Banks or Not – Which Way 10pc Local Govt Loans?

Stakeholders share more alternatives as the government reviews the arrangement to ensure its effectiveness and efficiency. 

Dar es Salaam. The debate over the most suitable arrangement for the effective functioning of the ten per cent local government loans continued yesterday during a session organised by The Chanzo at the PSSSF Commercial Complex in the city.

It was one of the three sessions during The Chanzo Specials, a citizen-centred forum by The Chanzo that brought together over 300 participants from across sectors to discuss issues of high public interest.

The forum, which also discussed the state of public accountability in the country and the analysis of the government budget for the 2023/2024 financial year, was made possible thanks to the support from the Good Financial Governance Programme implemented by GIZ and funded by Germany, Switzerland, and the European Union (EU).

The discussion around what arrangement works best in ensuring the ten per cent local government loans realises its goal of empowering vulnerable groups occurred at a time when the government has suspended the issuance of the loans to pave the way for review.

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.

READ MORE: Should Banks Manage 10pc Local Government Loans?

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.

But others think it is not a good idea to limit the options to only two alternatives – banks and local governments -, suggesting other choices that they believe could ensure the loans end up serving its intended goals.

Lucas Kifyasi is the Head of Programs at the United Nations Association of Tanzania and has engaged in several activities to ensure the loan serves its purpose. During his keynote address at The Chanzo Specials, Mr Kifyasi said banks are  not the only  options available.

“For sustainability purposes, and to ensure that the loan works as intended, that is, to be revolving, it is imperative to have a mechanism to ensure maximum return of the money lent out,” he said.

READ MORE: Experts Highlight ‘Silences’ in Govt 2023/24 Budget

“The essence of taking the money to the bank is because banks, as financial institutions, already have systems that help track borrowers.

“The main challenge in local governments is that no analysis is conducted on someone who has applied for a loan, particularly in their financial management capacity and behaviour. Banks lend based on potential and proof of payment, one’s general financial health.

“But we don’t have to send the money to the banks. Instead, we can establish a financial intermediary at the municipal level, which could be governed by law, and required to provide reports on how much has been lent, how much has been returned, and how much remains,” Mr Kifyasi said.

Another alternative shared at the forum came from Ms Mwanaisha Mndeme, a social security spokesperson with the opposition ACT-Wazalendo party.

“We suggest that for the arrangement to work effectively, the money should be integrated with the national social security scheme, thus benefiting members from vulnerable groups.”

Ms Mndeme added that integrating the loans into the social security scheme at the municipal level will ensure they serve their purpose and address social security issues like the fact that the health insurance scheme only covers a few Tanzanians.

READ MORE: Stakeholders Decry Lack of Public Accountability in Tanzania

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.

But stakeholders think there are important issues to be addressed to make the loans effective regardless of under which arrangement they are being provided. One such issue is the one raised by Mr Charles Ezekiel, a senior officer from TYVA, during the secession.

“We have been informing youths on the ground to change their perception towards the loan, that instead of perceiving them as favours from the government,” Mr Ezekiel said. “They should look at them as they are: loans that need to be paid back.”

Mr Kifyasi also raised several important questions to consider while the government reviews the arrangement.

“Who do we give this money to? Is she trained in financial management issues? Does she understand why she is applying for the loan, or is he just applying because the loans are there?” he asked.

“Maybe we need to establish business development units in our municipalities that will equip members from vulnerable groups with necessary skills in business management and other associated skills,” he added.

One Response

  1. 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

    ANYONE HELD ACCOUNTABLE?.NOT ENOUGH TO SAY STUPID – YAKE ACTION!!!

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