By John Masele and Martha Mbena, Dodoma
The Government is stepping up policy and regulatory measures aimed at making bank credit more affordable for businesses, while keeping inflation under control to create room for lower lending costs.
Deputy Minister for Finance Laurent Luswetula (pictured above) told Parliament in Dodoma that the Government was pursuing a combination of monetary and regulatory measures to encourage commercial banks to offer loans at more affordable interest rates.
He was responding to a question from Mpanda Urban MP Haidary Hemed Sumry, who wanted to know what the Government was doing to reduce interest rates on business loans and help borrowers repay their debts on time.
The deputy minister said the Government did not directly control interest rates charged by commercial banks, which are determined largely by market conditions.
These include the prevailing inflation rate, credit default risks, banks’ operating costs and their targeted profit margins.
However, he said the Government was using policy and supervisory measures to influence conditions that determine the cost of borrowing.
“Interest rates are influenced by several factors, including inflation, which is an important indicator used by commercial banks when calculating and determining lending rates,” Luswetula said.
A key part of the strategy is monetary policy.
The Bank of Tanzania has continued to adjust the Central Bank Rate (CBR) in response to economic conditions, with the aim of keeping inflation within the desired range while ensuring sufficient liquidity in the economy.
The Government believes that maintaining adequate liquidity can support credit growth and improve access to financing at more competitive rates.
For businesses, particularly small and medium-sized enterprises, the cost and availability of credit remain important determinants of investment, working capital and expansion.
The Government has also introduced a Price Comparator System to improve transparency around interest rates and other charges imposed by financial institutions.
Luswetula said the platform allows borrowers to compare the costs of different financial products, helping them make better-informed borrowing decisions.
The system is also expected to strengthen competition among commercial banks and other lenders, potentially putting downward pressure on the overall cost of credit.
Greater transparency could become increasingly important as businesses look beyond headline interest rates and assess the full cost of borrowing, including fees and other charges.
The Government is also encouraging banks and financial institutions to make greater use of Credit Reference Bureaux, which provide information on borrowers’ credit and repayment histories.
According to Luswetula, stronger use of credit information can reduce uncertainty around borrowers’ creditworthiness and lower the cost of assessing loan applications.
In turn, this could help reduce the risk premium incorporated into lending rates.
The Government’s approach therefore focuses less on directly imposing lower interest rates and more on addressing the underlying factors that make lending expensive.
For businesses, the success of these measures will ultimately be judged by whether they translate into cheaper financing, easier access to working capital and greater capacity to invest and expand.
The policy challenge is to maintain macroeconomic stability while creating conditions that encourage banks to compete more aggressively for quality borrowers. As Tanzania seeks to expand private-sector investment and strengthen the role of businesses in economic growth, access to affordable credit is likely to remain a key part of the country’s financial and economic policy agenda.
