The Bank of Tanzania (BoT) has said work is underway to develop a supervisory framework for community banks.
The current practice is that the central bank uses a “one-size-fits-all” when regulating commercial banks and community banks–leaving the latter group at a disadvantage side.
The BoT deliberations are on the IMF country report released Wednesday. The report, quoting the authorities, said: “Work is underway to develop a supervisory framework for community banks”.
A paper, “Reengineering the financial sector development strategy 2015” said it was improper to have a blanket set of regulations for all banks. The paper penned by Yetu Microfinance Bank Managing Director, Mr Altemius Millinga, suggested that community banks should have their own set of regulations.
“This approach is fundamental flawed,” he said.
“We recommend for a specific set of regulations which take into account the size, operational area and importance of the community banks.” The Managing Director said community banks are at a disadvantage as they are small and unable to survive under the current regulatory system. “Currently almost all the community banks are under stress and undercapitalised.
They shoulder increased regulatory burden because of the regulatory approach of “one-size-fits- all,” he said. The central bank had acknowledged that community banks are facing a number of myriad challenges arising from high running costs of IT, auditing and finance mobilization.
However, the main challenge that community banks face include finance mobilisation which is crucial in the first three to five years after the establishment of banks before pocketing the first profit.
The minimum regulatory requirement for community banks is 2bn/-, but to effective performance, the capital requirement should be at least 4.0bn/-, according to microfinance experts. Most of the CBs shareholders are savings, cooperative and credit societies and district councils – with limited financial muscles.