BANKING IN TANZANIA

By BEN K GWAMAKA – Art in Tanzania Internship

gwamakaben25@gmail.com

INTRODUCTION

–Banking, The provision of deposit and loan products normally distinguishes banks from other types of financial firms. Deposit products pay out money on demand or after some notice. Deposits are liabilities for banks, which must be managed if the bank is to maximize profit. Likewise, they manage the assets created by lending. –

Banks, are Institutions that match up savers and borrowers help ensure that economies function smoothly. Although banks do many things, their primary role is to take in funds called deposits from those with money, pool them, and lend them to those who need funds. Banks are intermediaries between depositors (who lend money to the bank) and borrowers (to whom the bank lends money).–The amount banks pay for deposits and the income they receive on their loans are both called interest.

TYPES OF BANKS

1. Central Banks:

Over and above the various types of banks mentioned above, there exists in almost all countries today a Central Bank. It is usually controlled and quite often owned by the government of the country.

2. Agricultural or Co-operative Banks:

The main business of agricultural banks is to provide funds to farmers. They are worked on the co-operative principle. Long-term capital is provided by land mortgage banks, nowadays called land-development banks, while short-term loans are given by co-operative societies and co-operative banks. Long-term loans are needed by the farmers for purchasing land or for permanent improvements on land, while short-period loans help them in purchasing implements, fertilizers and seeds. 

3. Commercial Banks:

These banks play the most important role in modern economic organization. Their business mainly consists of receiving deposits, giving loans and financing the trade of a country. They provide short-term credit, i.e., lend money for short periods. This is their special feature.

4. Savings Banks:

These banks (perform the useful service of collecting small savings. Commercial banks too run “savings departments” to mobilize the savings of men of small means. The idea is to encourage thrift and discourage hoarding.

5. Industrial Banks:

There are a few industrial banks in India. But in some other countries, notably Germany and Japan, these banks perform the function of advancing loans to industrial undertakings. Industries require capital for a long period for buying machinery and equipment. 

6.  Utility of Banks:

An efficient banking system is absolutely necessary for a country, if it is to progress economically. The services that an efficient banking system can render a country are indeed very valuable. Undeveloped banking system is not only an index of economic backwardness of a country, it is also an important cause of it. The banking system can be useful in the following ways, in addition to what has been mentioned in the functions of banks.

7. Exchange Banks

Exchange banks finance mostly the foreign trade of a country. Their main function is to discount, accept and collect foreign bills of exchange. They also buy and sell foreign currencies and help businessmen to convert their money into any foreign money they need. Their share in the internal trade of a country is usually small. In addition, they carry on ordinary banking business too.

TYPES OF BANKING

1. Unit Banking:

• In unit banking, all the operations are performed from a single branch.

• It is a limited way of banking where banks operate only from a single branch or a few branches in the same area taking care of the local population of that area.

• The size of the unit banks is small as compared to branch banking. 

• Due to the small size of the Unit Banks, decision making is very fast as the management enjoys more autonomy and discretionary powers at their disposal. 

• Due to the single unit of the Bank, the risks are not diversified. 

• A customer having an account in a specified branch must undergo all banking activities through that branch. 

2. Mixed Banking: 

• Mixed Banking is the system in which banks undertake activities of commercial and investment banking together.

• It can also be described as the dual functioning of investment banking and commercial banking.

• These banks give short-term and long-term loans to industrial concerns. Industries don’t have to run to different places for differential financial needs. Mixed Banking thus promote rapid industrialization. 

• Mixed Banking may however pose a grave threat to liquidity of a bank and lead to bad debts. 

3. Universal Banking: 

• Universal banking is a system of banking under which big banks undertake a variety of banking services like commercial banking, insurance, investment banking, merchant banking, mutual funds etc.

 • It involves providing all the above services to the customers under one roof by financial experts who can handle multiple financial products. 

• This makes the banking operations economical and boosts investor confidence. However, if these kinds of banks fail, it costs huge losses as well as causes a huge dip in consumer confidence.

4. Narrow Banking: 

• The system of narrow banking involves mobilizing the funds towards risk-free investments mostly government securities. 

• It can be considered the opposite of Universal Banking.

5. Relationship Banking: 

 • In Relationship Banking, the customer needs are understood by the banks and then appropriate banking services are offered to the customers according to their needs.

• This type of Banking helps banks to gather important information about the borrowers which in turn helps them to determine the creditworthiness of the customers.

6. Branch Banking:

 • Branch banking is engaging in banking activities such as accepting deposits or extending loans at facilities or locations away from a bank’s home office or headquarter.

