You Should Never Use Business Loan for Personal Use, Varsity Expert Cautions Entrepreneurs

In this year the University of Dar es Salaam celebrates its 60th birthday this June.  It is the oldest university in Tanzania.  During the celebrations university units organized several activities. The grand celebrations were on 10th November 2022.

The UDSM School of Business held its celebrations between June 13 and June 17. On June 15 a public forum was organised. And on Thursday a similar event was organised attracting hundreds of participants.  At the end of the event.Correspondent PETER KEASI, talked to Dr Tobias Swai, one of the key organisers of all events, and asked him why bank loans remain an issue in building micro-, small- and medium enterprises (SMEs) in Tanzania. Dr Swai said loans are an issue because, he said, loans play a significant role in building capital of a business.  This truth, he said, is something experts want to be embraced by all, especially young entrepreneurs.  But, he insisted, that during the seminars entrepreneurs were told once and again that business loans are for growing business; not for personal use…

QUESTION: The Department of Finance of the University of Dar es Salaam organised a business clinic from June 13 to June 14 and a public talk on 15th June, 2022. What drove you into organising the talk — was the reason just to celebrate the 60th anniversary of the university or there were other good reasons for you to do so?

Answer: The University of Dar es Salaam celebrated its 60th birthday this June. During the celebrations university units organized several activities. The grand celebrations were on 10th November 2022. The UDSM School of Business held its celebrations between June 13 and June 17. The 15th June event was part of the University of Dar es Salaam Business School Celebrations which lasted for a week.  The Department of Finance had its own style of celebrating.  It organized a public forum. This forum was well received by the public.  Consequently, it was suggested that such a forum be organized on quarterly basis. During forum the members of the public were exposed to banking, finance and investment aspects and what can be done in terms of research, training and offering consultancy services. That is why it was suggested that such a forum be held on quarterly basis.

Q : You identified issues of concern —- managing business finances, managing personal finances and managing loans for prospective, budding and growing entrepreneurs to pay attention to. Let us start with handling money: A prospective entrepreneur needs finance to breathe life into a business plan.

A : Managing business finances, managing personal finances and managing loans have been important challenges to small businesses. SMEs say loans are not accessible. They complain that interest rates are high and that banks are putting unattainable conditions on loans, and this includes collateral for a loan. Banks consider small businesses risky because they do not manage their finances well. These obvious realities drove us into organising the clinic and the results of our post-clinic assessment has shown that about 80 business owners who attended the clinic and learned a lot about these aspects.

If we want to make many Tanzanians support themselves and even create employment for others we have to take SMEs very, very seriously.

Now let me turn to business loans. It still looks that many loan borrowers do not understand the meaning and purpose of a loan from a financial institution. Loans play a significant role in building capital of a business. They are acquired for growing business.

They cannot and should never be turned into money for personal use. Never. We told seminar participants, and we are appealing to SME owners using this forum, that loans should never be spent on personal issues for whatever reason. We argued and we still argue that money found in the banks is not printed by banks; it comes from many bank customers.

Different customers deposit money in banks and banks give out this money as loans to successful loan applicants.  We asked participants to understand this aspect very well:  that banks use money from a pool that is built by money collected from many depositors.

We have told participants that they have a national and patriotic duty to protect money entrusted to them by financial institutions in form of loans. We have argued and asked borrowers to understand that a financial institution such as a bank, entrusts a borrower with this money on the basis of a good business plan and strategy and that the bank expects that money to be returned with interest agreed upon.

So we restate here that   loans should be used to boost capital according to the business plan.  This is a universal financial requirement, found in every country. So we argued and still argue that if we want our SMEs to grow there must be robust governance, management and controls so that funds are not misused.  Borrowers must use the money as per the business plan with which that money was secured.

Q: Apparently in Tanzania successful of micro- and small businesses do not have people who have wide knowledge in accounting. Nonetheless, money has to be spent wisely. What did you tell your guests in terms of audit and internal control?

Ans : There is a Kiswahili that says Mali bila Daftari Hupotea bila Habari. This literally means wealth without records disappears without knowledge. So in running a business it is not just a matter of spending but is also a matter of accounting for the money spent and you can do that by keeping proper records. Fortunately there has been an increase in professionals in the field of business.

Further, there has been an increase in technological tools to help us manage businesses well. If one wants to spend wisely, one must use simple tools to do recording. Recording helps in audit. Audit is an examination that the money spent has been spent as planned and that something which was bought is worth the money that was spent to buy it. Internal control requires one to spend money based on the authorization levels and limits, and for the purpose intended.

For entrepreneurs to attain this level, they should have well-established procedures of spending money. Nonetheless, as the business grows an entrepreneur should find an expert to create formal procedures as per the professional norms.

Q :Entrepreneurs sell either products or services. What did you tell your visitors about costing, pricing and budgeting?

A : Costing, pricing and budgeting are tricky aspects in doing business. There has been a general challenge relating to pricing. Most of the entrepreneurs sell products by considering how much they spent on buying them. Let me try to explain this point this way.

An entrepreneurs uses 3,000/= to secure 12 bottles of beverage. Generally the 3,000/= spent includes taxes and usually the tax stands at 18 per cent.  The entrepreneur thinks he has secured a bottle at 250/=.  Then the entrepreneur would add 50/= to 250/= and sell the bottle at 300/=. In most cases this is not the best way of pricing for there are many elements that are not considered.  In fixing prices it is good and important to consider direct and indirect costs.

