Lenders assess market risks

an Entrepreneur
The ability of entrepreneurs to access loans at reasonable interest rates and terms for long term investments is determined by a number of factors.
However, factors like a mix of policies, laws and regulations, property rights, processes and standards for loan approval, the quality of registration systems and enforcement mechanisms are among the major factors in accessing loans.

A key component to the national strategies for supporting the reduction of poverty, economic expansion and the country's general well-being is to increase access to financial services, including savings facilities, business and personal credit, insurance and payment systems.

In jurisdictions where there are no factors which work to protect lenders or borrowers, the risk of default is typically high and is reflected in the increased cost and in many cases, decreased availability of credit.

Consequently, small and medium-sized enterprises (SMEs), women, rural borrowers and other less secure groups typically face significant obstacles in securing credit.

"Access to affordable and long term loans has been one of the major obstacles for the growth and expansion of businesses in the country, the Tanzania Chamber of Commerce, Industry and Agriculture (TCCIA), Executive Secretary, Mr Daniel Machemba said during a workshop under the theme: "Develop and Expand your Business - Networking and Financing Possibilities' held last week in Dar es Salaam.

He said the Norwegian Investment Fund for Developing Countries (NORFUND) is one of the crucial opportunity and solution to the problem of capital constraints, as some borrowers are perceived as raising additional risks due to their limited capital, entrepreneurial history or precarious social situation.

The workshop organized jointly by NORFUND and TCCIA focused on exposing credit opportunities in order to promote business development and contribute to economic growth and poverty alleviation.NORFUND as an investment company for developing and establishing profitable and sustainable enterprises in poor countries has been providing technical assistance necessary for business growth for contribution to the economy.

Mr Machemba said further that, the business community is thus called upon to utilise the long term credit facility provided by NORFUND in order to expand their concerns and generate more profits.In her opening speech, the Norwegian Ambassador to Tanzania, Ms Ingunn Klepsvik, said private sector growth has been changing drastically in the past 20 years, thus introducing a credit facility window would provide ample opportunity for boosting businesses in the country.

"The private sector is the heart of Tanzania's economy. Thus the loan facility by NORFUND presents a significant opportunity to make the sector more vibrant to enhance its significant contribution to government revenue as well as efforts to alleviate poverty," said Ms Klepsvik.

As the private sector grows, corporate social responsibilities too increases, which has a positive impact for the well-being of the society. In his presentation, the NORFUND Investment Director and Regional Head Eastern Africa Office, Mr Per Emil Linde said the credit facility operates in some of the world's poorest countries and invests in markets, where ordinary commercial enterprises are often reluctant to venture alone because of the high risk to asset exposure.

The credit facility invests on commercial terms always with partners and normally with a 20 to 30 per cent stake in areas like financial institutions, small scale enterprises funds, renewable energy and industrial partnership. For example, NORFUND that invest in profitable business undertakings has been injecting between 3 to 15 million US dollars in energy projects.

In his remarks, the Katani Limited Managing Director, Mr Salum Shamte, said the loan facility presents an interesting opportunity that would definitely promote agriculture investment that employs the largest part of the population in the region.Although the legal and regulatory framework governing the formal financial sector like commercial banks and financial institutions has improved with the implementation of various reforms, Tanzania's businesses and households' huge demand for credit continues to go unmet.

Some commercial banks invest large amounts in government securities and liquid assets instead of lending to their full potential. But lending in Tanzania is fraught with uncertainties at almost every stage.Major risks include the difficulty in identifying applicants due to the absence of national ID system, lack of credit information, poor systems of collateralization and ineffective enforcement mechanisms.

The risks involved in lending can be mitigated to the great extent if lenders have access to information on applicants' past experiences in managing credit. Credit reference system (CRS) launched by the Central Bank last week will definitely help in accessing loans.

Speaking at the event, the Bank of Tanzania (BoT) Deputy Governor, Administration and Internal Controls, Mr Juma Reli, said absence of credit reference system was one of the major factors limiting access to credit.He said that the major objective of having a credit reference system was to encourage a culture of responsible credit behaviour in the financial system.

The CRS synchronizes information on clients allowing participating institutions to access prospective clients' credit history quickly and easily.
Source: The Daily News,http://www.dailynews.co.tz, reported by Sebastian Mrindoko in Dar es Salaam
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