 • Branch banking allows a financial institution to expand its services to an area outside of the home location, functioning as an extension of the home location. It can be a more cost-effective approach because not all the locations are required to offer the same levels of services as the home location, allowing smaller offices to provide key services while larger locations provide additional services.

THE IMPACTS OF COVID 19 ON TANZANIA’S BANKING AND FINANCIAL SECTOR

–We assess the impact COVID-19 has had on the banking and financial services sector in Tanzania and what policy measures have been introduced through the Ministry of Finance and the Bank of Tanzania to maintain financial stability. These measures include the ease of requirements on Statutory Minimum Reserves, discount rates, haircuts on government securities, regulatory flexibility on restructuring loans, transaction limits plus daily balance amounts for mobile money operators.

1. Recent profits–

Despite the COVID-19 situation, some major commercial banks in Tanzania have reported an increase of net profits during the quarter ending June 2020 in comparison to the same period in 2019. It remains to be seen whether a continuation of the strong financial performance will be reflected in the quarterly reports for the period ending September 2020.

2.  Measures implemented by banks and financial institutions–

Banks and financial institutions in Tanzania have taken advantage of the BOT policy measures to implement various relief measures to ease the effects of COVID-19. –Most banks have implemented relief packages for their customers especially small and medium enterprises in an effort to offer financial reprieve from the effects of COVID-19. The relief packages include payment holidays (moratoriums) ranging from 3 – 6 months and restructuring of loans to extend repayment periods.

3. UNDP impact assessment–

In April 2020, the United Nations Development Programme (UNDP) issued a Rapid Social-Economic Impact Assessment of COVID-19 in Tanzania (the UNDP Impact Assessment). It took note of key stakeholders in the finance sector, including over 40 corporate banks including 30 commercial, 6 community and 2 development banks. Microfinance institutions and mobile money operators were also acknowledged as financial players in the country.

4. BOT statements and bulletins–

The BOT published a Monetary Policy Statement of 2020/2021 in June 2020 and an Economic Bulletin for the Quarter Ending June 2020 (the June 2020 Bulletin).– According to the Monetary Policy Statement, the banking sector was stable as banks had enough capital reserves to withstand financial hurdles.

The recorded ratio of core capital to total risk weighted assets and off-balance sheet exposure as at April 2020 was 17.4% whereas the minimum regulatory benchmark is 10.0%. Furthermore, banks remained liquid as the ratio of liquid assets to demand liabilities was around 32.7% whereas the minimum regulatory requirement is 20.0%.–

However, the ratio of NPLs to gross loans rose to 11% in April 2020 compared to 10.7% in June 2019, hence a deterioration of the quality of banks’ assets. This was largely caused by the slowdown of business due to COVID-19.–In the June 2020 Bulletin, it was reported that the BOT sustained an accommodative monetary policy and enhanced liquidity easing measures to shield the economy from the effects of COVID-19. 

5. Noticeable impacts–

NPLs: Under Tanzanian law, loans are declared NPLs when the obligation for repayment is past due for more than 90 days, or when the loan is classified as substandard, doubtful or a loss.–

Business engaged in import and export, transportation, tourism and accommodation have been heavily hit by measures of countering COVID-19. Following the BOTs policy measures to tackle the effects of COVID-19, banks have restructured loans to their customers by reducing interest rates, instalment amounts and extension of the return period. Banks have also issued moratoriums to the extent of giving relief to their customers. However, the issue of NPLs persisted and most businesses are still recovering from the impacts of COVID-19.–

Deterioration of customer and bank relationship: this is relative to the issue of NPLs as customers and banks failed to establish a common ground due to operational challenges for both sides.

PROBLEMS FACING BANKING IN TANZANIA

1. Raising expectations

–Today’s clients are savvier, smarter, and more informed. They expect a high degree of convenience and personalization out of their financial service experience. Altering client demographics plays a vital role in these heightened expectations. Each new generation of financial service clients is having a better understanding of technology. As a result, there is an elevated expectation of digitalized prospects.

2. Raised competition–

The financial industry is facing threats that target the most crucial areas of the service. These threats have forced many financial organizations to go after partnerships as a stop-gap precaution. To sustain a competitive edge, credit unions and traditional banks need to devise substantial measures that will counter threats to their service.

3. Consistent innovation–

Substantial success in a business entails agility, insight, continuous innovation, and stable client relationships. Benchmarking useful practices across the whole industry can offer valuable insight, assisting credit unions and banks to remain competitive. Benchmarking is not enough, it only enables the institutions to maintain the pace, and it doesn’t lead to any innovation. Businesses ought to do benchmarking but remain innovative if they wish to thrive.

