FINANCIAL SERVICES IN MOSHI MUNICIPALITY

FINANCIAL SERVICES IN MOSHI MUNICIPALITY,

KILIMANJARO REGION

List of Abbreviations

ATM- Automated Teller Machine

BUMACO - Business Management Consultancy

CDLF- Community Development Loan Fund

CRDB- Co-operative and Rural Development Bank

ELCT- ND-Evangelical Lutheran Church Tanzania- Northern Diocese

IFEM- Inter Bank Foreign Exchange Market

NBC- National Bank of Commerce

NBFIs - Non Bank Financial Institutions

NGO- Non Governmental Organisastion

NIC- National Insurance Corporation

NMB – National Microfinance Bank

NSSF- National Social Security Fund

PADEP- Participatory Agricultural Development and Empowerment Project

PRIDE – Promotion of Rural initiative Development Agency limited

SACCOS- Savings and Credit Cooperatives

SEDA- Small Enterprise Development Agency

TIB- Tanzania Investment Bank

UCB- Uchumi Commercial Bank

Table of contents P age

1.0 Introduction to Financial Systems 4

2.0 Availability of Financial Systems in Moshi Municipality,

Kilimanjaro region. 5

3.0 Informal Financial Services in the Municipality 8

4.0 How to ensure that this community accesses reliable financial

services. 9

5.0 Conclusion. 12

1.0 Introduction to Financial Services

This paper will share the conceptualization, history and level of growth of different financial services which are important for business and investment growth in Moshi Municipality. It will also examine the availability of such services in the Moshi Municipal Community. The last part will provide some concrete proposals on what should be done to ensure that the community of Moshi accesses reliable financial services. The banking and financial history of Tanzania dates back to 1965 when the central bank, the Bank of Tanzania was officially formed by the Act of Parliament.

The term” Financial Services” embraces all services offered by the finance industry encompassing a broad range of organizations that deal with money. Mutasa (2003) defines a “Financial System” as a composition of all financial institutions or intermediaries and financial markets in the economy. Financial institutions or intermediaries in Tanzania have their apex in the Bank of Tanzania which supervises and regulates financial intermediaries. Some of these are “Commercial banks” and others are “Non bank financial institutions”, NBFIs. Services offered by these institutions include payment facilities through banks, life insurance, building loans and other day to day basic needs.

“Financial markets” is another component of financial systems or a mechanism that facilitates the smooth purchase and sale of financial securities such as stocks and bonds, commodities such as precious metal or agricultural goods and other items at low transaction costs and at prices that reflect an efficient market. Types of Financial markets are Capital markets, Money markets and Foreign Exchange Markets. A Capital market is a market for securing long and medium term capital. A Money market is a financial market which deals with short-term finance by lending and borrowing money.

Financial services have indeed been important for business and investment growth in the Moshi Municipal economy through facilitation of payments in the economy, promoting the level and culture of the savings and investments in the economy thus improving the standard of living of the beneficiary community although with some setbacks.

2.0 Availability of Financial Services in Moshi Municipality, Kilimanjaro region.

The Financial Institutions or Intermediaries available in the Moshi Municipal Community include Commercial banks such as the Cooperative and Rural Development Bank, CRDB (1996) Limited, the Stanbic Bank Limited, the Standard Chartered Bank Limited, the National Bank of Commerce, NBC (1997) and Barclays Bank Limited. There are also Medium Sized Commercial Banks such as The Exim Bank Limited and small banks such as the Akiba Commercial Bank Limited, the Kilimanjaro Cooperative Bank Limited and the Uchumi Commercial Bank Limited.

The available Non Bank Financial Institutions (NBFIs)“ or Near banks include the Tanzania Postal Bank, the National Microfinance Bank, Insurance Companies such as National Insurance Corporation, Business Management Consultancy (BUMACO) and Patel Insurance, Also there are Hire Purchase Services which provide credit purchase such as TUNAKOPESHA. The National Social Security Fund and the leasing and Investment institutions like the Kilimanjaro Investment Development Centre. Financial markets in Moshi Municipality include commercial banks and Bureau de change banks. Some financial institutions are discussed below.

