporated as companies; the regulatory authority in this respect is the Registrar of Companies;
(ii). the Banking and Financial Institutions Act, No. 12 of 1991 and the Bank of Tanza-nia Act, No. 1 of 1995 as amended by Act No. 6 of 2003; these are the primary laws governing the regulation and supervision of banking institutions in the country; the regulator entrusted to enforce these laws is the central bank, the Bank of Tanzania;
(iii). the Foreign Exchange Act, No. 1 of 1992 together with the Foreign Exchange Regula-tions of 1998, the Foreign Exchange (Bureaux de Change) Regulations of 1999 and the Bank of Tanzania Foreign Exchange Circular No. 6000/DEM/EX.REG/58 of 1998; this set of laws governs all dealings in foreign curren-cies, gold, securities, exports and imports, transfers and so on;
(iv). the regulations made under the Banking and Finan-cial Institutions Act, 1991: these are (a) the Banking and Financial Institutions Regula-tions of 1997 - generally gov-erning licensing procedures and conditions of licence, (b) the Credit concentration and Exposure Limits Regulations of 2001 - governing the manage-ment of credit risk by banks, (c) Capital Adequacy Regula-tions of 2001 - governing capi-talisation requirements and the continual adequacy of banks capitals, (d) Manage-ment of Risk Assets Regula-tions of 2001, (e) Independent Auditors Regulation of 2001
Page 11 TBA Newsletter
Fairly, therefore, the
life of a bank will
always be at the hands
of its regulators
governing the auditing of banking institutions, (f) Publication of Financial Statements Regula-tions of 2001, (g) Liquid As-sets Ratio Regulations of 2001
governing liquidity and fund-ing policies of banks, (h) Cir-cular No. 1 on Reserves against Deposits and Borrow-ing, (i) Circular No. 5 on Re-ports on Foreign Exchange Purchases Sales and Balances, (j) Circular No. 8 on Money Laundering Control and the recently made
(k) Banking and Financial Institutions (Internal Control and Internal Audit) Regula-tions of 2005, (l) Banking and Financial Institutions (Microfinance Companies and Microcredit Activities) Regula-tions of 2005 and (m) Banking and Financial Institutions (Financial Cooperative Socie-ties) Regulations of 2005.
When one observes the above laws and regulations, it is clear that our system of banking regulation aims at (a) allowing to operate in the market only those institutions which are financially viable, (b) control-ling excessive risk-taking by managements of banks, (c) allowing the Bank of Tanzania to establish appropriate con-trols and monitoring mecha-nisms over banks affairs, (d) giving the Bank of Tanzania interventionist and enforce-ment powers over troubled banks, (e) protecting only small depositors in cases of bank failures and (f) establish-ing appropriate rescue and exit means under the mandate of the Bank of Tanzania. All these are provided for in the licensing procedures, the rules on capital adequacy, manage-ment efficiency, liquidity man-agement, accounting and reporting, added roles of bank auditors, controls on excessive risk-taking, enhanced supervi-sory powers, and on the pre-vention of the use of banks for criminal purposes like money laundering
Con t pg. 13
players of the SME, starting from the Government which have important roles to play in establishing a favourable pol-icy, regulatory and incentive framework for micro-financing institutions; Financial Sector ; and the SMEs:
Legal Framework: The Government should put in place an enabling legal framework in order to for-malise the importance of SMEs in the overall econ-omy.
Regulations: There is a need to streamline the regu-latory conditions so as to have simplified and stan-dardised procedures in areas such as, business registra-tions and licensing; loan applications; purchasing and tender documents; export documentations; registration of contracts; etc.
Differential Taxation: There is a need to establish a differential taxation and other incentives with a re-duced number and adjusted taxes to avoid tax evasion.
Easing access to Credit, Equity and Guarantees: There is a positive move as far as credit guarantees are concerned due to the launch of the Credit Guarantee Scheme by the Government. However, there is a need to promote new venture capital
Overview of SMEs in the Tanzania economy
The SME sector in Tanzania is a sector which is highly diverse, with governance structures problems, growth potential and access to sup-port both in terms of skills and financial differing widely be-tween segments.
The most distincting attributes found among SMEs are:
Survivalists:
Are unskilled workers usually wife and or hus-band business dominated with little capital invested limited managerial skills and limited opportunities/strategies who perform almost exclusively infor-mal trading activities established basically to pre occupy the retiree and augment their in-come for a livelihood (e.g. retired men/, women and youth). The income generated is be-low the minimum stan-dard just enough for their living.
Craft and other micro en-terprises:
They are firms with a limit of 5 employees, usually lacking formality in terms of business li-cences, tax registrations, business premises, oper-ating permits and ac-counting and administra-tive procedures. The majority of Tanzanian business can be found within this category.
Small enterprises:
Are those usually owner-managed or directly con-trolled by the owner-community with up to 20 employees. They are likely to follow business procedures. It is difficult to classify in terms of assets and turnover. It covers various business sectors such as retailing,
professional services, manufacturing and con-struction.
