Bad Loans and Ghost Borrowers: What Went Wrong at Tanzania Women’s Bank

The Tanzanian Women’s Bank, designed to close the financial gender gap between men and women, fell victim to bad loans and the country’s ongoing liquidity crisis.

Written by Kizito Makoye Published on Read time Approx. 5 minutes
The governor of the Bank of Tanzania, Florens Luoga, briefs the media on the merger of Tanzania Women’s Bank and TBP. Kizito Makoye

DAR ES SALAAM, Tanzania – The Tanzania Women’s Bank has been placed under receivership and merged with TBP, another state-owned institution, in a desperate bid to ease the liquidity strains that have eroded its balance sheet. But experts say the merger could have a devastating effect on women’s advancement programs in the East African nation.

The move comes after five other banks were closed in January 2018 in an effort to prevent bad loans from piling up.

“The decision to merge the two banks follows our assessment, which revealed that TWB has critical liquidity problems and it’s unable to meet financial obligations,” Florens Luoga, the governor of the Bank of Tanzania, told News Deeply.

Since its inception, TWB has extended more than 120 billion shillings ($52 million) worth of credit to 86,000 women entrepreneurs, its managing director Japhet Justin told News Deeply. But the bank has struggled with the consequences of bad loans, as borrowers failed to settle their dues.

An audit of the 2015/16 financial year, for instance, revealed the bank’s core capital had dropped below the minimum legal requirement. The auditor general also found that the bank had issued bad loans amounting to 655 million shillings ($284,000) to nonexistent or “ghost” borrowers.

Loans Without Too Many Questions

Editha Lucas says she never would have been able to secure her land without TWB. (Kizito Makoye)

Lucy Lyatuu was one of the bank’s beneficiaries. She spent most of her life struggling to make enough money to get by, earning 300,000 shillings ($131) per month as a house maid. She dreamed of finding other opportunities, but did not have the capital – until she heard about TWB’s credit facility through a friend.

With a 2 million shilling ($876) loan from the bank, Lyatuu was able to start a catering business of her own. Today, she makes good money preparing meals that are delivered to up to 40 customers in Dar es Salaam.

“I really like their services, they give you a loan without asking many questions. I am very happy my business is doing very well,” she said.

Lyatuu successfully repaid her first loan and was about to seek a bigger one when she heard the news that TWB was being merged with TBP. Now she says she doesn’t know whether she will ever be able to secure a loan again.

“I am disappointed because I don’t think I will ever get a chance to access a loan from another bank with no conditions,” she said.

Meeting Women’s ‘Dire Need’ for Finance

TWB opened its doors in 2007 with a mission to advance women-led economic activities and address the challenges that female entrepreneurs face when trying to access credit in financial institutions.

The Findex, a financial inclusion database run by the World Bank, has found that 42 percent of women have bank accounts in Tanzania compared to 52 percent of men.

“There was a dire need to financially include the women of the country, particularly those who had no formal, regular access to banking services. But the bar was quite high for us to fulfil our goal,” Justin, the managing director, said.

The majority of women in Tanzania live in poverty. In rural areas, they carry a heavier burden due to a lack of property rights and scant knowledge of existing credit facilities. While the government has committed itself to enhancing women’s economic capacity by making credit facilities available, after a decade most still weren’t able to access them.

“The root cause of all these problems is education,” said Adelvina Kisena, senior economist at the University of Dar es Salaam.

A Struggling Banking Sector

Women fish vendors wait for the auction to start at the fish market in Dar es Salaam, across the road from the Bank of Tanzania. (Kizito Makoye)

The TWB was also a victim of wider economic forces in Tanzania. When President John Magufuli came to power in 2015, his government introduced tougher austerity measures, which have affected most sectors of the economy. The cost-cutting has led to shrinking deposits in commercial banks, a slowdown in credit to the private sector and higher deposit and lending interest rates. The banking sector is also plagued by bad loans.

The International Monetary Fund (IMF) warned in December 2017 that credit to the private sector had stagnated due to the poor quality of bank loans. The IMF urged authorities to curb bad debts, revive credit growth and reduce financial sector vulnerabilities.

In March 2018, President John Magufuli ordered the Bank of Tanzania – the nation’s central bank – to stop bailing out struggling institutions. He, too, cited the barrage of bad loans currently engulfing the banking sector as undermining economic growth in Tanzania.

“I will not give any money to failing banks. It is better to have a few viable banks than dozens of failing banks,” Magufuli said, while officiating at the opening of a new bank branch in northwestern Tanzania.

But not everyone agrees with this strategy. “The central bank should actively protect the banking sector. We cannot just have too few banks that are too big to fail,” said Honest Ngowi, professor of economics at Mzumbe University in Dar es Salaam.

What Does This Mean for Women?

Economists and entrepreneurs alike are concerned that the merger will threaten TWB’s specialist mission to serve women.

“When you merge a nonperforming bank which was specifically catering for women with another one, the core mandate of the women’s bank is likely to be swallowed,” Kisena said. She says women could find it more difficult to secure credit from the new merged entity.

“If you critically examine the reasons that led to the collapse of TWB, it’s obvious that the new merger would introduce stricter control to avoid bad loans,” she said.

Editha Lucas, who acquired a registered piece of land on loan under a joint initiative from TWB and Ardhi Plan – a Dar es Salaam-based real estate company – said she worries the new bank will create barriers for women to access land in their own right.

“I obtained my piece of land very easily through [a] TWB loan. [But] I don’t think the situation will remain the same, I think the government should have bailed the bank out so that it continues to fulfill its core mission,” she said.

Meanwhile, Lyatuu says TWB has lost its corporate identity, and the purpose for which it was established has been forgotten.

“I wish the bank retained its name, it means a lot for its image and identity,” she said.

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