Financial Services which offer loans for business and investment in Moshi municipality include, Kilimanjaro Cooperative Bank Limited (KCB) which started issuing loans in 1999 and currently has 4,500 clients. The minimum amount of loan issued is 100,000,000/= and the minimum is 2,000,000/=. The interest charged on loans is between 15 and 21%. This bank has supported business growth for over 10 years which is a big contribution to the community..

Another bank located in Moshi Municipality and supporting business growth and investment is the Uchumi Commercial Bank Limited (UCB Ltd) which is a regional commercial bank, licensed to operate in Kilimanjaro Region, Tanzania since 2005. The bank is owned by over 330,000 average Tanzanians who are members of the Northern Diocese of the Evangelical Lutheran Church in Tanzania (ELCT-ND. UCB Ltd. vision is to have a northern Tanzania in which majority of people have convenient access to affordable financial services, through sustainable microfinance institutions. The bank started issuing loans in 2006 at a minimum of 1,000,000 and a maximum of 50,000,000/=. The interest rate is 18% and the clientele stood at 3,257 on 15^th May 2008.

Its mission is linked to a strong linkage shall be maintained with parish-based savings and credit cooperative societies (SACCOS) serving entire poor communities, irrespective of religious belief. To attain its mission, UCB Ltd. will also participate in the establishment of sustainable community level micro-finance institutions, in partnership with other organizations. As it can be seen this bank is community oriented, already serving more than 3,000 people in 3 years, recruiting approximately 1,000 clients per year. This is another big contribution to the economic growth of Moshi.

The next bank which has supported business growth is the CRDB Moshi branch. CRDB is different from the other national banks in that it primarily provides loans to microfinance institutions such as SACCOS . This is since 2002. It was reported in April 2008 in the Daily news that it has disbursed 1.1bn/- in loans to four Savings and Credit Co-operative Societies (SACCOS) in Kilimanjaro region, to enable the beneficiaries establish income generating projects to the Kilimanjaro SACCOS. The beneficiaries included PADEP and UMAMOSA in Moshi Urban Moshi Municipality which received 509/=million mainly for community based projects. This makes the bank’s participation in supporting business growth to expand faster and with less risk on the banks part. Several women business women have been reported to be reached by this bank. This proves the way this bank is committed to promoting business growth and investment.

Also participating in promoting business and investment is the Akiba Commercial Bank which was officially inaugurated in Moshi municipality on the 14^th of February 2008 as the seventh branch of Akiba Commercial Bank Limited (ACB) . The centre was in operation since 2004 and started issuing loans in 2005. It managed to enroll 653 clients before inauguration. It registered 1,267 clients as at December 31, 2007 and had 3,500 by May 2008 and it is expected that the number will have reached 6,500 in the next five years. A total of 558 clients have received loans totaling 671.6m/= by mid February 2008. ACB has also introduced a Group Loans Product (GLP). The minimum loan issued is 500,000/= while the maximum is 50,000,000/=. The interest rate ranges between 20 and 22%. This is a unique facility that is aimed at improving economic status of small scale entrepreneurs who do not have collateral. It attracts customers who have no saving culture and trains them to be better mangers of business through saving. It is an opportunity to the residents.

The next bank supporting business and investment growth in Moshi is the National Micro Finance Bank offers loans to individuals as well as groups of people and businesses in small enterprise. The primary microfinance product offered and stressed are savings deposits which is the easiest to obtain at NMB and quite reliable as well. NMB’s specific strategy towards microfinance is unique in that they link large corporate customers to microfinance loan customers. The NMB encourages and expands provision of loans to micro and small enterprises for the purchase and inventory and supply of goods. It also collects and pays services to large corporate clients to/from micro and small enterprises and also manages add-on services such as money transfers and payroll services to both the large corporate clients and micro and small enterprises. This bank’s has a huge department handling several types of loans including business promotion loans and supporting business men and women in this community.

Another near bank is the Tanzania Postal bank also located in Moshi offering various types of loans ranging from personal, installments, short-term and micro-credit which is offered to groups. Other Commercial banks such as the NBC, the Exim, the Stanbic and the Standard Chartered have not been analysed in terms of business and investment growth but they are available in Moshi and they deal with money market.

