“If this situation is not properly addressed many microfinance institutions will start to be hardly hit with increasing credit risk with fatal consequences,” 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 collaterals needed to get finance from mainstream banks.
A press release issued yesterday quotes Mr Mwakitalu as saying that goup 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 risk and challenging business,” he said.
He said some of the possible causes for growing credit risk were micro finance institutions internal weaknesses, external factors and loopholes as well as client weaknesses. 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 Group.
Stakeholders at the meeting 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 Simeon 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 living in different location of Dar es Salaam, 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 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, 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 Mama 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.