The Bank of Tanzania’s August 2025 review shows that lending and deposit rates continued to adjust in response to the accommodative monetary policy stance. Lending rates eased slightly, with the overall rate at 15.16% in July 2025 (down from 15.23% in June), while short-term lending declined to 15.51% and negotiated prime customer loans to 12.56%. On the deposit side, rates for time deposits increased modestly, with the 12-month rate reaching 9.88%, while negotiated deposits for large savers fell to 10.72%. The spread between short-term lending and deposit rates narrowed to 5.63 percentage points from 6.66 points a year earlier, signaling lower borrowing costs relative to savings returns and supporting private sector credit growth of 15.9% annually.

1. Lending Interest Rates

• Overall lending rate:
  • 15.16% in July 2025, slightly lower than 15.23% in June 2025.
• Short-term lending rate (≤ 1 year):
  • 15.51% in July 2025, down from 15.69% in June 2025.
• Negotiated lending rate (prime customers):
  • 12.56% in July 2025, down from 12.68% in June 2025.
• Trend: Lending rates are easing slightly, reflecting improved liquidity and accommodative monetary policy (CBR cut to 5.75%).

2. Deposit Interest Rates

• Overall deposit rate:
  • 8.83% in July 2025, up from 8.74% in June 2025.
• 12-month deposit rate:
  • 9.88% in July 2025, up from 9.79% in June 2025.
• Negotiated deposit rate (large depositors):
  • 10.72% in July 2025, down from 11.21% in June 2025.
• Savings deposit rate:
  • 2.90%, unchanged from June 2025.
• Trend: Deposit rates have been slightly increasing for time deposits, but declining for large negotiated deposits.

3. Interest Rate Spread

• The spread between short-term lending and deposit rates narrowed to 5.63 percentage points in July 2025, compared to 6.66 percentage points in July 2024.
• This indicates reduced borrowing costs relative to deposit returns, which can stimulate credit growth.

Table: Lending and Deposit Interest Rates (July 2025)

Economic Implications of Lending and Deposit Interest Rates – July 2025

1. Lending Interest Rates

• Slight Decline: The overall lending rate eased to 15.16% from 15.23%, short-term rates (≤ 1 year) dropped to 15.51% from 15.69%, and negotiated rates for prime customers fell to 12.56% from 12.68%.
• Economic Meaning: This modest reduction aligns with the BOT's CBR cut and improved liquidity (e.g., TZS 758.8 billion in reverse repo operations), lowering borrowing costs for businesses and households. The decline, though small, signals policy transmission, encouraging investment and consumption—key drivers of Tanzania's projected 6% GDP growth. Lower short-term rates (15.51%) support working capital needs, while the negotiated rate drop (12.56%) benefits creditworthy firms, potentially boosting sectors like agriculture and manufacturing (supported by food stock increases to 485,930.4 tonnes). However, rates remain high relative to inflation (3.3%), suggesting banks are cautious about risk, possibly due to lingering global uncertainties noted in the global section.

2. Deposit Interest Rates

• Mixed Trends: The overall deposit rate rose to 8.83% from 8.74%, with the 12-month rate increasing to 9.88% from 9.79%, while the negotiated rate for large depositors fell to 10.72% from 11.21%, and savings rates stayed at 2.90%.
• Economic Meaning: The rise in time deposit rates (e.g., 9.88% for 12 months) reflects banks' efforts to attract longer-term savings amid robust M3 growth (19.9%), ensuring liquidity for lending. This competition for funds supports financial deepening, aligning with Tanzania's goal of mobilizing domestic resources (e.g., savings up 18.7% annually). The decline in negotiated rates (10.72%) for large depositors suggests banks are adjusting terms for institutional clients, possibly to manage excess liquidity. Stable savings rates (2.90%) indicate limited incentives for short-term savings, directing funds toward higher-yield investments or consumption, which could fuel demand-led growth.

