Growing Group lending risks: A threat to microfinance sector- TAMFI
Dar es Salaam, 25th April 2012: It has been revealed that Microfinance
institutions, which vastly ride on group lending methodology in Tanzania
are experiencing increase in credit risks..
“If this situation is not properly addressed many microfinance institutions
will get badly hit with increasing credit risk leading to fatal
consequences especially for the low income borrowers,” said Mr Joel
Mwakitalu, the Vice Chair of Tanzania Association of Micro Finance
Institutions ( TAMFI).
It should be noted that worldwide, the group lending is considered as the
best methodology for extending credit to the poor who don’t have
collateral, traditionally required to get finance from mainstream banks.
A press release issued yesterday quotes Mr Mwakitalu as saying that group
lending methodology was becoming tricky due to changing lifestyle,
urbanization challenges and increase in credit providers. He was addressing
the First Microfinance Breakfast debate for TAMFI in Dar es Salaam recently.
“Changing lifestyle, urbanization challenges and increase in credit
providers are some of the factors fueling credit risks in group lending.
This growing risk is making lending business a more riskier and challenging
business,” he said.
Mr. Mwakitalu said some of the possible causes for growing credit risk were
micro finance institutions internal weaknesses, external factors and
loopholes, as well as client related weaknesses. These include existing
gaps in laws and government policies, high cost of living, disasters,
misuse of loan funds, multiples loans lending over-indebtedness, family
problems and pressure, are some of the factors to watch in perpetuating the
credit risk.
He said the Group Lending Methodologies used in Tanzania include Village
Banking, Group of Group (Grameen Bank Model) and Solidarity Groups.
Stakeholders at the debate agreed with him about the credit risk,
especially for amounts topping up a million. “There are many defaulters
especially for the loans of Tsh 1, 000,000 and above. Repayments for
Tsh200, 000 to Tsh800, 000 loans is generally good,” noted Mr Cassiano
Kaegelee, Chairman for Heri Microfinance Ltd.
With amounts above 1 million, when a group member defaults it becomes
difficult for the remaining members to contribute and pay for their
comrade, he said.
Tujijenge Microfinance Managing Director, Mr Jimmy Makugira, said the
problem of defaulting was huge. “But some microfinance institutions are to
blame. Some do not have internal auditors and also they employ incompetent
loan officers who end up messing up everything,” he said.
Finca Tanzania limited Operations Manager, Mr Sabuni Ramadhani said there
were many challenges contributing to the high default rates of repayments.
“To be frank with ourselves, one of the reason is that there are too many
money lenders/investors who have no time to know their clients,” he said
Access Bank (T) Limited Marketing Officer, Mr Sijaona Simon called upon
micro-financial institutions to give on job training to the loan officers
and ensure that their salaries are good and working conditions improved if
they are to work for the betterment of the institutions.
According to a number of participants, it is impractical for one Loan
Officer to visit 200 clients before giving them a loan, giving them enough
financial education, advising them on their business and evaluating the
business if one is using public transport.
The participants lamented that lack of a credit reference bureau among the
micro-financial institutions, enables a single client to get three or more
loans from different financial institutions at the same time. Others use
different identities exploiting the loophole of lack of national identity
cards.
Fanikiwa Microfinance Ltd Branch Manager, Bahati Makengo, pointed,
“borrowers are no longer afraid of debts since they know that if they are
dragged to court the cases are civil and take ages to resolve.”
According to Ms Winnie Terry, TAMFI organized the Microfinance Breakfast
debate thanks to a grant by Financial Sector Deepening Trust Fund (FSDT).
“Debates are a healthy platform for problem solving discussions and sharing
experiences. In the upcoming debates for microfinance sector, – we will
continue addressing hot topics, which are instrumental for the development
of the whole sector,” she said.
About TAMFI
The Tanzania Association of Microfinance Institutions (TAMFI) is the
umbrella organization for over 50 microfinance organizations working in
Tanzania.
TAMFI works to strengthen Tanzania’s microfinance sector by promoting
cooperation and collaboration among its member organizations, providing
training, conducting research, and lobbying the government of Tanzania.
Website: www.tamfi.com
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