4. Altering Business models–

The cost that is linked with compliance management is among the numerous financial service challenges forcing banking institutions to alter the manner they conduct business. The elevated cost of capital integrated with unrelenting low-interest rates, decreased proprietary trading, and decreasing return on equity are all pressurizing traditional source’s financial profitability. But the shareholder prospects remain unwavering.

5. Regulatory compliance–

This is among the most vital financial industry challenges. The dramatic increase in regulatory fees has steered this. Compliance with various set regulations can significantly strain financial institutions as they gather resources.

6. A Cultural shift–

From thermostats that allow you to heat the surrounding to artificial intelligence-enabled wearables that monitor the user’s health is the technology that has been embedded in our culture. The same has extended to the banking industry.– This cultural transition towards an innovative-first attitude is a reflection of the greater industry-broad acceptance of digital transformation.

7. Customer retention–

Financial services clients expect meaningful and personalized experiences through intuitive and straightforward interfaces on any device, anywhere, and at any time. While customer experience can be tricky to quantify, client turnover is substantial, and client loyalty is rapidly becoming an endangered idea.

Client loyalty is a product born through sturdy relationships that start by comprehending the client and their expectations.–Understanding the client and engaging with them appropriately can result in client satisfaction, therefore, decreasing customer churn. Financial institutions can also use Bots, which is an effective and efficient technology for delivering superior client services. Bots can assist in increasing client engagement without incurring costs.

CHALLANGES HINDERING FINANCIAL INCLUSIONS IN TANZANIA

a) Lack of education 

In this, it was established that, lack of sufficient education or knowledge concerning with access to various financial services is a problem to majority of Tanzanians which in turn affects the overall people’s access to finances. Basically, it was realized that majority of people within the country lacks information on various services particularly loans in terms of access and repayments. 

Also, other seems to lack the important knowledge on the requirements for securing such loans. Hence, due to this, one of the basic ways that can be used to improve people’s access to financial services is the provision of education to the public, so as to remove the wrong long-stuck mentality on various services to the public. 

b) Low technology (ICT)

 In this part the major problem was realized to be the low information communication technology infrastructure which causes uneven distribution of information between the financial institutions and the people utilizing the financial services. In this, banks need to make significant improvements in various areas such as Management Information System. The improvements of technology will assist in uniting many people in different geographical locations. 

c) High costs associated with the important financial services 

Another challenge that was highlighted was the costs that are associated with the consumption of financial services. In this various charge such as the interest rates and service charges on using ATMs were sought to exert pressure on the customers which in turn affects their general usage of the services. Basically, in this, it was realized that the charges that are put on various services are in most cases destructive to the overall mood of the respondents to utilize the services of the financial institution. In order to curb this, there is a need to harmonize the overall charges so that the users can be comfortable in paying them without any problem.

d) Regulatory requirements

Regulatory requirements such as know your customers rules that have been introduced to prevent money laundering can also make it difficult for poor people to open even a bank account as they may not have the necessary documentation. It has also been observed that many people do not have collateral or credit record due to the lack of proper credit bureau.

CONCLUSIONS

–The banking sector is undergoing a radical transformation. The shifts include changing business models, disruptive technologies, FinTechs, and compliance pressures. The emergence of non-bank startups, which is also referred to as FinTechs, is altering the competitive landscape in the banking industry.

It has forced traditional institutions to reorganize the way they conduct business.–The Tanzanian banking sector embarked on a plan for financial liberalization in the 90’s in order to sustain the country’s economic growth. This has been accomplished through the mobilization of financial resources as well as by increasing competition in the financial markets and by enhancing the quality and efficiency of credit allocation. As a result of the liberalization, new merchant banks, commercial banks, bureaus de change, credit bureaus and other financial institutions have entered the market.

REFERENCES

–http://www.ofcom.org.uk/__data/assets/pdf_file/0025/113299/economic-broadband-oecd-countries.pdf

–OECD (2013), “Broadband Networks and Open Access”, OECD Digital Economy Papers, No. 218, OECD Publishing. http://dx.doi.org/10.1787/5k49qgz7crmr-en–

Finance and Economics, C50, New York University Salomon Center, Leonard N. Stern School of Business.–

Heffernan, S.A. (1996), Modern Banking in Theory and Practice, Chichester, UK: John Wiley & Sons.

Uzi Island needs environmental interns and volunteers

Road to Uzi

Road to Uzi

Uzi is a small island in the south of Zanzibar’s main island, Unguja. The road to Uzi is called Nyeker road; manmade using rocks and stones with at least four types of mangroves on either side. The road to Uzi resembles the partition of the River Nile in the story of Moses; simply mesmerising. The road has been built slowly over 50 years. It started off as a small lane for walking; this was then made wider for the use of bicycles, then for cows and finally it was made even wider for the use of motor vehicles.