3. Interest Rate Spread

• Narrowing Gap: The spread between short-term lending and deposit rates narrowed to 5.63 percentage points in July 2025 from 6.66 points in July 2024, reflecting a more balanced cost-benefit for borrowers.
• Economic Significance: A shrinking spread (from 6.66% to 5.63%) enhances borrowing affordability, stimulating credit demand (e.g., private sector credit at 15.9%). This supports the BOT's growth objective, as lower relative borrowing costs can spur business expansion and job creation. However, the spread remains wide compared to advanced economies (typically 2-3%), indicating banks are still prioritizing profitability, possibly due to high operational costs or non-performing loans. This could limit the pace of credit growth unless offset by further policy easing.

Summary of Broader Economic Significance

• Growth and Investment Boost: The easing lending rates and narrowing spread create a more favorable borrowing environment, supporting the BOT's credit growth target (15.9% achieved) and aligning with GDP growth projections. Rising deposit rates for time deposits enhance savings mobilization, providing a stable funding base for banks.
• Policy Effectiveness: The trends reflect successful monetary policy transmission, with the CBR cut and liquidity injections (e.g., reverse repos) influencing rates, though the high base rates suggest room for further easing to match inflation.
• Potential Challenges: High lending rates (above 15%) could deter small borrowers, while the mixed deposit rate trends might signal uneven liquidity management. In a regional context (e.g., EAC inflation within 8%), Tanzania's rate dynamics support stability but require monitoring to avoid overheating risks.
• Comparative Insight: Compared to 2024's wider spreads (6.66%), the 2025 narrowing aligns with global easing trends (e.g., stable oil at USD 69.2/barrel), positioning Tanzania favorably for investment inflows.

Pension Funds, Banks, and Retail Investors Drive Diversification

As of June 2025, Tanzania’s domestic debt stock (excluding liquidity papers) rose to TZS 35,502.8 billion, marking a monthly increase of 0.9% (TZS 301.7 billion) and an annual growth of 11.1% (TZS 3,551.6 billion) from June 2024. This expansion aligns with the government's fiscal strategy to fund the 2.5% of GDP budget deficit, primarily through long-term Treasury bonds. Notably, no Treasury bills were auctioned in June, emphasizing the shift toward longer-term instruments. Domestic debt now accounts for approximately 29.3% of the total national debt (estimated at TZS 121.2 trillion), reflecting a balanced mix of domestic and external financing. The creditor landscape has evolved, with commercial banks holding 28.6%, pension funds 26.1%, and a rapidly expanding “Others” category (18.1%), highlighting increased participation from retail and non-traditional investors. This diversification reduces concentration risks and demonstrates growing confidence in government securities amid stable macroeconomic conditions.

Government Domestic Debt – Overview

The domestic debt stock, excluding liquidity papers (e.g., short-term instruments used for monetary policy), represents funds borrowed by the Tanzanian government from domestic creditors, primarily through Treasury bonds and bills. As of June 2025, the total domestic debt stock was TZS 35,502.8 billion, reflecting steady growth and a diversified creditor base.

• Total Domestic Debt Stock:
  • June 2025: TZS 35,502.8 billion
  • Monthly Increase: +0.9% from TZS 35,201.1 billion in May 2025 (an increase of TZS 301.7 billion).
  • Year-on-Year Increase: +11.1% from TZS 31,951.2 billion in June 2024 (an increase of TZS 3,551.6 billion).
  • Context: The year-on-year growth aligns with Tanzania’s fiscal strategy to finance the FY 2024/25 budget deficit (projected at 2.5% of GDP, per the African Development Bank) through domestic borrowing, particularly Treasury bonds. The absence of Treasury bill auctions in June 2025 (as noted in your earlier query) suggests a focus on long-term borrowing, contributing to the debt stock increase.
• Share of National Debt: Domestic debt constitutes approximately 29.3% of Tanzania’s total national debt (assuming total debt is ~TZS 121.2 trillion, combining domestic debt of TZS 35,502.8 billion and external debt of ~TZS 82.4 trillion or USD 32,955.5 million from June 2025). This reflects a balanced reliance on domestic and external financing.

