Dar es Salaam. Some local government officials have expressed worry at the prospect of banks handling the ten per cent local government loans, fearing that the arrangement will sideline many small entrepreneurs who are sceptical of the financial institutions.
Talks around the possibility of banks taking over the management of interest-free loans available for vulnerable groups from municipal councils intensified recently following a decision by the government to suspend their issuance for the remaining part of the 2022/23 financial year.
The decision followed damning reports about the loans by the Controller and Auditor General (CAG) Charles Kichere, who, in his report for the 2022/2023 financial year, questioned the sustainability of the revolving loan scheme distributed on the 4-4-2 formula for the youth, women, and people with disabilities.
For instance, CAG reported that local government authorities failed to recover Sh88 billion of the loan distributed to respective groups. CAG also revealed that Sh2.5 billion were issued to groups that ceased business operations, and Sh895.94 million were issued to 48 groups that did not exist.
Commenting on these revelations, President Samia Suluhu Hassan suggested that the government should consider using the banks as a substitute for the municipal councils, a suggestion that some economists and financial experts have supported.
Based on interviews conducted with small entrepreneurs and local government officials from across the country, however, The Chanzo can reveal that the proposal is unpopular among many community members, with many feeling that if the proposal goes ahead, the loans will fail to serve its intended goal.
Paschal Kapungu is a councillor for Udinde ward in Songwe who echoed the feelings of many people The Chanzo interviewed when he concluded that banks managing the loans would force many people to stop applying for them.
“We are ready to accept any system going forward, but I am worried about the hint that they will take the money to banks,” Kapungu said during an interview. “I don’t think common citizens will take a loan there. They will be scared, and most of us from rural areas lack confidence and are scared to engage banks.”
Lameck Mlaponi, a councillor for Magomeni ward in Mtwara shares Kapungu’s sentiments, telling The Chanzo: “I am concerned because of the banks’ terms. I’m afraid that small entrepreneurs are going to be sidelined.”
These views are also consistent with the findings of previous studies conducted recently on people’s preferences for borrowing. For example, a 2017 Tanzania Finscope Survey (2017) found that a bank is not the first go-to choice of people when it comes to borrowing.
Instead, the study shows that the majority of people (68 per cent) borrow from family and friends, followed by savings groups (18 per cent), mobile money (four per cent), banks (three per cent), moneylenders (two per cent), microfinance (two per cent), SACCOS (two per cent), employer (one per cent), and religious organisations (one per cent).
Experience also shows that banks are not a fail-proof plan, mainly when government resources are used for loan disbursement.
For example, during the previous administration, billions of shillings were taken to banks for loaning out entrepreneurs. But some of the monies were lost and were never recovered. The same happened with the agriculture loans disbursed through banks.
As an alternative to banks, some have suggested a customised mechanism that will ensure the inclusion and transparency of the loaning procedures by banks. This will ensure that the loans serve the purpose put forth by the government of empowering vulnerable groups.
Mobile money can also serve as an additional alternative, as is the case with Kenya’s Hustler Fund.
Issues to address
While the above considerations concern the possibility of removing local government councils from overseeing the loans, local government officials are confident that the loans can be effective under the current arrangement, albeit with some improvements.
Local government officials pointed out several serious issues to be addressed if the loans are to be effective. Some of these issues concern people’s perception of the loans, where they think that because they’re interest-free and provided by the government, they are more of charity than a loan.
Officials have also suggested the loans be extended to individual people instead of only targeting groups, pointing out that divergent interests within a group and conflicts within sometimes impede the group’s ability to utilise the loan according to the plan and thus fail to pay it back.
There’s the issue of a group receiving less funding than it applied for, as testified by Josephine Mnyela, the secretary of the Malengo Group testified: “We requested Sh3.5 million, but we only received Sh1.4 million. This affected our plans, and we had to readjust, directly impacting our ability to repay the loan.”
Also, for the loans to work under the current arrangement, local government and ruling party officials should stop using them for political reasons, some citizens suggested, chronicling their experience of failing to secure the loan because they do not have the necessary political connections.
Politics has also been mentioned as one of the reasons for the poor payback of the loan. Local government officials fail to enforce recovery regulations for fear of being seen as bad guys, which risks their removal from office during the election.
Some beneficiaries testified to The Chanzo for having been told by ruling party officials that they don’t have to return the loans because its the government’s money.
It is common for political figures to present themselves as the movers of the loans, creating an impression that they are the ones who can ensure the group to receive loans or not.
For example, in February 2022, the former Temeke district commissioner Jokate Mwegelo reported that some civil servants have been under pressure, including suffering unjustified transfers after they had declined unacceptable directives from politicians regarding the issuance of the loans.
On June 15, 2023, Minister of State in the President’s Office (Regional Administration and Local Governments), Ms Angela Kairuki, told the parliament that the government is finalising its review of the arrangement, noting that the loans will be given to the intended groups once completed.
Ms Kairuki said that the government continues to set aside money for the arrangement, adding that once the arrangement resumes, the government will have the funds to lend to the country’s vulnerable groups.
The resumption of the loans will be good news to people across the country who are counting on the government to help them out of poverty.
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Their ineffectiveness notwithstanding, the ten per cent loans have helped thousands of Tanzanians grow their capital and businesses, unsure of where they’d have been if it were not for the loans provided by the government.
One of these people is Abdallah Njai, a disabled electronic technician from Tandika, Mtwara, who bought helpful tools for his business thanks to a loan he received from the municipal council.
Tunufaike Group, an entrepreneurial group from Dodoma, received Sh30 million from the municipal council, which it used to expand its poultry business.
Ukombozi Group from Mtwara, formed by six women, used the municipal loan to buy a fishing boat and other necessary gear, a development they are so grateful for because it reduces their overdependence on men who often sexually harassed them. The loan helped them hire ten people who are working for them.
Mtwara Kuchele a group of 22 women had received a loan that helped them set up a cleaning business, the group has secured several offices cleaning contracts with the local government in Mtwara
These and many other stories like them underline the essence of the ten per cent loans in empowering the country’s vulnerable groups.
Many former beneficiaries of the loans told The Chanzo that no matter under which arrangement the loans will be provided, the important thing is that they should be available and accessible to those in need.
Reporting by Omari Mikoma, Jackline Kuwanda, Asifiwe Mbembela.