TANZANIAINVEST has been interviewing Mr. Andrew Stephens, General Manager of FBME Tanzania, to gather his vision and opinion about the economic outlook of Tanzania and about the Tanzania banking sector.
TI: FBME is among the several foreign banks that entered the Tanzania banking sector following its liberalisation during the 90’s. How such move fits into FBME international strategy?
Andrew Stephens - FBME: The bank is about 53 years old in various forms. It was started in Lebanon and during the civil war the owners of the bank wanted to move the bank out of Lebanon for obvious reasons.
They went to Cyprus because it was 100 miles away and they were encouraged by the Cyprus Central Bank and the Lebanese Central Bank to move just as a branch to Cyprus and have a head office in the Cayman Islands.
And that is what they did. In fact the Federal Bank of the Middle East, as it was then called, was the first offshore bank in Cyprus.
It ran very successfully for a number of years.
And because there was Cyprus-Russia double tax treaty it began to get a number of Russian customers.
So, that turned out to be good business.
Because of the demise of the acceptance of head offices in offshore islands without any physical presence they looked for somewhere to move the head office because we had no business in the Caymans.
It was, in fact, a brass plate, as they are commonly referred to.
After September the 11th, the Cayman Islands authorities changed the rules on such arrangements.
FBME was looking for other venues where it was cheaper to do business and where it could expand.
After an exhaustive search they discovered Tanzania.
[FBME] felt [Tanzania] had political stability, a good macro economic scenario, a good central bank and they are welcoming to investors.
They felt it had political stability, a good macro economic scenario, a good central bank and they are welcoming to investors.
So, we moved the bank’s capital to Dar es Salaam.
The banks head office is now in Tanzania. We have our braches in Cyprus and a representative office in Moscow.
There was a bank here called Delphis bank from which we purchased some of the assets and liabilities, but we did not purchase the bank.
It was in the hands of the Deposit Insurance Fund and the Central Bank.
So they proposed to give us a banking license, three branches and premises and staff if we wanted to get in quickly.
So we were up and running with the help of the authorities in a few months.
We came in December 2002 and opened our doors in September 2003.
No depositors lost any money and we paid back interest.
FBME is concentrating on payment systems, inward investments and project finance that have a significant benefit to the economy such as the tourism and farming.
TI: Who are your main competitors in Tanzania?
AS: Because of our size, we are too big to be small and we are too small to be big.
We fit quite nicely underneath the big banks and above the smaller banks that do not want to do the million dollar deals.
We have many banks that compete with us in some of the areas.
We are happy to coordinate with the other banks.
We'd rather cooperate and form syndications with our competitors rather than fight.
FBME is concentrating on payment systems, inward investments and project finance that have a significant benefit to the economy such as the tourism and farming.
Tanzania Banking Sector Outlook
TI: It is said that lending in Tanzania is still mainly focused on government bonds or big corporate clients such. What is your opinion on that regard?
AS: That is too much of a generalization.
It is clear that some banks, particularly the large international banks, concentrate their lending to the biggest customers in Tanzania whether they are an international company or a subsidiary of an international company or big Tanzanian companies.
There are many other banks, about 30 odd financial institutions that do not deal with large customers because they do not have the balance sheets to support big lending.
Some of them have lending limits of $200,000 in dollar equivalents which precludes them from that kind of business.
There are other banks that have a very broad base of customers from the smallest customers to large customers.
What has been peculiar in this market of late, is that a number of banks have invested heavily in treasury bills because the government has been paying high interests rates on treasury bills.
The government thought the banks had excess liquidity and the banks could get about 18% returns, the highest returns with the lowest risks in the country.
By and large most sectors of the economy have a good chance of getting finance if they present their case well.
There are a number of smaller banks that try to do that and the government has reduced the minimum amount that you can apply for a treasury bill to Tanzania 5 million shillings, so even the smaller banks can now buy treasury bills.
So if they want to take in deposits of 3%-4% and lend it back to the government that is a risk free business.
By and large most sectors of the economy have a good chance of getting finance if they present their case well.
One of the problems is that most of the banks are concentrated in the big cities and there are millions of hectares where there is no bank, and that is not appropriate where there is agriculture and other small businesses.
TI: What is your opinion on the lack of available lending to SMEs? Do you consider the Credit Guarantee Scheme that was recently introduced by the government to be adequate?
AS: I have worked in many markets and countries; it is always the same debate, that banks do not support small enterprises.
I have been told that Tanzania has a history of people not paying back loans. I do not know whether that was true; I was not here. I have not found that now.
It goes back to the old socialist government where the government provided every thing and anything and you did not have to fend for yourself.
Small businesses have to help themselves create a business plan, plan properly, seek finance, and put some of their risk capital in.