Government Domestic Debt by Creditor Category

The domestic debt is distributed across various creditor categories, including commercial banks, the Bank of Tanzania (BoT), pension funds, insurance companies, BoT special funds, and others (e.g., public institutions, private companies, individuals). The following table summarizes the debt stock by creditor for June 2024, May 2025, and June 2025, with shares for June 2025:

Detailed Analysis by Creditor

1. Commercial Banks:
   • June 2025: TZS 10,161.5 billion (28.6% share).
   • Change:
     • Monthly: +0.2% from TZS 10,138.2 billion in May 2025 (TZS 23.3 billion increase).
     • Year-on-Year: +1.7% from TZS 9,996.1 billion in June 2024 (TZS 165.4 billion increase).
   • Share Trend: Declined from 31.3% in June 2024 to 28.6% in June 2025, indicating a reduced relative reliance on banks.
   • Context: Commercial banks are major holders of Treasury bonds (e.g., TZS 322.4 billion accepted in June 2025 auctions), reflecting their role as key financiers of government borrowing. The modest monthly growth suggests banks maintained stable investments, possibly due to high yields (14.50% for 20-year bonds, 14.80% for 25-year bonds). The year-on-year decline in share may reflect banks’ diversification into private sector lending or liquidity constraints, as noted in the interbank cash market’s TZS 2,873.9 billion turnover in June 2025.
   • Implications: Banks’ significant share (28.6%) underscores their systemic importance, but the declining share suggests a broadening creditor base, reducing concentration risks.
2. Bank of Tanzania (BoT):
   • June 2025: TZS 7,174.1 billion (20.2% share).
   • Change:
     • Monthly: +0.2% from TZS 7,158.2 billion in May 2025 (TZS 15.9 billion increase).
     • Year-on-Year: +8.2% from TZS 6,626.2 billion in June 2024 (TZS 547.9 billion increase).
   • Share Trend: Slightly increased from 20.7% in June 2024 to 20.2% in June 2025, reflecting steady BoT participation.
   • Context: The BoT’s holdings include government securities used for monetary policy operations or direct financing (e.g., overdraft facilities). The significant year-on-year increase aligns with the BoT’s role in supporting fiscal deficits, as seen in the TZS 270.2 billion deficit in May 2025. The BoT’s February 2025 report noted a TZS 140.8 billion reduction in domestic debt due to lower overdraft use, suggesting cautious central bank lending.
   • Implications: Rising BoT holdings indicate central bank support for liquidity management, but excessive reliance could blur fiscal-monetary boundaries, potentially affecting monetary policy credibility.
3. Pension Funds:
   • June 2025: TZS 9,265.7 billion (26.1% share).
   • Change:
     • Monthly: +0.7% from TZS 9,203.9 billion in May 2025 (TZS 61.8 billion increase).
     • Year-on-Year: +6.0% from TZS 8,744.9 billion in June 2024 (TZS 520.8 billion increase).
   • Share Trend: Increased from 27.4% in June 2024 to 26.1% in June 2025, remaining a major creditor.
   • Context: Pension funds (e.g., NSSF, PSSSF) are key investors in Treasury bonds due to their long-term investment horizons and need for stable returns. The oversubscription of June 2025 bond auctions (TZS 1,232.9 billion in tenders vs. TZS 638.7 billion offered) reflects strong pension fund demand. The World Bank notes pension funds’ growing role in domestic debt markets as a sign of financial deepening.
   • Implications: The steady share (26.1%) supports fiscal financing but ties pension fund liquidity to government debt, posing risks if debt servicing pressures arise.
4. Insurance Companies:
   • June 2025: TZS 1,843.0 billion (5.2% share).
   • Change:
     • Monthly: +0.2% from TZS 1,840.0 billion in May 2025 (TZS 3.0 billion increase).
     • Year-on-Year: +1.5% from TZS 1,815.7 billion in June 2024 (TZS 27.3 billion increase).
   • Share Trend: Stable at 5.7% in June 2024 to 5.2% in June 2025.
   • Context: Insurance companies invest in government securities for stable returns, but their small share reflects limited market participation compared to banks and pension funds. The stable share aligns with their conservative investment strategies.
   • Implications: The modest role of insurance companies limits their exposure to government debt risks but also restricts their contribution to fiscal financing.
5. BoT Special Funds:
   • June 2025: TZS 638.1 billion (1.8% share).
   • Change:
     • Monthly: +3.5% from TZS 616.3 billion in May 2025 (TZS 21.8 billion increase).
     • Year-on-Year: +98.7% from TZS 321.2 billion in June 2024 (TZS 316.9 billion increase).
   • Share Trend: Increased significantly from 1.0% in June 2024 to 1.8% in June 2025.
   • Context: BoT special funds (e.g., for specific development or liquidity purposes) have a small but growing role, possibly reflecting targeted government borrowing for priority projects. The sharp year-on-year increase suggests new fund allocations or reclassification of debt holdings.
   • Implications: The small share minimizes fiscal risks, but the rapid growth warrants monitoring to ensure alignment with fiscal objectives.
6. Others:
   • June 2025: TZS 6,420.4 billion (18.1% share).
   • Change:
     • Monthly: +2.8% from TZS 6,244.5 billion in May 2025 (TZS 175.9 billion increase).
     • Year-on-Year: +44.3% from TZS 4,447.2 billion in June 2024 (TZS 1,973.2 billion increase).
   • Share Trend: Increased significantly from 13.9% in June 2024 to 18.1% in June 2025.
   • Context: The “Others” category includes public institutions, private companies, and individuals, reflecting growing retail and non-traditional investor participation in government securities. The BoT’s efforts to deepen the domestic debt market, including retail bond issuance, likely drove this growth. The oversubscription of June 2025 bond auctions indicates strong demand from diverse investors.
   • Implications: The rising share signals increased domestic investor confidence and financial inclusion, but the heterogeneous nature of this category requires monitoring for credit quality and liquidity risks.