Medium enterprises:
Can easily be classified by capital assets according to the business sector and can offer about 50 employments on average. The indigenous medium-sized enterprises are the ones playing the big role in enlarging the local private sector and foster-ing innovation and com-petitiveness.
In 1991 National Informal Sector Survey revealed that micro-enterprises employed about 20% of the total labour force, later in 1996, the NIGP-ESRF study on micro and small enterprises confirmed that there is a high concentration in petty trade and commerce and that the informal sector and
women are important actors among SMEs.
Constraints/ Limitations to SMEs
Underdeveloped Enterprises
Culture which affects mostly the women entrepreneurs who are still unable to se-cure ownership of land or property due to traditional customs.
Regulatory regime; still re-flect the previous system of administrative controls rather than indirect regula-tion of businesses.
Deficient infrastructure: Lack/high cost of securing licence, business premise/location, inadequate busi-
ness skills, inadequate quality standard control, poor utilities and transport.
Ineffective Contract enforcement: It is too expensive to hire profes-sional services to prepare applica-tion/contracts that meet banks requirements.
Widespread corruption: Many SMEs are still losing part of their profits to corrupt public officials.
Tax evasion; there are number of taxes to be paid even before a company goes into production e.g. provisional taxes, sales tax, VETA tax, etc. which lead to tax evasion.
Limited access to serviced land: The legal system makes it diffi-cult the free disposition of land, too slow for business decisions.
Credit and working premises
Inadequate markets and informa-tion: There are no institutional arrangements to help firm s ac-cess market information and give them assistance to penetrate to new markets. Information on business opportunities and mar-kets, available technologies, po-tential joint-venture partners, etc. is limited to very few SMEs due to lack of delivery mechanism.
Stifling and unnecessary red tape
Low level of technical and mana-gerial skills
Low level of productivity and quality of products or services
Difficulty in accessing technology
Recognition of property risk: People don t know the rights/ risks of their property.
What is the way forward?
In order to clear the missing mid-dle the following should be imple-mented on all angles of different
Page 12 Volume 1, Issue 1
SME: A Challenge to the Banking and Financial Sector; By Tuse M. Joune
One of the limitations
facing SME is
People dont know
the rights of their
property
women are important actors among SMEs.
Con t pg. 13
I t may also be important to note that these principles are gener-ally based on the standards set by the Basel Committee on Bank-ing Regulations and Supervisory Practices, a multilateral body based in Basel, Switzerland that recommends from time to time acceptable banking regulation and supervision standards.
The Challenges:
The first and foremost challenge to all banks has been compli-ance. While banks work to main-tain certain levels of profitability, the biggest challenge to their management teams has been to ensure that they do so while complying with all laws and regu-lations applicable to their busi-nesses, having in mind the ef-fects of penalties and other sanc-tions that may be imposed by the regulators in cases of non-compliance and as to the reputa-tion of their banks;
Secondly, relative to the above, the managements of banks have always been trying to understand best and monitor the entire legal and regulatory body that affect the conduct of their business and adopt specific risk management action plans;
Thirdly, banks are therefore es-tablishing compliance functions to be staffed by qualified and competent staff who have spe-cialised training on legal or risk management or compliance for this purpose;
Fourthly, ensuring that there is buy in by the entire staff to com-ply has also been a challenge to banks. There is no use of having a well-staffed risk management compliance team that is not sup-ported by the rest of the entire staff who work; in this regard, emphasis has been placed on continual on-the-job trainings;
Lastly, building a positive rela-tionship between banks and the regulators has also been a dream to almost all management teams of the regulated banks. Ideally, this is supposed to be a two-way traffic sort of relationship that is
based on (a) understanding the prin-ciples that underlie the relationship, (b) a services approach by the regu-lators, meaning that the regulator should at all time strive to achieve certain levels of services expected by the regulated and (c) mutual trust for the betterment of the entire financial system. The relationship between the regulators and the regulated is not worth being like the one of an arrest-ing police with a riotous suspect resisting lawful arrest thus compel-ling the police to use what lawyers would call reasonable force.
Access to Business advisory services: The provision of busi-ness advisory and extension ser-vices should be consolidated under the umbrella of a new independent SME development agency governed by a mixed Board of public, private and donor representatives.
Improved physical infrastruc-ture and business facilities: The Government, the private sector and donors should work together to create the condition for favouring a gradual concentration of growing SMEs manufacturing similar prod-ucts in localised areas.
Access to Technology: There is a need to support SMEs to have access to technology that conforms to their needs, resources and capa-bilities.
SME exports: There is a need to have a supportive and encouraging export promotion mechanisms with national coverage to enable Tanza-nian SMEs compete internationally.
Encouraging Joint Ventures as an effective way for SMEs to ac-quire experience and skills and structure additional financing and meet competition. TIC should act as a channel of information about joint venture that will facilitate in networking Tanzanian SMEs.
WTO Requirements: Encourag-ing measures should be taken to ensure that Tanzanian SMEs in-crease their competitiveness under the new WTO regulations.