By and large, when they do that they can build a relationship with the bank and acquire some funds.
The micro finance industry is very well developed in this country and I admire it as it does very well. {xtypo_quote}The micro finance industry is very well developed in this country and I admire it as it does very well.{xtypo_quote}
We ourselves are supporting one particular micro finance company.
We support them with quite substantial loans which they on lend.
We have a similar process going now with agriculture.
We participate in the government’s Agricultural Input Funds Scheme.
The small firms guarantee scheme is not brilliant but is ok.
The guarantee scheme was partially developed by the World Bank and when it was originally presented to the banks it was not accepted.
It has, however, been changed since then and it still does not support working capital finance. Everything must be on a loan.
So, if a small company wants a loan and a bit of working capital, the guarantee cannot cover the latter.
I think it is a bit expensive. I think the government is trying to make profits from it and that is not the objective of the scheme.
The objective of the scheme should to be to make finance more readily available and they do not want to increase the cost of finance to small businesses yet they charge, which of course the bank passes on.
Banks participating in the guarantee schemes have had discussions with the government.
We had a meeting here at FBME bank and I gave them my point of view and they agreed with it and they have agreed and changed the scheme.
So in early days yet they have done very few guarantees unfortunately.
The downside of it from a social political side is that small businesses believe because it is a government guarantee, the banks are obliged to lend.
The guarantee is only for 50% which is fine. Normally it is 70-80% in other countries.
The banks that are sensible will help the person develop a case to sustain their business.
TI: Do you perceive the small enterprises as big business for banks in Tanzania?
AS: They should be and they can be. If I had my way it would be a big part of my business here.
I cannot say what the other banks want to do.
TI: There are 28 financial institutions in Tanzania targeting and addressing various niche markets. What niche markets is FBME targeting? What is the composition of FBME client base?
AS: We have more than one niche market that we target.
We have done a lot of business in the payments systems.
For example we have created a subsidiary called TanPay which provides card services for our own bank FBME, Tanzanian Postal Bank and the People Bank of Zanzibar.
We provide modern payment systems for banks that cannot afford to do their own debit cards, prepaid cards, charge cards.
We have a number of ATMs in the market and about 400 points of sale machines.
We are not a major retail bank. We have only three branches and do not intend to have more.
Nonetheless we provide to our existing customers a full range of retail banking facilities such as internet banking.
We inherited a small client base which is very mixed and we are developing that.
We also introduced considerable numbers of foreign investors to Tanzania and the most successful has developed 3 textile factories in Tanzania.
We are actively encouraging external investors to come to Tanzania.
We are actively encouraging external investors to come to Tanzania.
We will provide them with advice, guidance and finance if necessary.
We have been appointed financial advisors to a couple of major projects in Tanzania. Our job is to raise the finance and the equity for those projects.
We do some banking and use our capital base to leverage deals.
We have recently become active in farming large and small scale.
We have an understanding, a memorandum of agreement with SIDO which is the government Small Industry Development Organization whereby we help each other.
In particular, they help us finance small business outside our geographical reach.
Tanzania Economy Outlook
TI: Tanzania like many other economies has a huge potential when compared to other emerging economies. What are your expectations on the economic development of Tanzania upon which you base the development strategy of FBME?
AS: Tanzanian has a huge potential.
There is no doubt that there is enormous wealth under the ground such as minerals where they are now the third largest gold producer in Africa, as well as enormous capabilities for farming.
The advantage of the country is that it is pretty well managed and it is the government's desire that it remains that way.
The advantage of the country is that it is pretty well managed and it is the government's desire that it remains that way.
I would expect this country to be capable of 10% growth every year.
It is moving that way, if the government does what it says it is going to do and if the inward investment continues.
The road system is probably the best in east Africa which is still poor but there are good roads being built.
There is a tender for new airport.
There are significant developments in and around Dar es Salaam where a new port is being considered between Dar es Salaam and Tanga.
This is a positive place to invest money.
However it is not easy to do business here. It is a little bit slow compared to countries like Malaysia and India for example.
It is not the same as these markets.
Malaria, AIDS are real stalkers to growth as the average life expectancy in Tanzania is 45 years for a man and that is quite serious to their economic value to a country.
Education needs to be improved dramatically. To this regard, there is a new university to be built in Dodoma.
Everything is going in the right direction.
It is peaceful by and large internally and with their neighbours. Corruption is an issue but it is not the most corrupt state in the Africa.
The UN and the World Bank ranked Tanzania as one of the best places to do business in sub Saharan Africa.
The UN and the World Bank ranked Tanzania as one of the best places to do business in sub Saharan Africa.
There will be hiccups and problems but by and large there is no real reason why it should not be successful.
Transition of government in Tanzania has been peaceful too.
TI: What are the final thoughts you wish to convey to our readers on Tanzania?
