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THE INSTITUTE OF FINANCE MANAGEMENT (IFM)

FACULTY OF ACCOUNTING, BANKING AND FINANCE

DEPARTMENT OF BANKING AND FINANCIAL SERVICES

DIPLOMA IN BANKING AND FINANCE

YEAR TWO

REPORT ON: BANKING LENDING


CASE STUDY: TANDAHIMBA COMMUNITY BANK (TaCoBa)

NAME: ENOS A MWAKITWANGE


REG. NO: UPA/DBF/17/92924
ACADEMIC YEAR: 2018/2019
SUPERVISOR: DR. MACHA J
DATE OF SUBMISSION: 1 MARCH, 2019
DEDICATION
I would like to dedicate this project to my beloved family, my supervisor at IFM and to all my
friends at IFM.

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ACKNOWLEDGEMENT
Firstly, thanks to the almighty GOD for keeping me alive and health through all my time of writing
this project report. All I can say thank you GOD for everything.

Secondly, this project report is a product of contributions from many individuals who, in one way
or another, supported me during my study. I am very thankful to all of them although I cannot
mention every one by name here.

I am heartily thankful to my supervisor DR. Macha J for his encouragement, guidance, patience,
criticism and tireless support from initial to final stage of my study enabled me to firstly develop
an understanding of the subject and secondly carried me through to the completion of the study.

Last I am also deeply indebted to my parents Mr and Mrs Mwakitwange.

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LIST OF ABBREVIATION
TACOBA Tandahimba Community Bank

BOT Bank of Tanzania

ATMs Automated Teller Machines

POS Point of Sales

E-Baking Electronic Banking

EFT Electronic Fund Transfer

OMO Open Market Operation

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EXECUTIVE SUMMARY
This report has mainly focused its discussion on issues relating to bank lending matters in
Tanzania, by addressing different issues such as types of loan offered by Tandahimba community
Bank, lending procedures used by TaCoBa when appraising personal and business loans,
procedures used by the TaCoBa for security perfection and the procedures for monitoring loans
and also analyses on basic component of the sector ,provide a clear explanation on how the banking
sector is being financed, coverage and significance of the banking sector in Tanzania.

Data collection method involved use of publication, Tandahimba community bank records,
organization reports, books, journals and bank officers responsible for personal and SMEs credit
and various learning information concern TaCoBa. Additionally, the primary source of data
collection involved use of questionnaires

The reason of conducting the project is institution requirement which will help the student to
acquire additional knowledge on matter relating to bank lending and community banking services
especially in area of loan offered

What i would recommend to TaCoBa as a simple advise is for them to be able to add many more
deposits account so as to obtain or get many customers and so that they can encourage and
influence saving in the society

This report project is organized into chapters for easy understanding; there are four chapters were
each chapter discusses a different topic that contribute to general idea of the report.

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TABLE OF CONTENT

DEDICATION ................................................................................................................................. i

ACKNOWLEDGEMENT .............................................................................................................. ii

LIST OF ABBREVIATION .......................................................................................................... iii

EXECUTIVE SUMMARY ........................................................................................................... iv

CHAPTER ONE ............................................................................................................................. 1

INTRODUCTION .......................................................................................................................... 1

1.0 Introduction ........................................................................................................................... 1

1.1 Overview ............................................................................................................................... 1

1.2 Purpose of the Report............................................................................................................ 2

1.3 Objective of the Report ......................................................................................................... 2

1.4 Significance of the Report .................................................................................................... 2

CHAPTER TWO ............................................................................................................................ 3

OVERVIEW OF THE BANKING SECTOR................................................................................. 3

2.0 Introduction ........................................................................................................................... 3

2.1 Basic component of financial sectors ................................................................................... 3

2.2 Historical Background of Tandahimba Community bank .................................................... 5

2.3 Financial Industry in Tanzania.............................................................................................. 5

CHAPTER THREE ........................................................................................................................ 8

PRESENTATION OF THE FINDINGS ........................................................................................ 8

3.0 Introduction ........................................................................................................................... 8

3.1 Collection methods and its limitations .................................................................................. 8

3.1.1 Data collection methods ..................................................................................................... 8

