Angel Navuri, AfricaNews reporter in Dar es Salaam,Tanzania
The Tanzania Exporters Association (TANEXA) has proposed the establishment of the Tanzania Credit Guarantee Fund (TCGF) as a source of finance to boost the efforts of local producers and exporters. The proposal to form the TCGF, according to TANEXA, is crucial due to the current shortcomings in the Export Credit Guarantee Scheme (ECGS) and the Small and Medium Enterprises Credit Guarantee Scheme (SME-CGS).
Tanzanian exporters and producers of export commodities believe that the performance of the two schemes will improve tremendously if a legal separate entity with a clear mission and strategy is established.
The proposal to create the Fund follows a study on the utilisation of the two schemes which was commissioned by TANEXA in 2008 to shape these schemes into an effective source guarantees for accessing funding from private financial institutions.
TANEXA is a private, non-governmental apex association, which serves as a focal point for uniting and giving voice to Tanzanian exporters.
Financial constraints
Over the years, the lack of reliable source of finance to support production and export undertakings has been one of the major challenges facing TANEXA members. According to a recent study by TANEXA, which was financed by the Business Environment Strengthening for Tanzania (BEST-AC), with the operations of the two schemes being under the Guarantee Fund issues of transparency and accountability to the public will also improve.
The study says the proposed Fund should be headed by a chief executive officer under a Board of Trustees whose members should be drawn from the ministries of finance and industries, Small Industries Development Organisation (SIDO), TANEXA, Tanzania Bankers Association, TCCIA, Industries and Agriculture, Confederation of Tanzania Industries (CTI) and the Tanzania Women Chamber of Commerce.
”the proposed Fund should be headed by a chief executive officer under a Board of Trustees”
The study also says that in order to extend the two schemes to Small and Medium Enterprise and exporters all over the country, the proposed Fund should decentralise the services of these schemes through a branch network in line with the size and population of the country.
“The Ministry of Industries, Trade and Marketing through its public institutions, SIDO and the board of external trade, should be proactive in playing their noble role of promoting SMEs and exports,” says the study.
It adds: “Since establishing a branch network at the outset is costly, the Fund could arrange initially to utilise SIDO regional offices or private financial institutions’ offices to provide services to entrepreneurs and exporters in respective regions.” The proposed initial capital for the establishment of the Fund is 29bn/-, five times the current available funds for two credit guarantee schemes which cater for a minimum of 300 clients a year.
To enable the Fund function efficiently, the TANEXA study proposes capacity building and recruitment of workers to perform such tasks as assessment and approval of eligibility, monitoring guaranteed loans, processing and reviewing claims, storing information on borrowers, preparing reports on schemes’ operations and possibly providing additional services as part of the Fund’s portfolio of services.
“The business re-engineering process will include the recruitment of competent and able fund staff who will improve the operations of the fund. This means administrative work will be reduced for all involved thus shortening the period from guarantee request to grant from several months of waiting to less than five working days,” the study says.
Current schemes
The Export Credit Guarantee Scheme and the Small and Medium Enterprises Guarantee Scheme, both under the Ministry of Finance, were established by the government between 2003 and 2005 to promote economic development in general by encouraging high value exports, such as horticulture and floriculture and other value added exports that will generate employment and foreign exchange.
Another goal of the twin schemes was to promote and support Small and Medium Enterprises, which have a significant role in the economy by creating an enabling environment for expansion and facilitating and facilitating access to financing resources.
These objectives are in line with government efforts of promoting economic growth and poverty reduction as outlined in other policies, national and international initiatives such as the National Strategy for Growth and Reduction of Poverty (MKUKUTA), Vision 2025 and the Millennium Development Goals (MDGs).
Schemes’ weaknesses
Among the major weaknesses of the two credits guarantee schemes noted in the TANEXA study include high fees on export credits, unsatisfactory handling speed of guarantee application as the entire process undergoes a cumbersome bureaucracy and low capital.
“The entire ECGS process seems to be quite bureaucratic and thus information availability and flow about the two schemes remains a problem which makes the Bank of Tanzania seems unprepared to manage the two schemes,” reveals the study.
Again, the study says coverage on existing financing and export promotion facilities among exporters and SMEs producers is limited. “This shortcoming is enlarged by the absence of measures to enhance marketing and promotion of SMEs and their products by relevant organs,” it notes.
“These limitations and the fact that all SMEs are treated the same as if they are homogenous, portray the ECGS as not supportive of value-added products, particularly in the agricultural sectors,” adds the study.
Scheme as separate entity
According to this study, most successful state-run Credit Guarantee Schemes in the world are run as separate legal entities and that placement of the schemes under a government agency creates conflict in purpose for lack of interest and experience by public officials in working with SMEs and guarantee schemes.
Four countries of Botswana Namibia, South Africa and Swaziland in the Southern Africa Development Community (SADC) have established successful Credit Guarantee Schemes targeting SMEs.
The schemes in Botswana, Namibia and Swaziland are supported both by the government and donor. In South Africa, the credit scheme is wholly government funded. Tanzanian exporters and businesspersons believe that the establishment of the Guarantee Fund could also allow the accommodation of more empowerment schemes as the need may arise.
“With a separate legal status, government intervention to the Fund should be restricted to policy decisions, funding and extending counter-guarantees. Technical support could be sourced initially while capacity for local staff is being built,” explains the TANEXA study.
The study further says in order to achieve its objectives of improving SMEs’ access to finance and to assist economic decentralisation; the Fund has to be proactive in gaining recognition and acceptance by leaders and borrowers.
“Therefore marketing of the two schemes is important, since most SMEs in Tanzania seem to be unaware of the existence of the two schemes,” the study concludes.
The Tanzania Exporters Association (TANEXA) has proposed the establishment of the Tanzania Credit Guarantee Fund (TCGF) as a source of finance to boost the efforts of local producers and exporters. The proposal to form the TCGF, according to TANEXA, is crucial due to the current shortcomings in the Export Credit Guarantee Scheme (ECGS) and the Small and Medium Enterprises Credit Guarantee Scheme (SME-CGS).
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