AS: Tanzania is a friendly country, open to business and you can get your money out.
TI: FBME is among the several foreign banks that entered the Tanzania banking sector following its liberalisation during the 90’s. How such move fits into FBME international strategy?
Andrew Stephens - FBME: The bank is about 53 years old in various forms. It was started in Lebanon and during the civil war the owners of the bank wanted to move the bank out of Lebanon for obvious reasons.
They went to Cyprus because it was 100 miles away and they were encouraged by the Cyprus Central Bank and the Lebanese Central Bank to move just as a branch to Cyprus and have a head office in the Cayman Islands.
And that is what they did. In fact the Federal Bank of the Middle East, as it was then called, was the first offshore bank in Cyprus.
It ran very successfully for a number of years.
And because there was Cyprus-Russia double tax treaty it began to get a number of Russian customers.
So, that turned out to be good business.
Because of the demise of the acceptance of head offices in offshore islands without any physical presence they looked for somewhere to move the head office because we had no business in the Caymans.
It was, in fact, a brass plate, as they are commonly referred to.
After September the 11th, the Cayman Islands authorities changed the rules on such arrangements.
FBME was looking for other venues where it was cheaper to do business and where it could expand.
After an exhaustive search they discovered Tanzania.
[FBME] felt [Tanzania] had political stability, a good macro economic scenario, a good central bank and they are welcoming to investors.
They felt it had political stability, a good macro economic scenario, a good central bank and they are welcoming to investors.
So, we moved the bank’s capital to Dar es Salaam.
The banks head office is now in Tanzania. We have our braches in Cyprus and a representative office in Moscow.
There was a bank here called Delphis bank from which we purchased some of the assets and liabilities, but we did not purchase the bank.
It was in the hands of the Deposit Insurance Fund and the Central Bank.
So they proposed to give us a banking license, three branches and premises and staff if we wanted to get in quickly.
So we were up and running with the help of the authorities in a few months.
We came in December 2002 and opened our doors in September 2003.
No depositors lost any money and we paid back interest.
FBME is concentrating on payment systems, inward investments and project finance that have a significant benefit to the economy such as the tourism and farming.
TI: Who are your main competitors in Tanzania?
AS: Because of our size, we are too big to be small and we are too small to be big.
We fit quite nicely underneath the big banks and above the smaller banks that do not want to do the million dollar deals.
We have many banks that compete with us in some of the areas.
We are happy to coordinate with the other banks.
We'd rather cooperate and form syndications with our competitors rather than fight.
FBME is concentrating on payment systems, inward investments and project finance that have a significant benefit to the economy such as the tourism and farming.
Tanzania Banking Sector Outlook
TI: It is said that lending in Tanzania is still mainly focused on government bonds or big corporate clients such. What is your opinion on that regard?
AS: That is too much of a generalization.
It is clear that some banks, particularly the large international banks, concentrate their lending to the biggest customers in Tanzania whether they are an international company or a subsidiary of an international company or big Tanzanian companies.
There are many other banks, about 30 odd financial institutions that do not deal with large customers because they do not have the balance sheets to support big lending.
Some of them have lending limits of $200,000 in dollar equivalents which precludes them from that kind of business.
There are other banks that have a very broad base of customers from the smallest customers to large customers.
What has been peculiar in this market of late, is that a number of banks have invested heavily in treasury bills because the government has been paying high interests rates on treasury bills.
The government thought the banks had excess liquidity and the banks could get about 18% returns, the highest returns with the lowest risks in the country.
By and large most sectors of the economy have a good chance of getting finance if they present their case well.
There are a number of smaller banks that try to do that and the government has reduced the minimum amount that you can apply for a treasury bill to Tanzania 5 million shillings, so even the smaller banks can now buy treasury bills.
So if they want to take in deposits of 3%-4% and lend it back to the government that is a risk free business.
By and large most sectors of the economy have a good chance of getting finance if they present their case well.
One of the problems is that most of the banks are concentrated in the big cities and there are millions of hectares where there is no bank, and that is not appropriate where there is agriculture and other small businesses.
TI: What is your opinion on the lack of available lending to SMEs? Do you consider the Credit Guarantee Scheme that was recently introduced by the government to be adequate?
AS: I have worked in many markets and countries; it is always the same debate, that banks do not support small enterprises.
I have been told that Tanzania has a history of people not paying back loans. I do not know whether that was true; I was not here. I have not found that now.
It goes back to the old socialist government where the government provided every thing and anything and you did not have to fend for yourself.
Small businesses have to help themselves create a business plan, plan properly, seek finance, and put some of their risk capital in.
By and large, when they do that they can build a relationship with the bank and acquire some funds.