3.1.2 Limitations of occurred during process of collection of the data ...................................... 8

3.2 Discussion of the objectives of the study.............................................................................. 9

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3.2.1 Types of loan offered by Tandahimba Community bank. ............................................. 9

3.2.2 Types of deposit offered by bank................................................................................. 10

3.2.3 Procedures used by TaCoBa when appraising: personal and business loan ................ 11

3.2.4 Procedures used by the TaCoBa for security perfection .............................................. 12

3.2.5 Procedures used by the TaCoBa for monitoring loans ................................................ 12

CHAPTER FOUR ......................................................................................................................... 14

CONCLUSION AND RECOMMENDATION ............................................................................ 14

4.0 Conclusions and Recommendations ................................................................................... 14

4.1 Conclusions ......................................................................................................................... 14

4.2 Recommendations ............................................................................................................... 14

REFERENCE ................................................................................................................................ 16

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CHAPTER ONE

INTRODUCTION

1.0 Introduction
Under chapter one a brief narration on overview of the project together with the objectives of the
study are given.

1.1 Overview
Lending (also known as "financing") in its most general sense is the temporary giving of money
or property to another person with the expectation that it will be repaid. In a business and financial
context, lending includes many different types of commercial loans

Lending has existed for thousands of years and has taken on many forms throughout. While the
history of online lending is short, the roots of traditional lending can be traced back to the
beginning of civilization through 3,000-year-old written loan contracts from Mesopotamia that
show the development of a credit system and included the concept of interest.

Lending it has become common in Tanzania however there are procedures to follow so as to
achieve loan but there are numbers of financial institutions offer loan in expectation of getting
back something more or equal.

In Tanzania there are 40 fully fledged commercial banks, 3 development financial institutions, 11
community banks, 5 microfinance banks, 2 credit reference bureau and 3 financial leasing
companies all providing lending services in Tanzania

Bank Lending Rate in Tanzania decreased to 15.28 percent in December from 15.87 percent in
November of 2018. Bank Lending Rate in Tanzania averaged 12.83 percent from 2003 until 2018,
reaching an all time high of 17.91 percent in September of 2017 and a record low of 7.53 percent
in March of 2004

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1.2 Purpose of the Report
To identify the types of loan , features and procedures used by Tandahimba Community Bank
when appraising Personal Loan application and Business Loan Application.

1.3 Objective of the Report


General Objective

Generally the report covers a topic on types of loan, features and procedures used by Tandahimba
Community Bank when appraising Personal Loan application and Business Loan Application.

Specific Objective

Explicitly the report covers the following issues:

(i) To identify types of loan offered Tandahimba community Bank


(ii) To identify features loan offered Tandahimba community Bank
(iii)To examine and procedures used by Tandahimba Community Bank when appraising
Personal Loan application and Business Loan

1.4 Significance of the Report


This report will be of advantageous to various uses, to the academician and others:

This study is a part of fulfillment of Diploma in banking and finance at the Institute of Finance
Management.

To the academician, the study will enable the academician to acquire additional knowledge on
matter relating to community banking services especially in areas of loan offered.

To the Tandahimba community Bank ,once recommendation given by academician are put into
action will help to reduce risks and cost associated by those loan.

Also it will be helpful to other scholars were they will use it as source of information on mater
concerning banking services.

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CHAPTER TWO

OVERVIEW OF THE BANKING SECTOR

2.0 Introduction
Chapter two is about overview of the banking industries in Tanzania, also provide discussion on
basic components of the banking sector, on how the banking sector is being financed historical
background of Tandahimba Community bank are briefly analyzed.

2.1 Basic component of financial sectors


COMPONENTS OF BANK’S BALANCE SHEET

1 Assets: are item that bank owns, for example;


> Cash
Cash represent only 2% of asset. That’s because the bank wants to put its money to work earing
interest. If the bank simply sticks its cash in a vault and forget about it, it will have a hard time
making profit.

>Securities

Banks don’t like putting their assets into fixed income securities, because the yield isn’t that
great. However, investment grade securities are liquid, and they have higher yield than cash,
so it’s always prudent for a bank to keep securities on hand in case they need to free up some
liquidity.