We argue that it is okay to have small price margins for fast-moving items.  However, it is not okay for slow-moving items and which take a lot of space in store and in the showroom, items such as furniture and electronics.  We also discussed in depth things like taxes, rent, salaries, maintenance costs, depreciation and loans that these issues should be considered when setting prices.

Q : A business has to pay tax. However, paying tax is not popular in Tanzania for a number of reasons. And one would argue that taxpayers cannot be solely blamed for failings in tax collection. What did you tell your guests about handling tax matters?

A : Taxes are compulsory payment to the government and it is guided by the law. If one does not pay tax one breaks the law. Taxes help the government to pay for goods consumed by or put at the service of majority of the population. Governments across the world have a role and duty to design a mechanism where taxes are paid, well-collected, and well-spent.

When records are not kept well, when bank accounts are not maintained, when pricing is not proper and when business finances are not well managed chances are, business owners will have problems with the taxman. We argue that it is important to maintain good communication between taxpayers and the taxman. But we also emphasised that it is for every entrepreneur to know when to pay tax, from which sources and which products that are subject to tax payment.

We argued and we are using this forum to appeal to entrepreneurs to embrace the fact that it is the duty of the entrepreneur to have reasonable knowledge about taxes and where necessary seek support from tax offices and tax professionals.  We made this appeal and we are making this appeal again because of general experience that is prevalent. Many taxpayers do not seek in advance support or enlightenment from tax offices and tax professionals before they are subjected to tax audit.

All in all, understanding taxes and dealing with tax technicalities have never been easy; not to even most established companies.  We believe taxpayers and tax collectors have a converging point and should stick to that converging point for the good of both sides and the Tanzanian public in whose name taxes are collected.

Q: There is always a need for evaluation. When you look back at what you did on June 15, 2022, would you say your efforts were not in vain?

A : Certainly they were not in vain. To us the event opened many doors. We were able to register about 80 entrepreneurs and record 150 participants who took part in the first forum. We also received support from various institutions. This is also an important achievement. Most entrepreneurs and the participants were women and youths. This is another good development in promoting and spreading requisite knowledge need for personal advancement, fighting poverty and promoting national economy and sharing national prosperity. Knowledge, participation and inclusiveness are important elements in fighting poverty and widespread backwardness and baseless hostilities between segments of the population.   It opened our eyes that we should arrange more such sessions. We are working on details and suitable times. For example, in future in holding morning sessions we shall be targeting students at the universities and colleges and evening sessions will be targeting the general public.

Q : Incidentally what did you mean by financial inclusion?

A :In very simple words financial inclusion means being able to access financial services wherever you need them, despite the amount of wealth you possess. Suppose you want to save or borrow or invest your money, whatever the amount, you must be assured of an opportunity to access the service and product you want without discrimination. When you examine our case you find that majority of Tanzanians have small incomes and would like to save, borrow and invest small amounts of their choice. These Tanzanians need to be considered by financial service providers and should be given services at rates they can afford. Financial inclusion also touches on supportive legal and regulatory framework and enabling infrastructure.

Q : If, for example, a person has only 100,000/- or owns a small piece of land, and another person wants to start a small dispensary or a tailoring mart or a welding workshop, would you encourage those persons to venture into business?

A : Yes I would encourage those people to venture into business. A person can establish business regardless of the amount of money that person has. But owning a piece of land does not guarantee that someone can easily and successfully establish a business.

At the Department of Finance, we assist in aspects of the financing or funding and in establishing businesses. That is why we have been organising these gatherings. The Department of Marketing and Directorate of Innovation and Entrepreneurship (DIEN) provides guidance on how to start, manage and operate small businesses. Department of Finance deals with academic aspects of accessing finance, financial services and products as well as investments.

Q :Producers in this country are workers and peasants. Do you envision a possibility of taking this knowledge to workers and peasants at their convenient places?

A : The university’s role is to create and disseminate knowledge, through teaching, research and public services. We are determined to reach as many wide groups as possible in collaboration with various partners including the media, business associations and financial service providers. We may not reach every point of our country but we can contribute significantly to serving our people in collaboration with partners. Across the world, financial knowledge is a domain of very few people. We, in the University of Dar es Salaam, want to expand this base, by ensuring that financial products and services are known and understood well by many Tanzanians. We want people to be conversant with financial products just they are with physical products.

Q: Do you have public talk recommendations you are working on?

A: We are working on various topics and issues. Today (Thursday, December 8., 2022), we held a third event with two sessions. In the morning session we covered various aspects of investment and finance for the youth, targeting higher learning institution students. It was a very big success as you witnessed.

In the afternoon event we discussed aspects of youth in relation to finance, mortgage finance and analysis of the 2019-21 insurance sector market report. Banking, Finance and Investment Forum has grown in number and interest because 600 participants registered themselves for the event and over 10 sponsors supported the event.

We are looking forward to holding the 4th and 5th events which, hopefully will be held on 24th February and 26th May 2023.  We have gained experience. We hope we shall discuss various issues in the area of banking, financial services, investment and finance.  We hope many people, more so young men and women, will come forward and benefit from the planned events.

We would like to take this opportunity to invite individuals, businesses, business associations, the media, government and non-government institutions, the development partners to participate and sponsor the events. We want the support of everyone. That support will contribute to the needed efforts to disseminate information and enlightenment on relevant policy issues.  This strategy is important in enabling wide participation of individuals and firms in the financial markets.  People who wish Tanzania well, will continue to support us as they have always done in the past.

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