STANDARD Chartered Bank Tanzania

STANDARD Chartered Bank Tanzania Limited is one of the top five banks in Tanzania and recently its Chief Executive Officer, Mr Hemen Shah, granted an interview to Staff Writers ABDUEL KENGE and SHERMARX NGAHEMERA over small and medium enterprises (SMEs) funding, micro-finance institutions (MFIs), bank interests rates and rural financing. Excepts... QUESTION: Why is Standard Chartered involved with Micro-Finance Institutions (MFI)? Answer: Micro-finance is a growing sector that bodes well for the future of the banking industry in this country in terms of resource mobilisation and steady contribution to economic development. The government has also put in a lot of emphasis on this sector as mentioned in last week's workshop for members of the East Africa Sub-Region of the African Rural and Agricultural Credit Association (AFRACA). Standard Chartered Bank realises the importance and potential of micro-finance to economic growth in various countries and we are already involved in the sector in both Africa and Asia. The countries in which we have functional and active involvement include Kenya, Uganda, Ghana, India and Pakistan. It is in this context that Standard Chartered Bank Tanzania Limited has decided to package Microfinance products for the Tanzanian market. Q: How much have you set aside for micro-finance? A: According to the nature of our operations, SMEs are principally served and categorised as micro-finance. The strata of our customer profile is four -layered into large corporate deposits of more than 500m/-, below which are medium corporate deposits of between 250m/- and 500m/-, SMEs deposits reaching 250 million and micro-finance deposits of below one million shillings. We recently started to support this sector in Tanzania and have already established a strong relationship with strategic MFIs in the country. We believe our strategic alliance with the intermediaries will help our bank to reach beyond our current customer base. The initial provision for this sector is 5.5bn/- and we have an understanding with PRIDE to finance SMEs, the micro firms and companies. Q: What are the lending rates offered to the MFI? A: Our lending rates to MFIs are very competitive and we take into consideration a number of aspects, ranging from the amount of the facility to the credit risk associated with the transaction. Q: How will the bank cover itself against the credit risks associated with micro-finance? A: We are aware that quality risk management is a prerequisite of good corporate governance and in that respect we have studied the risks associated with the microfinance business in Tanzania and our entry in this sector signifies that we are comfortable and confident with the development of this sector in the country. We have also put in place the necessary framework to manage any risks. Q: What are the requirements for MFIs to qualify for such facilities? A: All applications for the credit facility will be appraised for risk in line with our internal procedures. The applications will be supported by the MFI's financial performance and internal controls, in addition to security. Q: Is your entry into micro-finance in Tanzania a short or long-term commitment? A: Standard Chartered Bank sees micro-finance as a way of supporting the government's effort in poverty alleviation by lending money to the common man through the MFIs as intermediaries. We believe that it is our social responsibility to continue supporting this growing sector and we will continue to work with various MFIs in order to outreach more Tanzanians. We are also exploring how we to support financial literacy in this area. Q: But why work through the intermediaries? A: Micro-finance is a specialised sector and is very much demanding in terms of loan administration and follow-ups. The work force of the bank is only 300 employees worldwide, so it is cost effective environmentally and administratively friendly to outsource the bulk of the credit services, that way we conveniently serve our customers. We have started with PRIDE others will follow. The SMEs as aforementioned borrow direct because they qualify under our customer portfolio. Q: Prime Minister Edward Lowassa has called on banks to go rural to meet the demands of the population who are currently not served by the banking industry, what is your reaction to that challenge? A: The call by the prime minister is a landmark note and we support the call because of the traditional and critical role played by the agricultural sector, which employs about 80 per cent of the population. In banking terms, rural banking is micro-finance and as we said earlier we have engaged in the sector through the MFIs and we think it is an expanding portfolio. The only comment is that formal banking is not geared to operate directly in rural settings, we use intermediaries to provide services because of their extensive operations, network, their cultural and field experience. The business volumes of rural operations are not compatible formal banking operations. We have MFIs who serve as outreach vehicles and that way every body is safely covered against manageable risks. We are well-equipped in finance and credit expertise and micro-finance is a powerful tool to improve living conditions which is investing in the country's future. This is because no one in the world is condemned to be poor there are always chances to advance if people are financially empowered to undertake economic ventures. Q: Again, the prime minister is of the opinion that Savings and Credit Cooperative Societies (SACCOS) and Savings Credit Associations Societies (SACAS) should be empowered to provide banking services at village level, especially with the promised 500m/- from the Treasury to each region, is this the right approach? A: I'm not the government but a banker with wide scope and focus on finances and as a general rule in the industry, bankers are cautious and conservative to maintain the trust bestowed on us by our customers and we do not engage in uncharted waters. The point is, SACCOS are institutions that we don't know much about, we better take the cost of learning them to understand their dynamism and mechanism. The government's move is the right one for empowerment purposes, but we are not sure of the cash deployment modalities. We fear it could end up as a financial drain to the government if it was industry. Q: The premier was vocal on the question of interest rates and saying he was uncomfortable with the widening spread, whereby interests on deposits are a pittance at 4.5 per cent against the lending rates of 19 to 25 per cent per annum. He called for its reversal by reducing the lending rates to sustainable levels and increase rates on deposits to attract savings to have a sustainable banking cycle. What is your reaction on this challenge? A: On the question of the interest rates spread Standard Chartered Bank Tanzania Limited offers most competitive rates on its product called Tajirika Account up to 10 per cent on savings with a minimum balance of 50,000/- and no fees on transaction. No bank provides such an empowerment product. Treasury bill rates command the extent of the lending rates by setting the benchmark and once the rates of the bills are higher, most banks opt to buy them because they are secure and carry the minimum liability and provide banks with a lot of leverages. The process creates the false impression that banks are only safe players and don't want to venture or support local enterprises. The Central bank is the one to fashion the trend because our main concern is to find profit-making sources to our depositors to generate more for their savings. Alternatively, by extending credit to the government through the Treasury bills the banks support the economy by making it possible to the government to deliver social and economic services without cash flow constraints; which is a positive development to the industry.


Contact information:

M. Nazirwan
Head of Desk International Visitor Program BRI (iwan@bri.co.id)

Adam Rogers
Head Communication UNCDF (adam.rogers@uncdf.org)

Hyewon Jung
Microfinance Program Manager UNCDF (hyewon.jung@uncdf.org)