>Loans

Loans represent the majority of a bank’s asset. A bank can typically earn a higher interest
rate on loans than securities, roughly 6% to 8%.

>Other assets

Other assets including property and equipment, represent only a small fraction of asset. A
bank can generate large revenue with very few hard assets
2 Liabilities

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Liabilities are the deposit of customers that bank borrow from other sources to use to fund
asset that earn revenue for example: checkable deposit, borrowing, non-transactional
deposit

> Deposits

The largest source by far of funds for banks is deposits; money that accounts holder entrust to bank
for safekeeping and use in future transactions, as well as modest amount of interest.

> Borrowing

Banks also borrow money, usually from other banks in what is called the federal fund
market, so-called because funds kept in their reserve accounts at the federal reserve called
federal fund, and it is these account that are credited or debited as money is transferred
between banks.

Financial institutions facilitate smooth working of the financial system by making investors and
borrowers meet. They mobilize the savings of investors either directly or indirectly via financial
markets, by making use of different financial instruments as well as in the process using the
services of numerous financial services providers.

They offer services to organizations looking for advises on different problems including
restructuring to diversification strategies. They offer complete array of services to the
organizations who want to raise funds from the markets and take care of financial assets for
example deposits, securities, loans, (Diamond M.A , 2006).

money from this pool of deposited money to people who need loan. Banks commonly provide
money in the form of loans.

>Financial Instruments
This is an important component of financial sector. The products which are traded in a
financial market are financial assets, securities or other type of financial instruments. There
is a wide range of securities in the markets since the needs of investors and credit seekers
are different.

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2.2 Historical Background of Tandahimba Community bank
Tandahimba's banking bank is a financial institution established under the Banking and Financial
Institution Act 2006. Tandahimba's bank started working in 2009.

The Government encouraged the formation of regional & small banks and financial institutions in
various parts of the country; hence in April 2003 the Banking Financial Institutions Act (BFIA)
was amended to give powers to the Bank of Tanzania to prescribe lower capital threshold for
establishment of regional and community banks. As of December 2010, there were eight
regional/community & small banks operating in Tanzania, namely Mbinga Community Bank, Dar
es Salaam Community Bank, Mwanga Community Bank, and Mufindi Community Bank. Others
are Kagera Farmers Co-operative Bank, Kilimanjaro Cooperative Bank Limited, Njombe
Community Bank, and Tandahimba Community Bank (Bank Tanzania, 2011). Commercial banks
in Tanzania are classified into three main groups: large banks, Medium banks and Regional &
Small Banks. The regional & small banks also expanded their market share of the sector’s total
capital from 19 percent to 26 percent and loans from 20 percent to 23 percent.

CRDB Bank has recapitalised Tandahimba Community Bank (TaCoBA) by injecting 3.2bn/- and
sustained the bank operations.The two banks signed the MoU yesterday and lifted TaCoBa from
the verge of callapse because of insufficient capital.

The community bank had up to the end of this month to increase its core capital base or risking
licence revoking by the regulator - the Bank of Tanzania (BoT).

CRDB Managing Director, Dr Charles Kimei, said the capital injected will be paid when TaCoBa
sells new shares in the next two years. "It is our responsibility as a large bank to rescue small banks
instead of letting them go. "The MoU signed today centred on safe guarding not only shareholders
but also depositors ... to restore community bank trust," Dr Kimei said.

2.3 Financial Industry in Tanzania


Historically: the history of the banking sector in Tanzania is discussed in two phase: the colonial
phase and the phase after the colonial period.

The colonial phase (1886-1961)

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Tanzania (formally Tanganyika) has been under two colonial master from 1886-1961: the
Germans and the British.

Tanganyika under the Germans (1886-1919)

Tanganyika was invaded by the Germans in 1886 after the Belin conference on 1885-1886: the
Germans introduces commercial banking in 1905: were the first commercial bank was the Deutsch
Ostafrikanische Bank (1905), it opened its office in Dar es Salaam. This bank had permission from
the Germany government to issue its own currence (note and coins). In 1911 another commercial
bank was opened in Tanga: the HandlesbankfuerOstafrika (1911). There also was an official
saving bank during the German rule.