The drive to Uzi Island is very beautiful, but very bumpy, if you suffer from motion sickness, be sure to sit at the front of the vehicle or make yourself as comfortable as possible.

Our informative and helpful guide, Isshaka, met us at a resting point, made with the help of volunteers for when the tide comes in. The water can rise up to two metres when there is a full moon. When the tide is high you can goDSC03795 fishing. The land in Zanzibar is so fertile we were able to plant four mangrove seeds each, Twenty (Edward) steps from the resting point, on the right, which fulfilled a personal ambition to plant trees that will definitely grow.

The town to Uzi and has been there for around 10 years along with three wells on the Island that provide drinking water. A Dala Dala, number 334, from Uzi to Stone town takes around one hour.

Uzi baskets made by women's group

Uzi baskets made by women’s group

The main sources of income for the Island are from fishing, farming and carpenter work. There are also woman groups on the island and the woman craft their own fruit baskets that Art in Tanzania export to Finland and also sell on EBay for around 25 Dollars.

Within the mangroves, women from the villages have placed plastic bottles across the water in order to collect two types of seaweed, they use plastic boats to collect these when the tide is high; 100 of these plastic boats were donated by a friend of Isshaka. The seaweed is then made into soaps and sold in order to provide income to the villagers.

helloIsshaka went to school in Uzi then to Ston etown to study further. Isshaka is very passionate about wanting to make a difference and help people live a better life in Uzi. Isshaka does 2 radio broadcasts throughout the week; one where he brings awareness of environmental issues on Uzi Island and what others can do to help, and another broadcast called Sunset Zanzibar, where he talks about tourism and the importance to the island and how tourism can help the island develop.

Uzi grows many fruits such as Mangoes, Oranges, Guava, Yams and Cassava. Alrge Baobab trees also grow in Uzi; the villages used to cut these down, however Isshaka has been campaigning to keep these trees in order to house bee boxes that provide honey to the locals; honey season is September to October. The Baobab fruit when mixed with water and sugar is a good source of Vitamin C.

Biogas from biowaste

Biogas from biowaste

The Island really needs creative interns and volunteers passionate about the environment and sustainable development. Also people that can help the women create innovative arts and crafts in order to sell and help provide an income for many households on Uzi Island.

For volunteering at Uzi  you can contact  Art in Tanzania info (at) artintanzania.org

M’zungu intern Eero

Introduction:
Hey, It’s me Eero! I’m a 23-year-old University student from Finland. I’m doing a bachelor’s degree in tourism and event management at Haaga-Helia University of Applied Sciences. Right now I’m doing an internship with Art in Tanzania and generally just enjoying life.vlcsnap-2014-10-26-11h12m24s70

How did you found AIT?

I was looking for open jobs and internship positions on our school’s intranet and found Art in Tanzania there. At first I was a bit hesitant, but decided to just email and ask a few questions. After a bit of emailing back and forth I decided on it: I want to go to Tanzania and here I am now!

What have you been doing so far?

So far I’ve been taking care of tourism related documents. For example keeping safari and tour descriptions up to date and translating them from English to Finnish. I’ve only been here for two weeks and I have ten more to go so we’ll see what else comes up later.

How is everyday life in Tanzania?

People here are very friendly and eager to talk to you which was weird at first, because in Finland that just doesn’t happen. Sometimes I feel like a rock star waving to people from the Bajaji or Piki Piki.

How is working different in Tanzania compare to your home country?

Different, very different. Patience is the key word you have to remember here. Things might not happen on a strict schedule like you’re maybe used to but they will happen eventually.

Just say “Hakuna matata” and wait it out. That isn’t just a song from Disney’s Lion King but actually a phrase I hear quite often here. Roughly translated it means “No worries” which is exactly the mentality you need here.

Would you recommend internship in AIT?

Definitely. I think this is a great opportunity to learn more about different cultures and also an opportunity to learn about yourself more. The staff here is great and you get to meet a lot of people from different parts of the world who’ve come here to volunteer.

Just take the opportunity and come here. You won’t regret it!

Day at the Prestige pre- school and nursery

Day starts like it always starts: a cup of instant coffee and few toasts with jam. After breakfast I and Camilla, another intern here at AIT, are waiting our ride at the volunteer house. Camilla tells me that it would take between 25 minutes and 1,5 hours to get to the school depending how many kids we are picking up after us. Car comes to pick us up at 8.00. There are already few kids and one teacher in the car, but we have to pick couple more kids before we can go to school.

