By Muhsin Salim Masoud
This article continues from last week’s second part, where I began expounding the importance of honesty as a prerequisite for getting financing from a bank. In today’s article I will provide examples of how dishonesty can detected by bankers and discuss other factors that are necessary to win financing.
I recall a small business that was visited by a bank officer to make sure that the business indeed existed and was doing well before financing was issued. However, when the officer inspected merchandise on the shelves, he discovered that they were empty boxes, with some having stones in them.
The shop was displayed in such a way as to convince the banker that the business was thriving, but the customer’s dishonesty was laid bare and that was the end of his relationship with the bank.
There are customers who present financial statements that are grossly exaggerated and don’t represent a true picture of their businesses. This can be discovered by comparing financial statements and bank statements. If there is a mismatch, then the financing request is automatically declined.
Bank customers usually argue that any mismatch is due to most of their clients paying in cash and some expenditures being made in cash. Bankers can discover this by looking at expenditure records and existing stocks to make sure that the cash has indeed been used for purposes stated by customers.
Financing applicants should be honest when providing business information and there will be no difficulty in getting appropriate amounts of facilities for their businesses. Why should one be dishonest in order to get an amount that does not match their business? If you do so without being discovered, this will eventually be known when you fail to honour your obligations, landing you and the bank officers who initially engaged you in trouble.
A customer also needs to ensure that the business they are seeking financing for has existed for at least two years and has good results. This is absolutely necessary when one wants to win financing from a commercial bank. It is also the most misunderstood aspect among customers, some of who tend to think that they can secure financing by having a good proposal and collateral only.
In most cases, commercial banks are reluctant to finance startups for the simple reason that the failure rate of startups is very high and banks have to safeguard depositors’ and shareholders’ funds. The bitter truth is that the probability of getting back financing extended to startups is usually remote in current circumstances.
I have first-hand experience of this when a handful of startups were financed based on the other three factors discussed and the existence of collateral. They all ended up failing to repay financing extended to them.
It’s better that startups are financed by venture capitalists, who are ready to take risk in anticipation that even when several of these businesses are unsuccessful, they will be in a position to recover their losses from the successful ones. Startups can get financing from commercial banks when there is a partnership with other institutions that can secure these facilities in case of failure, or when a special fund is set up by a bank in order to encourage innovators.
They cannot be financed under normal procedures. In order to win these special funds, novel ideas stand a chance and their probability of survival has to be very high. It is therefore not a simple procedure.
There are also two other circumstances banks can consider to finance startups. First is when a customer has another well-established business, which has good cash flow that be used to repay financing extended for the startup if it fails.
Second is when a customer is in a position to be guaranteed by another business owner or company, which has an established business. In the case of guarantee, proper legal documents are signed and when the startup fails to meet its obligations, the guarantor will step in.
Dr Muhsin Salim Masoud is a seasoned banker and academic, who has also served as managing director of the People’s Bank of Zanzibar and Amana Bank. [email protected]
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Air Tanzania Banned From EU Airspace Due to Safety Concerns
Several airports have since locked Air Tanzania, dealing a severe blow to the Tanzanian national carrier that must now work overtime to regain its certification or go the wet lease way
The European Commission has announced the inclusion of Air Tanzania on the EU Air Safety List, effectively banning the airline from operating in European airspace.
The decision, made public on December 16, 2024, is based on safety concerns identified by the European Union Aviation Safety Agency (EASA), which also led to the denial of Air Tanzania’s application for a Third Country Operator (TCO) authorisation.
The Commission did not go into the specifics of the safety infringement but industry experts suggest it is possible that the airline could have flown its Airbus A220 well past its scheduled major checks, thus violating the airworthiness directives.
“The decision to include Air Tanzania in the EU Air Safety List underscores our unwavering commitment to ensuring the highest safety standards for passengers in Europe and worldwide,” said Apostolos Tzitzikostas, EU Commissioner for Sustainable Transport and Tourism.
“We strongly urge Air Tanzania to take swift and decisive action to address these safety issues. I have offered the Commission’s assistance to the Tanzanian authorities in enhancing Air Tanzania’s safety performance and achieving full compliance with international aviation standards.”
Air Tanzania has a mixed fleet of modern aircraft types including Boeing 787s, 737 Max jets, and Airbus A220s.
It has been flying the B787 Dreamliner to European destinations like Frankfurt in Germany and Athens in Greece and was looking to add London to its growing list with the A220.
But the ban not only scuppers the London dream but also has seen immediate ripple effect, with several airports – including regional like Kigali and continental – locking out Air Tanzania.
Tanzania operates KLM alongside the national carrier.
The European Commission said Air Tanzania may be permitted to exercise traffic rights by using wet-leased aircraft of an air carrier which is not subject to an operating ban, provided that the relevant safety standards are complied with.
A wet lease is where an airline pays to use an aircraft with a crew, fuel, and insurance all provided by the leasing company at a fee.
Two more to the list
The EU Air Safety List, maintained to ensure passenger safety, is updated periodically based on recommendations from the EU Air Safety Committee.
The latest revision, which followed a meeting of aviation safety experts in Brussels from November 19 to 21, 2024, now includes 129 airlines.
Of these, 100 are certified in 15 states where aviation oversight is deemed insufficient, and 29 are individual airlines with significant safety deficiencies.
Alongside Air Tanzania, other banned carriers include Air Zimbabwe (Zimbabwe), Avior Airlines (Venezuela), and Iran Aseman Airlines (Iran).
Commenting on the broader implications of the list, Tzitzikostas stated, “Our priority remains the safety of every traveler who relies on air transport. We urge all affected airlines to take these bans seriously and work collaboratively with international bodies to resolve the identified issues.”
In a positive development, Pakistan International Airlines (PIA) has been cleared to resume operations in the EU following a four-year suspension. The ban, which began in 2020, was lifted after substantial improvements in safety performance and oversight by PIA and the Pakistan Civil Aviation Authority (PCAA).
“Since the TCO Authorisation was suspended, PIA and PCAA have made remarkable progress in enhancing safety standards,” noted Tzitzikostas. “This demonstrates that safety issues can be resolved through determination and cooperation.”
Another Pakistani airline, Airblue Limited, has also received EASA’s TCO authorisation.
Decisions to include or exclude airlines from the EU Air Safety List are based on rigorous evaluations of international safety standards, particularly those established by the International Civil Aviation Organization (ICAO).
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The process involves thorough review and consultation among EU Member State aviation safety experts, with oversight from the European Commission and support from EASA.
“Where an airline currently on the list believes it complies with the required safety standards, it can request a reassessment,” explained Tzitzikostas. “Our goal is not to penalize but to ensure safety compliance globally.”
Airlines listed on the EU Air Safety List face significant challenges to their international operations, as the bans highlight shortcomings in safety oversight by their home regulatory authorities.
For Air Tanzania, this inclusion signals an urgent need for reform within Tanzania’s aviation sector to address these deficiencies and align with global standards.
The path forward will require immediate and sustained efforts to rectify safety concerns and regain access to one of the world’s most critical aviation markets.
Source: allafrica.com