Observations and Trends

1. Commercial Banks’ Declining Share:
   • The share dropped from 31.3% in June 2024 to 28.6% in June 2025, despite a slight absolute increase (TZS 10,161.5 billion). This reflects banks’ cautious approach amid high lending rates (15.23% overall in June 2025) and competition from other creditors like pension funds and the “Others” category.
   • Implication: Reduced bank reliance diversifies the creditor base but may strain bank liquidity if government borrowing competes with private sector lending.
2. Pension Funds’ Steady Role:
   • The steady 26.1% share (TZS 9,265.7 billion) underscores pension funds’ critical role in financing long-term government borrowing, driven by high bond yields (14.50%–14.80%). The 6.0% year-on-year growth reflects their growing asset base and demand for secure investments.
   • Implication: Pension funds’ exposure to government debt links retiree savings to fiscal health, requiring robust debt servicing capacity.
3. BoT’s Growing Holdings:
   • The BoT’s 20.2% share (TZS 7,174.1 billion) and 8.2% year-on-year growth suggest active central bank support for fiscal deficits, possibly through bond purchases or liquidity facilities. The stable monthly growth (+0.2%) indicates controlled intervention.
   • Implication: Increased BoT holdings could support liquidity but risk monetary policy credibility if perceived as fiscal financing.
4. Rise of “Others” Category:
   • The 44.3% year-on-year increase (TZS 6,420.4 billion, 18.1% share) reflects growing participation from public institutions, private firms, and retail investors, likely driven by accessible bond markets and high yields.
   • Implication: This diversification enhances fiscal resilience but requires regulatory oversight to manage retail investor risks.
5. Stable Minor Creditors:
   • Insurance companies (5.2%) and BoT special funds (1.8%) maintain small, stable shares, reflecting limited but consistent participation.
   • Implication: Their minor roles limit systemic risks but also constrain their contribution to debt financing.