The school is only going on for two weeks, so it is not a regular school, more like fun summer school thing for kids whose parents are still working. Prestige school is located in Mbezi area in Northern Dar es Salaam. School has tuition, so kids who go to school here are coming from “privileged” backgrounds. Kids are mostly between four and six years old.
maalit

We arrive at school around 9 o’clock. Some of the children are so young that they go to nursery. Unfortunately I did not have the time to visit the nursery side. Every morning starts with a praying moment. I also introduce myself and kids are asking me different kinds of questions like “Where are you from?”, “How old are you?”.
After that kids move over to the main teaching area. There are quite many adults: four in a class and then there is me and Camilla, which is a lot comparing to Finland where the same size class would have only two adults. First “subject” is learning what nose does, then color and paint different areas from paper they have been given. Camilla tells me that they have gone through all of the different areas before.

 lounasAfter that it is breakfast time (I feel like a hobbit because I’m having second breakfast), me and Camilla are having chapati and tee. Tee is so sweet that I can almost feel the sugar rush in my veins, chapati are good, like they always are, the only thing missing is some hot sauce.

Painting continues after breakfast and the subject is tongue. When this is done, we go outside to play. Camilla takes eight kids with her to play football and the rest of us are throwing a ball to one another. Kids and teachers also play a local game that I don’t know.
After playing outside for roughly 35 minutes we head back inside. There is a rehearsal of some kind of play. Camilla tells me that they have practiced it every day. The day ends with lunch. I and Camilla are having ugali and some veggies. I think there is cabbage and carrots with some sort of red sauce. Anyway the food is good. And soon it is time to head back to the volunteer house in Madale. This time the travel takes only 20 minutes.

leikkimaalaus

 

By: Tia Suomi

‘Smile in a Bag’ Easter Donations 2014

In 2012 Laura Isaac travelled to Tanzania to volunteer with children from deprived backgrounds, and to learn about their culture and way of life.

Jiwe Gumu - Laura Isaac Donation

During her stay Laura volunteered at Jiwe Gumu School, founded in 2003 and situated in the village of Mtongani, around 2 km from the Volunteer House.

Approximately 70 students between the ages of 3-5 attend the school and the students are divided into two (sometimes three classes). The school is funded by the headmaster Teacher Kennedy and takes in orphans and street children free of charge. The teachers are not fully qualified; therefore assistance is appreciated.

Laura said about her experience, “I thoroughly enjoyed working at the school – the children are so happy and teacher Kennedy was so welcoming. I enjoyed teaching the children, and adapted to working with very little resources. The best part for me was singing, playing and laughing with the children, and just seeing their huge smiles and hearing their laughter. It has been one of the best experiences of my life.”

Jiwe Gumu Nursery School Volunteering TanzaniaBefore arriving in Tanzania Laura and her friend Jodie decided to fundraise an amount of money that assisted in buying a range of school supplies, craft materials, toys for the children and some clothes.

After volunteering, having returned to the UK, Laura decided that she wanted to continue helping and supporting the children of Jiwe Gumu School.

Laura works at Llanfair Caereinion Primary School in Wales which has just over 200 pupils. Laura presented her journey to the pupils when she returned, showing a range of pictures, and sharing her stories.

Jiwe Gumu Nursery School Volunteering TanzaniaTogether they decided to create the ‘Smile in a Bag’ project. This project gave the children of Llanfair Caereinion Primary school the opportunity to donate educational supplies, toiletries, toys, clothes, books, teddies and much more. Laura along with the help of her family transferred the donations into tote bags, some for boys and some for girls, making sure that they were all equal. Laura then had the bags shipped over to Tanzania for the children. She said “It gives the children at Caereinion Primary School an opportunity to learn about other children who come from deprived backgrounds. It teaches them to think of others, to be kind, to share, and to care for others less fortunate than themselves. There is no better feeling than receiving the pictures of the children receiving their gift bags, and seeing the smiles on their faces. Everyone can make a difference, and every little bit counts.”

In 2012, 139 bags were donatedJiwe Gumu Nursery School Volunteering Tanzania

In 2013, 94 bags and 80 T-shirts printed with the school’s logo were donated from Caereinion Primary School.

With the aid of the volunteers from Art in Tanzania, this year’s donation was made during Easter time. It was a fun day with many activities like face-painting, singing and dancing and many happy faces as the bags were given to the children.

If anyone would like to get involved in ‘Smile in a Bag’, a donation towards the shipping costs of the bags to Tanzania is much appreciated. For more information about how you can help kindly contact Laura Isaac at rssl123(at)live.co.uk

Every bit helps!

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