Microfinance Policies and Regulatory System in Tanzania

7/29/2019 Microfinance Policies and Regulatory System in Tanzania

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Microfinance policies and regulatoryMicrofinance policies and regulatory

system in Tanzaniasystem in Tanzania

practitioner perspectivepractitioner perspectiveA presentation to the 3A presentation to the 3rdrdAfrican microfinance conference, augustAfrican microfinance conference, august

2020--23, 2007, Kampala, Uganda23, 2007, Kampala, Uganda

Altemius MillingaAltemius MillingaExecutive DirectorExecutive Director

Centre for Microfinance and Enterprise DevelopmentCentre for Microfinance and Enterprise Development


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Macro economic environmentMacro economic environment

During the past ten years GDP has beenDuring the past ten years GDP has beenbetween 4%between 4%--6.5%6.5% --above population growthabove population growthrates.rates.

Inflation single digitInflation single digit

Agriculture account for more than a third ofAgriculture account for more than a third ofGDPGDP

2/3 of population leave in rural areas2/3 of population leave in rural areas Slightly over 40% of the population fallSlightly over 40% of the population fall

below the poverty linebelow the poverty line


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Structure of the formal financeStructure of the formal finance

systemsystem Financial sector reform began in 199I by thenFinancial sector reform began in 199I by then

there were only six deposit taking institutions,there were only six deposit taking institutions,three specialized banks, one insurance companythree specialized banks, one insurance company

and two state pension fundsand two state pension funds The financial system has expanded rapidly with 22The financial system has expanded rapidly with 22

licensed banks, 4 financial institutions, 5 regionallicensed banks, 4 financial institutions, 5 regionalbanks and 2 regional financial institutions and, 9banks and 2 regional financial institutions and, 9

insurance companies, 102 foreign exchangeinsurance companies, 102 foreign exchangebureaus, and over 600 SACCOS, 60+ NGO MFIs,bureaus, and over 600 SACCOS, 60+ NGO MFIs,stock exchange and deposit insurance systemstock exchange and deposit insurance system


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Key players in the microfinanceKey players in the microfinance

industryindustry Informal providersInformal providers--ROSCAs, ASCAS, Money lendersROSCAs, ASCAS, Money lenders

NGOs MFIsNGOs MFIs--dominated by three MFIs PRIDE, SEDA anddominated by three MFIs PRIDE, SEDA andFINCAFINCA

Licensed commercial, regional and rural bank units.Licensed commercial, regional and rural bank units. Urban and rural SACCOSUrban and rural SACCOS

Government programsGovernment programs--Wholesale and retailWholesale and retail

International Donor Agencies comprise a significant andInternational Donor Agencies comprise a significant andinfluential stakeholders groupinfluential stakeholders group

Two Apex OrganizationsTwo Apex Organizations--TAMFI (Not active) and SCULTTAMFI (Not active) and SCULT(For SACCOS and it is active)(For SACCOS and it is active)


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POLICY AND REGULATORYPOLICY AND REGULATORY

INTERVATIONSINTERVATIONS In 1998 the Banking and financial institution Act, 1991 wasIn 1998 the Banking and financial institution Act, 1991 was

amended to provide for the creation of banks and financialamended to provide for the creation of banks and financialinstitutions specialized as MFIsinstitutions specialized as MFIs

In year 2000 the Government approved the NationalIn year 2000 the Government approved the National

Microfinance PolicyMicrofinance Policy Banking Law was revised in 2003 to give Bank of TanzaniaBanking Law was revised in 2003 to give Bank of Tanzania

responsibility to regulate and supervise all Financialresponsibility to regulate and supervise all FinancialCooperatives (FICOS whose deposit surpassed an TshsCooperatives (FICOS whose deposit surpassed an Tshs800 million (US$ 615,000).800 million (US$ 615,000).

Banking and Financial Regulations, 2005 for MicrofinanceBanking and Financial Regulations, 2005 for MicrofinanceCompanies and Micro credit activitiesCompanies and Micro credit activities

Microfinance operations are integrated in the Banking andMicrofinance operations are integrated in the Banking andFinancial Institution Act 2006Financial Institution Act 2006


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Who regulates who?Who regulates who?

The Bank of Tanzania is responsible for prudentialThe Bank of Tanzania is responsible for prudentialsupervision of Licensed banks, Microfinancesupervision of Licensed banks, MicrofinanceCompanies, Financial Cooperatives (FICOS), andCompanies, Financial Cooperatives (FICOS), and

Financial InstitutionsFinancial Institutions The Registrar of Cooperatives is responsible forThe Registrar of Cooperatives is responsible for

SACCOSSACCOS--focus on registration and cooperativefocus on registration and cooperativeprinciples rather than financial performanceprinciples rather than financial performance

NGOs MFIs are registered with nonNGOs MFIs are registered with non--financialfinancialGovernment Agencies and Departments and areGovernment Agencies and Departments and arenot regulated.not regulated.


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Microfinance playersMicrofinance players--Regulated andRegulated and

supervised by BOTsupervised by BOT Commercial BanksCommercial Banks-- NMB, CRDB, ACB etc.NMB, CRDB, ACB etc.