The micro finance industry is very well developed in this country and I admire it as it does very well. {xtypo_quote}The micro finance industry is very well developed in this country and I admire it as it does very well.{xtypo_quote}
We ourselves are supporting one particular micro finance company.
We support them with quite substantial loans which they on lend.
We have a similar process going now with agriculture.
We participate in the government’s Agricultural Input Funds Scheme.
The small firms guarantee scheme is not brilliant but is ok.
The guarantee scheme was partially developed by the World Bank and when it was originally presented to the banks it was not accepted.
It has, however, been changed since then and it still does not support working capital finance. Everything must be on a loan.
So, if a small company wants a loan and a bit of working capital, the guarantee cannot cover the latter.
I think it is a bit expensive. I think the government is trying to make profits from it and that is not the objective of the scheme.
The objective of the scheme should to be to make finance more readily available and they do not want to increase the cost of finance to small businesses yet they charge, which of course the bank passes on.
Banks participating in the guarantee schemes have had discussions with the government.
We had a meeting here at FBME bank and I gave them my point of view and they agreed with it and they have agreed and changed the scheme.
So in early days yet they have done very few guarantees unfortunately.
The downside of it from a social political side is that small businesses believe because it is a government guarantee, the banks are obliged to lend.
The guarantee is only for 50% which is fine. Normally it is 70-80% in other countries.
The banks that are sensible will help the person develop a case to sustain their business.
TI: Do you perceive the small enterprises as big business for banks in Tanzania?
AS: They should be and they can be. If I had my way it would be a big part of my business here.
I cannot say what the other banks want to do.
TI: There are 28 financial institutions in Tanzania targeting and addressing various niche markets. What niche markets is FBME targeting? What is the composition of FBME client base?
AS: We have more than one niche market that we target.
We have done a lot of business in the payments systems.
For example we have created a subsidiary called TanPay which provides card services for our own bank FBME, Tanzanian Postal Bank and the People Bank of Zanzibar.
We provide modern payment systems for banks that cannot afford to do their own debit cards, prepaid cards, charge cards.
We have a number of ATMs in the market and about 400 points of sale machines.
We are not a major retail bank. We have only three branches and do not intend to have more.
Nonetheless we provide to our existing customers a full range of retail banking facilities such as internet banking.
We inherited a small client base which is very mixed and we are developing that.
We also introduced considerable numbers of foreign investors to Tanzania and the most successful has developed 3 textile factories in Tanzania.
We are actively encouraging external investors to come to Tanzania.
We are actively encouraging external investors to come to Tanzania.
We will provide them with advice, guidance and finance if necessary.
We have been appointed financial advisors to a couple of major projects in Tanzania. Our job is to raise the finance and the equity for those projects.
We do some banking and use our capital base to leverage deals.
We have recently become active in farming large and small scale.
We have an understanding, a memorandum of agreement with SIDO which is the government Small Industry Development Organization whereby we help each other.
In particular, they help us finance small business outside our geographical reach.
Tanzania Economy Outlook
TI: Tanzania like many other economies has a huge potential when compared to other emerging economies. What are your expectations on the economic development of Tanzania upon which you base the development strategy of FBME?
AS: Tanzanian has a huge potential.
There is no doubt that there is enormous wealth under the ground such as minerals where they are now the third largest gold producer in Africa, as well as enormous capabilities for farming.
The advantage of the country is that it is pretty well managed and it is the government's desire that it remains that way.
The advantage of the country is that it is pretty well managed and it is the government's desire that it remains that way.
I would expect this country to be capable of 10% growth every year.
It is moving that way, if the government does what it says it is going to do and if the inward investment continues.
The road system is probably the best in east Africa which is still poor but there are good roads being built.
There is a tender for new airport.
There are significant developments in and around Dar es Salaam where a new port is being considered between Dar es Salaam and Tanga.
This is a positive place to invest money.
However it is not easy to do business here. It is a little bit slow compared to countries like Malaysia and India for example.
It is not the same as these markets.
Malaria, AIDS are real stalkers to growth as the average life expectancy in Tanzania is 45 years for a man and that is quite serious to their economic value to a country.
Education needs to be improved dramatically. To this regard, there is a new university to be built in Dodoma.
Everything is going in the right direction.
It is peaceful by and large internally and with their neighbours. Corruption is an issue but it is not the most corrupt state in the Africa.
The UN and the World Bank ranked Tanzania as one of the best places to do business in sub Saharan Africa.
The UN and the World Bank ranked Tanzania as one of the best places to do business in sub Saharan Africa.
There will be hiccups and problems but by and large there is no real reason why it should not be successful.
Transition of government in Tanzania has been peaceful too.
TI: What are the final thoughts you wish to convey to our readers on Tanzania?
AS: Tanzania is a friendly country, open to business and you can get your money out.
