Central bank set to boost depositors’ cash security

The global financial crisis that hit many parts of the world including Tanzania tested resilience of individual countries and economic zones. The crisis underscored the need for reforms in financial institutions and a radical system for protection of depositors.
It resulted in greater convergence in practices across jurisdictions and an emerging consensus about appropriate design features.

The speedy adoption by many jurisdictions of extraordinary arrangements to enhance depositors’ confidence signaled the importance and necessity of having an effective Depositors Insurance System (DIS).

The DIS is one of the mechanisms employed by governments to enhance public confidence in the banking systems and consequently maintain stability of the financial system. 

Before the crisis, the functioning of DISs differed significantly across FSB members and the views about appropriate design features were rather general and non-prescriptive.

Tanzania is currently undertaking modernisation of DIS intended to protect small and unsophisticated depositors from losses of their deposits resulting from a failed banking institution. 

The Deputy Governor of the Bank of Tanzania (BoT) Mr Lila Mkila, who is also the Chairman of the Steering Committee for modernisation of DIS, said last weekend that currently, the Deposit Insurance Board of Tanzania (DIB) operates as a ‘Pay Box’ under the Central Bank.

Currently, the DIB is receiving technical assistance from Korea Deposit Insurance Corporation (KDIC) to make the DIS contribute more effectively in maintaining stable financial system in the country,” he said at the opening a final reporting workshop on 2012 Knowledge Sharing Program (KSP) jointly organised by KDIC and DIB.

According to the Bank of Tanzania (BoT) the amount of protected deposit shall be the aggregate credit balance of any sums maintained by a customer at a bank or a financial institution less liability of the customer to the extent determined by the Minister for Finance from time to time by order published in the Gazette.

The amount of protected deposit was raised from 500,000/- up to 1.5m/-. 

The reform programme aims at having a separate governing law that would among others entail an operationally independent deposit insurance institution with extended mandate. 

The KSP between KDIC and DIB is governed by a Memorandum of Understanding (MoU) signed in January last year by the tripartite parties namely, the Ministry of Finance, BoT on behalf of DIB and KDIC.

The MoU aims to promote cooperation and collaboration on common areas of interest and coordinate the participants’ efforts in strengthening the financial infrastructure for a better economic development. 

Apart from appreciating the assistance, Mr Mkila appealed to the KDIC and the Korean government to consider extending the technical assistance to DIB on areas of Information and Communication Technology (ICT) necessary for identifying and providing appropriate financial and operational software.

He appealed for the provision of a Resident Advisor to guide DIB on financial and operational issues and capacity building to DIB staff and government officials, responsible for the reform of the DIS. 

The Tanzania Postal Bank (TPB) Chief Executive Officer Mr Sabasaba Moshingi said the move by the BoT to have an effective insurance system is welcomed with the aim of building depositors’ confidence but with ultimate goal of attracting more saving into the banks.

He thanked KDIC, its Chairman and president, Mr Kyoungho Kim, the Project Manager, the team members and fellows in particular for the success which DIB has so far registered during the two years of KSP. 

“The sharing of specific experiences on the reform of Korean Deposit Insurance System, successes on the approach taken during the Asian and global financial crisis and current status of KDIC key activities is a very valuable investment for the future strength and sustainability of the DIS,” he emphasized.

In his welcoming remarks, the DIB Director Mr Abraham Rasmini, said DIS was one of the mechanisms employed by governments to enhance public confidence in the banking systems and consequently maintain stability of the financial system. 

He said it is a complimentary element of an extensive financial safety net that includes Banking Law and Regulations, Lender of Last Resort and Banking Supervision.

The DIS, Mr Rasmini added, was intended to protect small and unsophisticated depositors from losses of their deposits resulting from a failed banking institution. 

However, he said, it was the belief of his organization that the design of the most effective should be a path dependent on the country’s own circumstances.

These, he said included economic and financial environment, history and culture as well as harmonizing opinions from stakeholders. 

The Korean delegation recommended that DIB should have its own IT system which would enable an efficient operation of the deposit insurance system in Tanzania since at the moment it had no specific system for its own operations but rather rely on Bank of Tanzania.

On the modernisation of DIS, Dr Seungkon Oh, a senior research fellow from KDIC said in order to accommodate most of the gaps found in the current law governing it, a new and distinct piece of legislation should be enacted as well as related regulations which comply with the International Association of Deposit Insurers (IA DI) Core Principles for Effective DIS.

The Head of the KSP Consultant Unit at the Korea Development Institute (KDI), Mr Jan Saeng Kim said the KSP was launched in 2004 by Korean Ministry of Strategy and Finance with KDI as the key organization designing and implementing institution. 

He said, “KSP was a demand-driven, participation- oriented and comprehensive consultation programme designed to assist development partner countries in key policy areas by sharing Korea’s development experience and knowledge”.

He further said that the KSP has implemented in countries in Asia, Middle East, Africa and Latin America as well as Eastern Europe.
Source: The Daily News, www.dailynews.co.tz, reported by Sebastian Mrindoko in Dar es Salaam
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