In 1919 Tanganyika was passed to the British it was after the fairer and/or defeat of the German
in the First World War. As the punishment and the payment for the destructions of the war the
German colonies were all taken by other European nations.

Tanganyika under the British (1919-1961)

The British government started ruling Tanganyika in early 1919: Tanganyika with other east
African countries (Kenya and Uganda) were now all under the British rule. The East African
Currency Board (EACB) used to act as the central bank back in time, controlling over the supply
of currency. By 1923 the National Grindlays Bank had made several branches reaching to about
fourteen (14) branches, other banks in operation during that time were the Banque du Congo Belge
were it established its branches in Kigoma and Dar es Salaam. Up to 1950s many banks were
established in Tanganyika including Bank of Baroda and Bank of India.

After the colonial period

In 1961 Tanganyika got her full independence, now Tanganyika was under new leadership thus it
was under the TANU government. Nothing had changed other than the readership and the
governance, but in the banking industry nothing was new other than the development of this sector.
In 1964 Tanganyika and Zanzibar had united to form the United Republic of Tanzania, till that
time the new governments had not changed the banking system.

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In 1967 after the Arusha declaration, all financial institution were nationalized and put under the
control of the government. All commercial banks were merged into one giant bank, the National
Bank of Commerce (NBC): it was established under the NBC ACT (1967) with the main objective
of providing banking services to the community. During the time the banking industry was totally
discouraged they were no any other banks other than the National Bank of commerce (NBC) and
the Investment Bank.

Up to 1991 during the Financial Sector Reform: here the banking sector was again active from this
time we have seen new commercial bank introduces in the country, also the Central Bank of
Tanzania was established: the main objective of establishing such bank it was, the bank was
responsible to control and govern other bank in all banking matters. The National Bank of
Commerce (NBC) was now reframed it was divide into the National Bank of Commerce and the
National Microfinance Bank (NMB), other banks like CRDB, Azania and Bank of Baroda are the
examples of commercial banks established after the financial sector reform of 1991.

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CHAPTER THREE

PRESENTATION OF THE FINDINGS

3.0 Introduction
In this chapter explains the strategy, techniques methods and resources that will be used in data
collection, the various sources of data, and types of data that will be collected as well as description
of the techniques that will be used in data analysis.

This section also describes the general way in which carry out the research. It describes the
sampling procedures and states the main instruments, which will be used in data collection from
the field.

Methodology is a way to systematically solve the problem. It may be understood as a science of


studying how research is done scientifically. It is necessary to know not only the
methods/techniques but also the methodology (Kothari, 2004).

3.1 Collection methods and its limitations

3.1.1 Data collection methods


The primary data involved use of questionnaire, and interviews, publication and Tandahimba
Community bank records, while on the reports documents.On other hand, are those which have
already been collected by someone else and which have already been passed through the statistical
process (Kothari, 2004). It includes all data obtained from the Tandahimba Community Bank
record, organization reports, books and journals, and learn various information concern
Tandahimba Community Bank.

3.1.2 Limitations of occurred during process of collection of the data


The study was limited to Tandahimba Community Bank employees’ and officials’ personal
perception and officially disclosed their information financial data of banks due to the confidential
of the document. Apart from the confidentiality of the Tandahimba Community their information
are not much publicise.

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Hence most of the data collected from secondary data such as visit Tandahimba Community Bank,
using various documents of Tandahimba Community Bank such as fliers, magazines and library
books that concern to the study of the bank services in Tanzania.

3.2 Discussion of the objectives of the study


A loan is the lending of money by one or more individuals, organizations, or other entities to other
individuals, organizations etc. The recipient (i.e. the borrower) incurs a debt, and is usually liable
to pay interest on that debt until it is repaid, and also to repay the principal amount borrowed.

3.2.1 Types of loan offered by Tandahimba Community bank.


Individual Business Loans

These are loans provided to support viable economic activities. Therefore, the main criteria to
qualify for these loans is the existence of business and the borrower should have at least one year
experience with that business.

Another important criteria is the collateral for the loan. Collateral accepted include but not limited
to houses, plots of land with some development, motor vehicles, and machinery and cash deposits
with TaCoBa. Values of Collateral are assessed against the amount of the loan requested.

