THE CHALLENGES OF EXTENDING FINANCIAL SERVICES THROUGH COMMUNITY BANKS IN TANZANIA

1. THE CHALLENGES OF EXTENDING FINANCIAL SERVICES THROUGH COMMUNITY BANKS IN TANZANIA Presentation Outline • Background • Challenges/Constraints • Innovations/Recommendations • Conclusion

2. Background Community Banks • Private unit banks organized by members of the community for the purpose of mobilizing savings and transforming these savings for on lending within the community. • The term community can take a form of agriculture community within a certain region, fishing community etc

3. Background cont….. Why Community Banks effective ways of accessing financial services to informal sector and specifically for micro and small enterprises lack or poor access of financial services by formal financial institutions to accommodate the needs of the informal sector.

4. Background cont……. • promoting the informal sector through establishment of sustainable community-based banking services • Community banks are seen as institutions for accessing financial services by the unprivileged ones and thus an instrument for alleviating poverty.

5. Community banks operating in Tanzania as at 31st August 2006

6. Challenges/Constraints • Lack of capital or weak capital base to enable the expansion programmes and increased outreach. • Weak deposit base for on lending. • Stiff competition from unregulated financial intermediaries. • Unavailability of BOT prudential guidelines specifically for Community banks.

7. Challenges/Constraints cont…. • Lack of articulate microfinance knowledge and skills for community banks employees • Political interferences and governance • Poor physical and communication infrastructures and lack of information vital for provision of credit in rural areas. • Lack of public confidence on the community banks .

8. Innovations/Recommendations • The government should create an environment conducive for rural finance intermediation • Introducing risk mitigation such as credit guarantee scheme • Change of operating modules which will lead to low transaction costs, simple of loan conditions, lending procedures and minimal collateral requirement

9. Innovations cont….. • Community banks should seek support from local authorities and mass-organisations • The macro economic and sector policy framework influencing economic growth performance should cover rural financial intermediation.

10. Innovations cont….. • The regulating authority, the Central Bank of Tanzania should strategically adopt Innovative non-collateral-based instruments for informal sector. The Current limit of unsecured lending of 5% of core capital is too small given that the community banks have weak capital base ranging from USD 50,000.

11. Conclusion • The formation of community bank has proved to be a key tool of eradicating poverty and contribute a lot to the economic growth • Improving rural access to credit in Tanzania should be concerned with improving the operational efficiency of the rural financial markets

12. Conclusion cont…. • There is a need of emphasizing savings mobilization by the use of appropriately designed innovative financial technology in order to make use of potential savings capacity of rural households. • There should be deliberately measures by non-conventional banks including SACCOS etc to fill a gap left by conventional banks in providing financial services to the poor in rural areas

13. Conclusion cont… • Micro finance institution, Community banks inclusive, should collaborate and form networks that could improve outreach to the informal sector. The collaboration can be in the form of funds transfer, market information linkage and capacity building.

14. END THANK YOU