Microfinancepoliciesandregulatory systeminTanzania practitionerperspective

rd Apresentationtothe3 Africanmicrofinanceconference,august 2023,2007,Kampala,Uganda 20

AltemiusMillinga ExecutiveDirector CentreforMicrofinanceandEnterpriseDevelopment CentreforMicrofinanceandEnterpriseDevelopment

Macroeconomicenvironment
DuringthepasttenyearsGDPhasbeen between4%6.5%abovepopulationgrowth between4% rates. Inflationsingledigit Agricultureaccountformorethanathirdof GDP 2/3ofpopulationleaveinruralareas Slightlyover40%ofthepopulationfall belowthepovertyline belowthepovertyline

Structureoftheformalfinance system
Financialsectorreformbeganin199Ibythen therewereonlysixdeposittakinginstitutions, threespecializedbanks,oneinsurancecompany andtwostatepensionfunds Thefinancialsystemhasexpandedrapidlywith22 licensedbanks,4financialinstitutions,5regional banksand2regionalfinancialinstitutionsand,9 insurancecompanies,102foreignexchange bureaus,andover600SACCOS,60+NGOMFIs, stockexchangeanddepositinsurancesystem stockexchangeanddepositinsurancesystem

Keyplayersinthemicrofinance industry
InformalprovidersROSCAs,ASCAS,Moneylenders Informalproviders NGOsMFIsdominatedbythreeMFIsPRIDE,SEDAand NGOsMFIs FINCA Licensedcommercial,regionalandruralbankunits. UrbanandruralSACCOS GovernmentprogramsWholesaleandretail Governmentprograms InternationalDonorAgenciescompriseasignificantand influentialstakeholdersgroup TwoApexOrganizationsTAMFI(Notactive)andSCULT TwoApexOrganizations (ForSACCOSanditisactive) (ForSACCOSanditisactive)

POLICYANDREGULATORY INTERVATIONS
In1998theBankingandfinancialinstitutionAct,1991was amendedtoprovideforthecreationofbanksandfinancial institutionsspecializedasMFIs Inyear2000theGovernmentapprovedtheNational MicrofinancePolicy BankingLawwasrevisedin2003togiveBankofTanzania responsibilitytoregulateandsuperviseallFinancial Cooperatives(FICOSwhosedepositsurpassedanTshs 800million(US$615,000). BankingandFinancialRegulations,2005forMicrofinance CompaniesandMicrocreditactivities MicrofinanceoperationsareintegratedintheBankingand FinancialInstitutionAct2006 FinancialInstitutionAct2006

Whoregulateswho?
TheBankofTanzaniaisresponsibleforprudential supervisionofLicensedbanks,Microfinance Companies,FinancialCooperatives(FICOS),and FinancialInstitutions TheRegistrarofCooperativesisresponsiblefor SACCOSfocusonregistrationandcooperative SACCOS principlesratherthanfinancialperformance NGOsMFIsareregisteredwithnonfinancial NGOsMFIsareregisteredwithnon GovernmentAgenciesandDepartmentsandare notregulated. notregulated.

MicrofinanceplayersRegulatedand Microfinanceplayers supervisedbyBOT

CommercialBanksNMB,CRDB,ACBetc. CommercialBanks FinancialInstitutionsPostalBank RegionalBankUnitsKCB,KFCB,MCB, RegionalBankUnits DCB RegionalFinancialInstitutionsMucoba, RegionalFinancialInstitutions MwangaCommunityBank MicrofinanceCompanies(currentlynone) FinancialCooperatives(CurrentlyNone) FinancialCooperatives (CurrentlyNone)

WhyregulateMicrofinance?
regulatorsperspective Protectdepositors Stabilityofthefinancialsystem MFIsperspective Legitimacy:Accesstosavingsand commercialcredit Buildconfidenceofclientsandfinanciers Buildconfidenceofclientsandfinanciers

Resultsoftheregulatorypolicy
Afewregionalandruralunitsbankshave beenestablishedsincetheywereintroduced in1998 NosingleMFIhastransformeditselfintoa MicrofinanceCompanyDeposittakingMFIs 89%ofTanzaniansremainedunserved 89%ofTanzaniansremainedun withinstitutionalfinancialserviceproviders MajorityoftheMFIshaveremainedsmall withlessthan3000clients withlessthan3000clients

Whylimitedresponsetonewregulatory policies?

RESTRICTIVE
Stringentceiling Ifloansaresecuredbyregisteredcollateral,an MFIloantoanindividualborrowerhasaceiling 3%ofcorecapital Ifsecuredbychattelsorpersonalguarantee,MFI loantoanindividualborrowerhasaceiling1%of corecapital Banksceilingis5%ofcorecapitalunsecuredand 25%ofcapitalsecuredBUTvirtuallyall microfinanceloansareunsecured microfinanceloansareunsecured

Whylimitedresponsetonewregulatorypolicies
_stringentprovisioningforMicrofinanceloans
Microfinance loans

Classification Dayspastdue Odays Up15days 15days Up 16 30days 16 30days 31 45days 31 45days Current Specially mentioned substandard Doubtful

Provisioning 2% 25% 50% 75% 100% Provisioning 0% 5% 10% 50% 100%

Morethan45days Loss Commercial loans Classification Dayspastdue Dayspastdue O 30days O30days 31 60days 31 60days 61 90days 61 90days 91 180days 91 180days Morethan181days Current Specially mentioned substandard Doubtful Loss

Whylimitedresponsetonewregulatory policies?Cont.
Regulatorydisparity: Allinstitutionsconducting microfinancebusinessarenottreatedsimilarly fromregulatorystandpointhenceplayingfieldis notlevel SomeNGOMFIsarenotyetreadytoberegulated intermsofcapacitytomeetstaffingandother costsofregulations TheRegulatorypoliciesseemtofocusonexiting NGOMFIsratherthanencouraginginvestorsin thesectoraswaytoincreasethenumberof providersNoincentiveschemeforinvestors. Noincentiveschemeforinvestors.

Lessons
DonotrushtoregulateMFIsunlessyouhave criticalmassofMicrofinanceproviders Inacountrywheremicrofinanceisatinfancy stage,theregulatorysystemneedtobe progressiveanddevelopmentalwithgraduated standardsandincentiveframeworktosupport institutionaldevelopmentandcreationofnew MFIs IntegratingMicrofinanceintothefinancialsystem doesnotmeanallMFIsaughttoberegulated,but rathertoencouragebothstrongregulatedand unregulatedMFIs. unregulatedMFIs.

Lessonscont
Involvementofallstakeholdersiscriticalfor creationofresultorientedregulatorysystem ofMicrofinance.Effectiveinvolvement requiresunderstandingthesubjectmatter byallthestakeholdersMFIs,regulators, Government,Donorsetc. Government,Donorsetc.

Asanteni Asanteni