Insights and Implications

1. Diversified Creditor Base:
   • The spread across commercial banks (28.6%), pension funds (26.1%), BoT (20.2%), and others (18.1%) indicates a diversified domestic debt market, reducing reliance on any single creditor group. The rising “Others” share (18.1%) reflects financial deepening, as retail and non-traditional investors participate more actively.
   • Implication: Diversification enhances fiscal resilience but requires robust market infrastructure to manage retail investor risks and ensure liquidity.
2. Systemic Interconnectedness:
   • The significant shares held by commercial banks and pension funds (54.7% combined) tie the financial sector’s stability to government debt. A fiscal shock (e.g., delayed debt servicing) could impact bank liquidity and pension fund returns, as noted by the World Bank’s concerns about financial sector exposure.
   • Implication: Strong revenue performance (e.g., TZS 2,880.2 billion in May 2025, 3.1% above target) and prudent debt management are critical to mitigate systemic risks.
3. BoT’s Role in Financing:
   • The BoT’s growing holdings (TZS 7,174.1 billion, +8.2% year-on-year) suggest active support for fiscal deficits, possibly through bond purchases or liquidity facilities. This aligns with the absence of Treasury bill auctions in June 2025, indicating reliance on longer-term financing.
   • Implication: While supporting liquidity, excessive BoT involvement could raise concerns about monetary-fiscal coordination, potentially affecting inflation (3.2% in May 2025, within the 3%–5% target).
4. Growing Retail Participation:
   • The “Others” category’s 44.3% year-on-year growth reflects increased retail and institutional investor appetite, driven by high bond yields (14.50%–14.80%) and BoT efforts to promote bond market access. This aligns with the oversubscription of June 2025 bond auctions.
   • Implication: Expanding retail participation supports financial inclusion but requires investor education and market stability to prevent volatility.
5. Fiscal Sustainability:
   • The 11.1% year-on-year debt increase (TZS 35,502.8 billion) is moderate compared to the fiscal deficit (TZS 270.2 billion in May 2025). The IMF’s 2024 Debt Sustainability Analysis indicates a moderate risk of debt distress, with public debt at 45.5% of GDP in 2022/23, below the 55% benchmark.
   • Implication: Strong tax revenue (TZS 2,339.7 billion in May 2025, 4.1% above target) and controlled borrowing support sustainability, but rising debt requires careful servicing management, given external debt servicing absorbs ~40% of expenditures.
6. Economic Context:
   • GDP Growth: Tanzania’s 6.0% projected growth in 2025, driven by agriculture, manufacturing, and tourism, supports debt servicing capacity through revenue growth.
   • Monetary Policy: The BoT’s 6% Central Bank Rate in Q2 2025 and stable interbank rates (7.93% in June 2025) ensure liquidity, facilitating domestic borrowing.
   • External Debt Complement: Domestic debt (29.3% of total debt) complements external debt (70.7%, USD 32,955.5 million), balancing currency risks with local financing.

Strong Growth, Low Inflation, but Trade and Budget Deficits Persist

Zanzibar’s economy showed resilience in 2024, with real GDP growth rising to 6.8%, up from 5.1% in 2023, driven primarily by tourism and infrastructure investments like the SGR and port upgrades. Tourist arrivals surged to 2.2 million in 2025, supporting the services sector, while FDI jumped by 28.3% to USD 1.72 billion, fueling construction. Inflation remained stable at 3.4% in June 2025, down from 6.1% a year earlier, well within the BoT's 3–5% target. On the fiscal front, domestic revenue reached TZS 874.9 billion, covering 95.6% of public income, though a TZS 248.5 billion budget deficit persists. In trade, Zanzibar posted a goods trade deficit of USD 309.2 million, as exports fell 11.9% (led by a 27.2% decline in cloves) while imports rose 8.4%. Meanwhile, the financial sector expanded with credit to the private sector growing by 23.5% and bank deposits increasing by 12.1%, signaling deepening financial inclusion despite high lending rates (15.12%).

1. Real Sector Performance (GDP Growth)

The real sector encompasses economic activities producing goods and services, with GDP growth reflecting Zanzibar’s economic vitality.

• Real GDP Growth (2024):
  • Value: 6.8%, up from 5.1% in 2023.
  • Context: This aligns with earlier reports, such as a 7% growth in January–September 2024 and 7.2% in Q4 2024, driven by tourism and trade. The African Development Bank projects Zanzibar’s growth to exceed 6% in 2025, supported by tourism, construction, and real estate.
  • Drivers:
    • Industry Sector: Construction and manufacturing led growth, fueled by infrastructure projects like the Standard Gauge Railway (SGR) and port expansions. Construction benefits from public-private partnerships (PPPs) and foreign direct investment (FDI), with Tanzania’s FDI rising 28.3% to USD 1.72 billion in 2024.
    • Services Sector: Accommodation and food services, tied to tourism, were major contributors. Tourist arrivals reached 2,193,322 in 2025, up 10% from 1,994,242 in 2024, boosting hospitality. The Tanzania National Business Council projects tourism’s GDP contribution to reach 19.5% by 2025/26.
  • Implications: The 6.8% growth reflects Zanzibar’s economic resilience, driven by tourism and infrastructure. However, reliance on tourism (10% of GDP) and construction makes the economy vulnerable to external shocks, such as global tourism fluctuations or commodity price volatility. Diversification into manufacturing and agriculture, as outlined in Zanzibar’s USD 2 billion plan, is critical.
• Comparison with Mainland Tanzania:
  • Mainland Tanzania grew at 5.6% in 2024, projected at 6% in 2025, driven by agriculture, finance, and construction. Zanzibar’s higher growth (6.8%) reflects its tourism-led economy, but its smaller economic base (contributing ~3% to Tanzania’s GDP) limits its overall impact.