3.0 Informal Financial Services in Moshi Municipality.

These include a separate financial system commonly found in developing countries. A few examples include Savings and Credit Co-operatives (SACCOs). Savings and Credit Co-operatives (SACCOs) within Moshi district have a mixed history. Interview evidence suggests that urban SACCOs in the Moshi district have quite a high level of success. Levels of female participation are very high among alternative financial services provider.

One such successful SACCOS is the WAZALENDO SACCOS which was started in 1972 at the now Moshi University of Cooperative and Business Studies. There are 4 types of loans namely but the business oriented ones the General Loans from 1 shilling to 10 million repaid within 36 months at an interest rate of 1.5%. and the Target Loan at a maximum of 40 million issued once in 5 years and repaid in 60 months.

The ELCT – ND also operates a large scale SACCOS in Moshi municipality

There is a strong demand for financial services among women in Moshi district that manifests itself in the membership levels of local NGO micro financing institutions, which are predominantly female. These include Promotion of Rural Initiatives and Development Enterprises (PRIDE, Moshi) has a female membership level of seventy-five percent. It was opened in Moshi in 1998 after it was established in the country in 1995. It has 6,000 active members and issues a minimum loan of 100,000/= and a maximum of 50,000,000/=. Loan are issued in groups of 5 people and 3 people for Fahari loans. The interest rate ranges between 12 and 18%.

The next one is the Small Enterprise Development Agency (SEDA) a micro finance institution with a branch in Moshi.. According to the Executive Director, Mwangi (2001) SEDA was initiated by World Vision Tanzania as a pilot project in 1995 with the objective of improving the socio – economic and health status of households in poor communities through the development of micro enterprises owned primarily by women. Banking reforms in Tanzania are supportive to private sector growth and investment.

Another informal financial institution found is TUNAKOPESHA Moshi branch which provides hire purchase on credit to several customers mainly on purchase of domestic appliances with a specific interest depending on the number of credit months. Also

There are Insurance services offered are by BUMACO, Patel Insurance and the National Insurance Corporation. All types of Insurance are offered. Another serve is the National Social Security Moshi branch which attends pensioners and people who terminate their working lives. Also there is the Kilimanjaro Investment centre was opened a few years ago to coordinate the industrial investment activities. The main beneficiaries are local people and some are foreigners.

Also not analyzed are the brokers who have an office and run day to day services.

4.0 How to ensure that this community accesses reliable financial services.

Firstly, it is good for these service providers to reconsider the loan conditions. My community of choice is a small town of Moshi with a population of about 150,000. Yet the number of clientele reached and promoting business and investment is approximately less than 20, 000, about 13% of the total municipal population. Despite the presence of such financial institutions, yet there are many people living in Moshi town who are still very poor. They find it difficult to access credit to be used to conduct small businesses and develop economically. Moreover, talking to people on the street revealed that they are discouraged by the high interest rates charged by many financial intermediaries ranging between 15% and 22% which is too high for the poor majority putting into consideration that most businesses are not yielding the expected results.

Secondly, the fact that the financial markets operate freely tend to discourage the booming of business and investment since many people do not utilize the services. Also , the existing ATMs have not solved the challenge of waiting time. Time is an important resource for business people. This is specifically notable at the CRDB, the NBC and the 2 branches of the NMB. Markets for businesses are not quite developed and a lot of resources are wasted hunfting for viable markets and facing competition among several business people.

Furthermore, it is good to spread the services more outwardly to the marginalized people in the municipality. The location of the financial institutions almost all in the Central Business District also is not conducive to the majority of the poor population living in the suburbs of Moshi Municipality who have to board town buses. This leaves many people unaware of the existence of such services and consequently they do not access them. Not much has been done to advertise the services by leaflets posters or a word of mouth until one visits those places.

Futhermore, Gibbon(1999) shares that many business women have not accessed the services of the financial institutions due to lack of collaterals. The institutions have to follow the approach of the Akiba Bank to waive collaterals and install user friendly conditions. Also it could help if the financial institutions could allow negotiations for the community members when accessing credit for business. Alternatively, on either the policy part or regulatory mechanism, the government should set up government-backed women’s, poor men’s or youth credit guarantee programme for individuals growing beyond the micro level.

Next, it is apparent that the Civil Society Organisations which live very close with the community have a role to play by making noise about the need to lower interest rates and also to allow negotiations for people with low financial capacities or the minorities but who want to start business. They could also lobby and advocate for mobile banking services to the sub urban areas. They could also raise awareness about the various services available and the pros and cons of each service and try to follow up and document the response.