The duration of the loan lasts for 18 months. The grace period for most of individual business
loans is one month. However, in other businesses the grace period is fixed depending on the nature
of business, for example in agricultural activities it depends on the nature of crops involved.

Group Loans

These are loans given to individual members in a group in order to support their small economic
activities. These loans are designed to clients who need relatively small loans due to the nature of
their businesses and who in one way or another cannot get reliable collateral under conditions of
individual loans.

Another reason for the use of this methodology is for the bank to provide this service more
efficiently due to the size of transactions. Normally clients select themselves in subgroups between
5 and 7 members and form a group ranging between 20 and 40 members. The loan issued to a
group in order to facilitate administration.

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In addition to savings, the loan is guaranteed by peer pressure in solidarity groups, mutually
guaranteeing each other’s loans. A group has to receive training with regular savings before it
qualifies to get a loan.

The duration of the loan lasts for 12 months and grace period is fixed depending on the nature of
businesses although in most cases it is one month.

SACCOS Loans

These are credits issued to Savings and Credits Cooperative Societies (SACCOS) in order to
provide credit facilities to their respective members. The aim is to provide additional financial
capacity to these SACCOS in order to meet the demand of their members. Bank expands outreach
in an efficient way because it uses SACCOS as a wholesaler. SACCOS loans are repaid within
one year but under exceptional circumstances it can be extended to 18 months.

Employees Loans

These loans are issued to employees of both public and private sectors in order to meet their
economic or social obligations. The loans are repaid on monthly basis from deductions of
respective employees’ salaries. There are two types of Employees’ loans. The first is fully
guaranteed loans in which the Employers bear full responsibilities for the loans of their employees
and the second is where the responsibility of repaying loan falls on individual borrower and the
employer acts as a referee. In the latter case, the employee is required to have his/her own collateral
to secure a loan. Employees Loans are normally repaid within one year.

3.2.2 Types of deposit offered by bank


As TaCoBa is regulated by the Bank of Tanzania, it can provide saving services. All of its clients
have a saving account. Surely for the community members this means the opportunity to keep their
money on a safe place. In good times, clients can save money that can assist them in financial
difficulties. TaCoBa offers two types of saving facilities, Savings Deposits and Time/Fixed
Deposits.

Saving Deposits

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Under savings deposit a client opens an account and can deposit or withdraw his/her money on
demand.

Savings products of bank are designed to suit different levels of clients. These products include
those which are meant for small entrepreneurs, relatively large entrepreneurs and for the benefit
of children and education. Bank offers a very attractive interest rate for its saving products.

Fixed/Time Deposits

Under fixed/time deposit a client opens an account and can deposit for a specified period of time,
for example for three, six, nine or twelve months. Usually, interest rates for fixed/time deposits
are higher than for saving deposits.

3.2.3 Procedures used by TaCoBa when appraising: personal and business loan
Lending is the main profit generating Bank of Africa. Every bank should possess a lending
procedure that provide correct borrower selection, quick processing, assurance of repayment and
effective monitoring and supervision.

1 A loan procedure formally starts with a loan application from client who must have an
account with the TaCoBa. Bank receives application from client for a loan facility. In
the application client mention what type of credit facility he wants from the bank
including his personal information. Bank officer in charge of the credit department
conduct the intial interview with the customer
2 After receiving the loan application from the client, the bank sends a letter to credit
information Bureau of Tanzania bank(BOT) for obtaining a credit inquiry report of the
customer from there.
3 If BOT sends positive CIB report on that particular borrower and if the Bank thinks that
the prospective borrower will be a good one, then the bank will scrutinize the
documents. Required documents are: In case of corporate client, financial documents of
the company for the last five years. If the company is new one, projected financial data
for the same duration is required.
4 Bank officials of the credit department will inspect the project for which the loan is
applied.

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5 Any loan proposal needs to be evaluated on the basis of financial information provided
by the loan applicant.
6 Obtain legal opinion on the collateral provided by the applicant, whether those are
properly submitted- regular and up to date or else those documents will be asked to
regularize by the applicant.
7 The bank starts processing the loan at this stage. Based on the analyses done by the
officer
8 If the proposal meets TaCoBa lending criteria, the credit line is approved.
9 Directors processes the credit proposal and afterwards puts forward an officer notice if
the loan is within the discretionary power of the credit committee if the loan requires
approval from the of directors.
10 Finally the bank through a loan account in the name of the borrower disburses loan
monitoring of the loan starts formally.