Financial InstitutionsFinancial InstitutionsPostal BankPostal Bank

Regional Bank UnitsRegional Bank Units-- KCB, KFCB, MCB,KCB, KFCB, MCB,DCBDCB

Regional Financial InstitutionsRegional Financial Institutions-- Mucoba,Mucoba,Mwanga Community BankMwanga Community Bank

Microfinance Companies (currently none)Microfinance Companies (currently none) Financial CooperativesFinancial Cooperatives--(Currently None)(Currently None)


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Why regulate Microfinance?Why regulate Microfinance?

regulators perspectiveregulators perspective

Protect depositorsProtect depositors

Stability of the financial systemStability of the financial system

MFIs perspectiveMFIs perspective

Legitimacy:Legitimacy:Access to savings andAccess to savings andcommercial creditcommercial credit

Build confidence of clients and financiersBuild confidence of clients and financiers


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Results of the regulatory policyResults of the regulatory policy

A few regional and rural units banks haveA few regional and rural units banks havebeen established since they were introducedbeen established since they were introducedin 1998in 1998

No single MFI has transformed itself into aNo single MFI has transformed itself into aMicrofinance CompanyMicrofinance Company --Deposit taking MFIsDeposit taking MFIs

89% of Tanzanians remained un89% of Tanzanians remained un--servedserved

with institutional financial service providerswith institutional financial service providers Majority of the MFIs have remained smallMajority of the MFIs have remained small

with less than 3000 clientswith less than 3000 clients


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Why limited response to new regulatoryWhy limited response to new regulatorypolicies?policies?

RESTRICTIVERESTRICTIVEStringent ceilingStringent ceiling

If loans are secured by registered collateral, anIf loans are secured by registered collateral, an

MFI loan to an individual borrower has a ceilingMFI loan to an individual borrower has a ceiling3% of core capital3% of core capital

If secured by chattels or personal guarantee, MFIIf secured by chattels or personal guarantee, MFIloan to an individual borrower has a ceiling 1% ofloan to an individual borrower has a ceiling 1% ofcore capitalcore capital

Banks ceiling is 5% of core capital unsecured andBanks ceiling is 5% of core capital unsecured and25% of capital secured BUT virtually all25% of capital secured BUT virtually allmicrofinance loans are unsecuredmicrofinance loans are unsecured


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Why limited response to new regulatory policiesWhy limited response to new regulatory policies_stringent provisioning for Microfinance loans_stringent provisioning for Microfinance loans

Microfinance loans

100%100%LossLossMore than 45 daysMore than 45 days

75%75%DoubtfulDoubtful3131--45 days45 days

50%50%substandardsubstandard1616--30 days30 days

25%25%SpeciallySpecially

mentionedmentionedUpUp-- 15 days15 days

2%2%CurrentCurrentO daysO days

ProvisioningProvisioningClassificationClassification

Days past dueDays past due

Commercial loans

100%100%LossLossMore than 181 daysMore than 181 days

50%50%DoubtfulDoubtful9191--180 days180 days

10%10%substandardsubstandard6161--90 days90 days

5%5%SpeciallySpecially

mentionedmentioned3131--60 days60 days

0%0%CurrentCurrentOO --30 days30 days

ProvisioningProvisioningClassificationClassification

Days past dueDays past due


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Why limited response to new regulatoryWhy limited response to new regulatory

policies? Cont.policies? Cont. Regulatory disparity:Regulatory disparity:All institutions conductingAll institutions conducting

microfinance business are not treated similarlymicrofinance business are not treated similarlyfrom regulatory standpoint hence playing field isfrom regulatory standpoint hence playing field is

not levelnot level Some NGO MFIs are not yet ready to be regulatedSome NGO MFIs are not yet ready to be regulatedin terms of capacity to meet staffing and otherin terms of capacity to meet staffing and othercosts of regulationscosts of regulations

The Regulatory policies seem to focus on exitingThe Regulatory policies seem to focus on exiting

NGO MFIs rather than encouraging investors inNGO MFIs rather than encouraging investors inthe sector as way to increase the number ofthe sector as way to increase the number ofprovidersproviders No incentive scheme for investors.No incentive scheme for investors.


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LessonsLessons

Do not rush to regulate MFIs unless you haveDo not rush to regulate MFIs unless you havecritical mass of Microfinance providerscritical mass of Microfinance providers

In a country where microfinance is at infancyIn a country where microfinance is at infancy

stage, the regulatory system need to bestage, the regulatory system need to beprogressive and developmental with graduatedprogressive and developmental with graduatedstandards and incentive framework to supportstandards and incentive framework to supportinstitutional development and creation of newinstitutional development and creation of newMFIsMFIs

Integrating Microfinance into the financial systemIntegrating Microfinance into the financial systemdoes not mean all MFIs aught to be regulated , butdoes not mean all MFIs aught to be regulated , butrather to encourage both strong regulated andrather to encourage both strong regulated andunregulated MFIs.unregulated MFIs.


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LessonsLessons --contcont

Involvement of all stakeholders is critical forInvolvement of all stakeholders is critical forcreation of result oriented regulatory systemcreation of result oriented regulatory system

of Microfinance. Effective involvementof Microfinance. Effective involvementrequires understanding the subject matterrequires understanding the subject matterby all the stakeholdersby all the stakeholdersMFIs, regulators,MFIs, regulators,Government, Donors etc.Government, Donors etc.


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Microfinance Policies and Regulatory System in Tanzania