Another recommended option which is less cumbersome and supporting communities in Moshi Municipality to access more reliable financial services is what has been suggested in the Community Resilience Manual, Tools and Techniques for Community Recovery and Renewal (2003) on addressing financial gaps by ensuring a continuing accessibility of capital from the conventional institutions such as banks, micro- finance institutions and other companies offering financial services to manage community projects. It is regarded essential for communities to establish relationships with financial institutions. It is like moving banks to communities. This is believed to make project consideration easier although it may not always be the case. This works well if the Community Economic Development Organisation is established.

Another proposal is to establish a Community Development Loan Fund- a locally based and locally capitalised private nonprofit sources of credit for small community projects and support for housing within Moshi Municiaplity where there are pockets of very poor housing.. CDLFs offer credit and equity investments and financial management services. The interest paid by borrowers is 2 to 3 percent of what the CDLF has to pay to its own lenders. Like the J. Kikwete Fund in Tanzania some of the capital is obtained from the government sources. Success has been documented on the Community Loan Association of Montreal (ACEM), in Canada.

The benefits of the CDLFs is that this private nonprofit organization operates without government regulation which banks or credit unions must comply with and are able to serve community clients not reached by conventional financial institutions, and they offer sustainable community service. One challenge is how to get the loans transaction costs without subsidies. The Montreal Community Loan Fund has demonstrated how a community-based financial institution can integrate goals of social business development without reliance on government funding.

Another possibility is the Micro enterprise Loan Fund: For a small town like Moshi, the communities could address their financial gaps by instituting their own loan fund programme for their businesses with minimal requirements for capital and technical support in their locations. It has proved to be a mode of survival for impoverished citizens who cannot afford high interest rates asked by financial institutions. Usually, groups of micro borrowers group themselves for mutual support and cross- guaranteeing each other’s loans this peer lending technique was initiated and it worked in communities in Canada. Lending could also be on individual basis. Peer groups loans are suitable for Moshi Municipality because people live close to one another. The programme is a foundation stone for the economy of a small community although there might be obstacles of establishing and run such a programme successfully. .

5.0 Conclusion.

Apparently, the financial services are of great importance for business and investment growth. Moshi municipal is a growing business town with several financial markets emerging. However there are several people in the municipality not reached by these expanding services. This calls for alternative strategies of ensuring equal access and affordability. There are several people called upon to take action and promote the business and investment sector in the Moshi community. The service providers, the clients, the Civil Society and the government all have a role to play.

As it can be seen the establishment of a Community Economic Development Organisation is a new concept in Tanzania. This means that a lot of preparatory work will be required in terms of raising awareness in the community, sensitizing and training community leaders on the principles of CED namely, people led, participatory, inclusive of the marginal groups and collaborates with the local authorities.

All this is related to ensuring the availability of resources in the community. The Community Resilience Manual: A Resource for Rural Recovery and Renewal (2000) advocates the need for building communities that are resilient whereby, “There is openness to alternative ways of earning a living and economic activity. One indicator is when the community owns a major asset for economic and social benefits of the community. Such an asset could be a Community Development Loan Fund, the Community Revolving Loan Fund or the Micro enterprise Loan Fund

This will have to start in small areas and spiral out to the suburbs of Moshi Municipality. There is also the latest approach to community members supporting one another using the VICOBA system which has worked successfully in rural communities and could be tried out in the sub urban areas of Moshi where some of the population living there could start businesses and investments which cater for the suburban population. All suggestions aim at optimal exploitation of financial services in order hope where there is despair and placing some wealth where there is poverty through a well managed community economy.

References

1. Mutasa, F.L (2003) Principles of Economics. Tanzania Institute of bankers. Dar es salaam.
2. Gibbon, M. F. Short-changed (1999): Gendered Consequences of Implementing Financial Services in Moshi Rural District, Northern Tanzania
3. Centre for Community Enterprise. (2003)Tools and Techniques for Community Recovery and Renewal. www.cedworks.com.
4. Mwangi, Sammy (2001) Small Enterprise development Agency (SEDA) – Tanzania.
5. Uchumi Commercial bank . (2005). Brochure. www.uchumibank.co.tz