Adopting Quality Standards: Awareness on quality issues and consideration on the establishment of a financial facility to ease SME access to testing, standardisation and quality assurance.
Training: Specific provisions to compliment training in entrepre-neurship, skills and management with new strategies and should more sector-specific focusing on particular needs and practical prob-lems of SMEs
Capacity building and institu-tional strengthening: Consoli-dated programmes aimed at strengthening the capacity of self-help organisations that support particular areas of business.
In view of the above solutions, the following should be put into consid-eration:
Build dynamic performance standards
Incremental and absolute standards need to be established on financial performance, client reach, and busi-ness practices as eligibility criteria for accessing support.
Provide Access, not subsidies to clients
Low income entrepreneurs want rapid and continued access to finan-cial services, rather than subsidies.
Support Institutions, not Projects
All actors, need to find effective means to support the build-up of local intermediaries that have the commitment and competence to lend micro and small businesses, e.g. Commercial banks that see microfi-nance as a potential profitable mar-ket will make a significant commit-ments to this sector only if, at the early stage; they get access to fund at lower than their average cost of funds; get guarantee coverage (which is now in place, The Credit Guarantee Scheme ) and are able to charge profitable interest rates.
Page 13 TBA Newsletter
SME: A Challenge to banking and financial sector
...cont from pg. 11; compliance
The first
and
foremost
challenge
to all banks
has been
compliance.
A secure place for a certificate at the lower rent
A man goes to see the vice president of a bank to seek a loan. The VP asks, Do you have any collat-eral? Yes I have these US-64 units worth Rs 100,000. Very well, you may have a loan in any amount up to Rs 50,000. The man asks for a Rs 100 loan. The banker is dumbfounded, but gives the man his loan. One year later, the man re-appears at the banker and repays his Rs 100, plus Rs 15 interest, and collects his certificates. Just one minute, the banker interjected, asking, Why did you only want to borrow Rs 100?
The man replied Oh, I didn t really want to borrow any money. I just needed a safe place to keep my certificates for a year, and they told me at the front desk that the rental on a safe deposit box was Rs 500 a year.
Page 14 Volume 1, Issue 1
Need a laugh... there we go...
Doctor s advice:
if your job cant
give you time to
relax... Quit!!!
A young graduate banker looking for a job
Reaching the end of a job interview, the Human Resources person asked the hot-shot young Banker, fresh out of MIT, "And what starting salary were you looking for?"
The young banker coolly said, "In the neighbour-hood of $125,000 a year, depending on the benefits package."
The interviewer said, "Well, what would you say to a package of 5 weeks vacation, 14 paid holidays, full medical and dental, company match-ing retirement fund to 50% of salary, and a company car leased every 2 years - for starters, say, a red Corvette?"
The young banker tried to control his excitement, but sat straight up and said, "Wow! Are you kid-ding? .
"Yeah," the interviewer shrugged, "But you started it."
Burglars at the bank
Burglars entered a bank, tied and gagged the cash-ier and rifled the safe. As they were about to leave, the cashier made desperate pleading sounds. Curious, one of the robbers loos-ened the gag. "Please! Take the books too! I m $7500 short!"
The new bank image
The banks have a new image. Now you
have "a friend.". . . your friendly
banker. I f the banks are so friendly,
how come they chain down the pens?
A banker Dad
A student was standing near the college mail room with a pack-age in her hands and a de-pressed look on her face.
Her friend came and said: What's the matter? You look
pretty sad for getting a package from home."
The student replied: "You know, my dad is a banker. I wrote and asked for $200 for a dictionary, and he sent me a dictionary."
You got a joke please share with us Send it to: [email protected]
Tanzania Bankers Association
Sukari House, 4th Floor, crn- Sokoine/Ohio
P.O.Box 70925, Dar es Salaam.
Phone:255-22-2120551/ 2127764 Fax: 255-22-2124492
E-mail: [email protected]
We are on the Web: www.tanzaniabankers.org
Akiba Commercial Bank Ltd.
African Banking Corporation Tanzania Ltd.
Azania Bancorp Ltd.
Bank of Baroda Tanzania Ltd.
Barclays Bank Tanzania Ltd
CF Union Bank Ltd
Citibank Tanzania Ltd
CRDB Bank Ltd
Dar es Salaam Community Bank Ltd
Diamond Trust Bank Tanzania Ltd
Eurafrican Bank Tanzania Ltd
Exim Bank Tanzania Ltd
Federal Bank of the Middle East Ltd
Habib African Bank Tanzania Ltd
International Commercial Bank Tanzania Ltd
Kenya Commercial Bank Tanzania Ltd
Kilimanjaro Co-operative Bank Ltd
National Bank of Commerce Ltd
National Microfinance Bank Ltd
Twiga Bancorp Ltd
Peoples Bank of Zanzibar Ltd
Savings and Finance Commercial Bank Ltd
Stanbic Bank Tanzania Ltd
Standard Chartered Bank Tanzania Ltd
Tanzania Investment Bank Ltd
Tanzania Postal Bank Ltd.
United Bank of Africa Ltd.
Current TBA Members:
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