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The study on Higher Rates Lending Challenges was conducted in Dar es Salaam, National Microfinance Bank being a case study. The objectives of the study were to determine the proportion of customers taking loans at NMB for business purposes, to find out the reasons making banks maintain high interest rates while few customers borrow, to examine the challenges facing potential customers for not accessing loans and to determine the proportion of customers who borrowed for business purpose but failed to repay loans on time. A sample of ninety five respondents comprising of customers and bank staff was interviewed. Primary data were collected using questionnaires and semi-structured interviews. Secondary data were also collected using various documentary sources. Analyzed data were presented in tables, percentage, charts and graphs. The study found that the proportion of bank customers taking loans for business purposes was relatively low, only 3% of total customers. The study further found that operational costs, cover against loan losses, inflation rate, profit margin and funding costs were the major reasons making banks set high lending rates. It was further found that bank customers faced various challenges due to high lending rates. They were unable to borrow adequate capital for business expansion or start of new enterprises for employment creation. Moreover, the study found that majority of customers who borrowed failed to make timely loan repayments, few managed to repay as scheduled. Generally, it is concluded that a small number of SMEs investments are funded by banks since only few customers have access to credit which is costly. Based on the above findings the study recommends the following; banks should encourage borrowing by revisiting lending policy on cost of loans to ensure lending rates are reduced to reasonable level and improve deposit rates to encourage saving. BoT review of interest rates on lending to other banks and regulate financial institutions’ lending rates charged to customers. Moreover, Government should establish guarantee schemes to back up banks financing SMEs to share the risk and reduce overall exposure.Special funds for provision of soft and interest subsidized loans to SMEs should be set aside. |
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