2. Inflation Trends

Inflation measures the rate of price increases, affecting purchasing power and economic stability.

• Headline Inflation:
  • 12-Month Average (June 2025): 3.5%.
  • June 2025 (Monthly): 3.4%, down from 6.1% in June 2024.
  • Context: Inflation eased from 5.1% in 2024 and 6.9% in 2023, with February 2025 at 4.8%. The National Bureau of Statistics reported 3.3% inflation in June 2025, driven by food price increases (e.g., finger millet at 7.0%). Zanzibar’s inflation remains below the 5% medium-term target set by the Bank of Tanzania (BoT) and aligns with East African Community (EAC) criteria.
  • Drivers:
    • Stabilized Food Prices: Declining food inflation (5.3% in April 2025) reflects improved agricultural output and stable global commodity prices.
    • Controlled Non-Food Prices: Transport costs moderated due to stable fuel prices, with energy inflation at 7.3% in April 2025, down from 9.3% in 2024.
  • Implications: Low inflation (3.4%) supports consumer purchasing power and aligns with the BoT’s 3%–5% target under its 2025–2030 Strategic Plan. However, food price volatility (e.g., finger millet) poses risks, particularly for low-income households, given Zanzibar’s 26.4% poverty rate. Continued monetary policy prudence (6% Central Bank Rate) is essential.
• Comparison with Mainland Tanzania:
  • Mainland Tanzania’s inflation was 3.2% in May 2025 and 3.1% in January 2025, slightly lower than Zanzibar’s 3.4%. Zanzibar’s higher inflation reflects its reliance on imported goods and tourism-driven demand.

3. Government Budgetary Operations (July 2024 – May 2025)

The government budget reflects fiscal policy, balancing revenues, grants, and expenditures to fund public services and development.

• Revenues and Grants:
  • Total: TZS 914.7 billion.
    • Domestic Revenue: TZS 874.9 billion (95.6% of total).
      • Tax Revenue: TZS 796.6 billion (86.9% of total).
      • Non-Tax Revenue: TZS 78.3 billion (8.6% of total).
    • Grants: TZS 39.8 billion (4.4% of total).
  • Context: Strong revenue performance aligns with Mainland Tanzania’s TZS 2,339.7 billion tax collection in May 2025, 4.1% above target. Zanzibar’s tax revenue reflects improved administration and compliance, supported by digital systems like the Tanzania Instant Payment System (TIPS). Grants, including TZS 185 billion from China for health and economic cooperation, bolster fiscal space.
  • Implications: High domestic revenue (95.6%) reduces grant dependency, but low grant inflows (4.4%) limit funding for development projects. Enhanced tax mobilization, as per MKUMBI II reforms, is critical.
• Expenditures:
  • Total: TZS 1,123.4 billion.
    • Recurrent Expenditure: TZS 744.7 billion (66.3% of total).
    • Development Expenditure: TZS 378.7 billion (33.7% of total).
  • Context: Expenditure aligns with revenue, reflecting fiscal prudence, as noted in the BoT’s mid-year review. Development spending supports tourism (TZS 359.9 billion budget for 2025/26) and infrastructure (e.g., Dodoma Transport Project). Recurrent spending covers wages and public services, critical for Zanzibar’s 9.3% unemployment rate.
  • Implications: The high recurrent share (66.3%) limits development funding, necessitating expenditure rationalization to meet Vision 2050 goals (e.g., 90% electricity access).
• Budget Deficit:
  • Deficit (Before Grants): TZS 248.5 billion.
  • Financing: Covered by domestic borrowing (e.g., TZS 625.5 billion mobilized in April 2025, including TZS 421.7 billion in Treasury bonds) and grants.
  • Context: Public debt remains sustainable with a moderate risk of distress, per the IMF’s 2024 Debt Sustainability Analysis. Zanzibar’s deficit aligns with Mainland Tanzania’s TZS 270.2 billion deficit in May 2025.
  • Implications: Domestic borrowing supports fiscal needs but increases debt servicing costs (TZS 640 billion in April 2025). Grants and FDI (USD 1.72 billion in 2024) are vital to reduce borrowing reliance.