3.2.4 Procedures used by the TaCoBa for security perfection


There are two types of personal and business property; tangible property and intangible property.
tangible personal is generally movable and would include ‘hard assets” such as cars, equipment,
inventory, goods, intangible property includes assets such as account receivable, promissory notes,
securities, letters of credit, and interests in business entities.

In order to create a security interest enforceable against the debtor , there are some requirements;
the secured party must give value , the debtor must have right in the collateral , the debtors has
authenticated a security agreement. An enforceable security interest can also be created by pledge
or in certain circumstance control of the asset and in most commercial cases, creation of the
security interest is fairly easy requirement to meet. The bank obtains a signed security agreement
which describes the debt and states that debts is secured by the collateral.

3.2.5 Procedures used by the TaCoBa for monitoring loans


A monitoring system provides the information needed to oversee loan portfolio quality at any
given time, identifying potential problems at the earliest moment possible.

Key requirements for an appropriate monitoring systems for agricultural loan;

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Open communication between the bank and the borrower is essential for effective loan monitoring.
Some borrowers do not like to tell the bank about problems they face in repaying loan. The
establishment of open communication can help ensure that problems are communicated as soon as
they arise.

Loan files must contain all the documents which provide a loan officer and other interested parties
with complete historical and on-going record of the relationship between the bank and the
borrower. These files are the backbone of a loan monitoring system

Computerization should be introduced, although in principle loan tracking can be done manually,
this will be difficult beyond a certain number of borrowers with highly individual repayment
schedule and loan term.

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CHAPTER FOUR

CONCLUSION AND RECOMMENDATION

4.0 Conclusions and Recommendations

4.1 Conclusions
The writer of the project has highlighted so many issues concerning banking sector: in one of the
chapter the writer heighted an issue on bank loan. The term bank loan refers to: The term security
refers to a financial instrument that represents an ownership position in a publicly traded
corporation (stock), a creditor relationship with governmental body or a corporation (bond), or
rights to ownership as represented by an option. Banks provide loan to those who are in need
against security. Security need by the bank to offer loan can be in form of fixed deposit, life
insurance policy, assets and other properties.

Community Bank has the following advantages:

It can be used to serve services from the the low-income people

The credit t services ca n perform a s the same e a s saving s an d ca n help some e enterprise s and
families to make some important investment.

The community bank, it help to reduce the increasing poverty which is prevalent in the rural and
urban settings.

It can be used to addresses the financial needs of major sector of Tanzanian population especially
in rural areas.

4.2 Recommendations
The finding of this project, imply that Tandahimba Community Bank need to put measures on
conducting loan appraisal. Bank will also have to relook their procedures and conditions of
processing loan with regard to customer as a outcome of this project perceives the customer clause
within the bank procedures as a hindrance and a contribution towards loan repayment growing
numbers, usage of effective loan appraisal procedure will go a long way to helping bank cope with
loan repayment. Due that the loan appraisal on issuance at TaCoBa is effectively followed thus
way the repayment of loan to increase.

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Individual and SMEs credit needs are yet be met by the bank given financial policy and structure
of financial institution that led to fragmented credit market. This is evidenced by the emerging
microfinance institutions in the country.

Secondly, there have been initiatives to enhance small business access to TaCoBa credits such
establishment of branches near commercial centres but these are not enough. Still improvement in
loan requirements are needed to reach more individuals and SMEs.

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REFERENCE
Bank of Tanzania. Retrieved 25 february 2016.Banking Supervison – Directory of Financial
Institutions Operating in Tanzania.

Charles R.B(2006), An investigation of factors affecting non performing loans in commercial


banks. MBA Finance, Dissertation University of Dar es salaam

Risk management guidelines for banks and financial institutions, 2010 Bank of Tanzania Dar es
Salaam

Frank j. Fabozzi, Steven V. Mann, Securities finance securities Lending and Repurchase
Agreements, South Carolina John Wiley & Sons, 2005

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