With default rates reportedly ranging from seven to 10 percent in Tanzania, commercial banks in the country are charging lending rates between 14 and 24 percent. Local newspaper The Citizen cites a report compiled by US-based consultancy Ernst & Young titled “The 2011 Tanzania Banking Sector Performance Review” as indicating that write-offs rose from TZS 18.5 billion (USD 10.8 million) in 2007 to TZS 105 billion (USD 61.1 million) in 2010. The report is not available online.
Meanwhile the Bank of Tanzania (BoT), the country’s central bank, is in the process of establishing the Credit Reference Bureau (CRB), which potentially will allow for the offering of lower rates to customers that regularly pay bills including electricity and water accounts. It has been reported that borrowers whose credit reports indicate they are reliable payers will not be charged interest rates over 15 percent. CRB is expected to become operational in 2012.
By Cameron Milani, Research Associate
About the Bank of Tanzania: Created by government decree in 1992, the Bank of Tanzania (BoT) is charged with using monetary policy to create price stability. This is in contrast to the goal of the Bank of Tanzania Act of 1965 whereby the bank was given multiple mandates. In its current efforts to achieve price stability, the bank formulates and implements monetary policy relating to refinancing, minimum reserves, open markets; foreign exchange interventions; and other instruments.
Sources and Additional Resources:
The Citizen, “Tanzania: High Default Risk Raises Lending Rates,” http://www.thecitizen.co.tz/magazines/31-business-week/14993-high-defaul…
MicroCapital.org article, February 8, 2010, “MICROCAPITAL BRIEF: MFTransparency Launches Microfinance Blog,” http://www.microcapital.org/microcapital-brief-mftransparency-launches-m…
MicroCapital Universe: Bank of Tanzania, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Bank+of+Tanzania