4. Trade Performance (Goods Only)

Trade performance reflects Zanzibar’s external sector, focusing on goods exports and imports, with services (e.g., tourism) covered separately.

• Total Exports (Goods):
  • Value: USD 150.3 million, down from USD 170.6 million in 2024 (-11.9%).
  • Composition:
    • Cloves: USD 66.4 million (44.2% of exports), down from USD 91.2 million (-27.2%).
    • Seafood & Other Goods: USD 60.4 million (40.2% of exports).
    • Manufactured Goods: USD 23.5 million (15.6% of exports).
  • Context: The decline in clove exports reflects global market downturns, as noted in earlier reports. Seafood and manufactured goods growth aligns with diversification efforts under Zanzibar’s USD 2 billion plan. Total Tanzania exports (including Mainland) reached USD 16.1 billion in 2024, led by gold and tourism.
  • Implications: The 11.9% export drop, particularly in cloves, strains foreign exchange earnings, given cloves’ 90% production on Pemba. Diversification into seafood and manufacturing is promising but requires market expansion.
• Total Imports (Goods):
  • Value: USD 459.5 million, up from USD 423.7 million in 2024 (+8.4%).
  • Composition:
    • Capital Goods: USD 222.5 million (48.4% of imports).
    • Intermediate Goods: USD 141.4 million (30.8% of imports).
    • Consumer Goods: USD 95.6 million (20.8% of imports).
  • Context: Import growth reflects infrastructure projects (e.g., SGR, port expansions) and consumer demand, consistent with Mainland Tanzania’s capital goods imports. Zanzibar’s reliance on imported staples and petroleum products persists.
  • Implications: Rising imports, driven by capital goods, support industrialization but widen the trade deficit, straining reserves (USD 5,307.7 million, 4.3 months of import cover).
• Trade Deficit:
  • Value: USD 309.2 million, widened from USD 253.1 million in 2024 (imports USD 423.7 million – exports USD 170.6 million).
  • Context: The deficit reflects falling clove exports and rising capital goods imports, consistent with Tanzania’s overall current account deficit of USD 2,117.6 million.
  • Implications: The widened deficit pressures the Tanzanian Shilling (8% depreciation in 2023) and reserves. Export promotion (e.g., seafood, manufactured goods) and tourism (USD 3,934.5 million in receipts) are critical to offset deficits.

5. Financial Sector Performance

The financial sector supports economic activity through credit provision and deposit mobilization, critical for private sector growth.

• Credit to Private Sector (June 2025):
  • Value: TZS 747.7 billion, up 23.5% from June 2024.
  • Sectors:
    • Trade: 27.8% (TZS 207.9 billion).
    • Building & Construction: 20.2% (TZS 151.0 billion).
    • Personal Loans: 13.8% (TZS 103.2 billion).
    • Transport & Communication: 10.7% (TZS 80.0 billion).
  • Context: The 23.5% growth exceeds Mainland Tanzania’s 12.8% private sector credit growth in January 2025, driven by agriculture and SMEs. Zanzibar’s credit growth reflects tourism and construction demand, supported by the BoT’s 6% Central Bank Rate and TIPS (453.7 million transactions in 2024).
  • Implications: Robust credit growth (23.5%) supports SMEs and infrastructure, aligning with financial inclusion goals (87% adult target by 2030). However, the high trade and construction share risks overexposure if tourism slows.
• Deposit Mobilization:
  • Value: TZS 1,185.4 billion, up 12.1% from TZS 1,057.6 billion in June 2024.
  • Context: Growth aligns with Tanzania’s banking sector stability, with a 3.6% non-performing loan ratio in Q1 2025, below the 5% threshold. Mobile money transactions (TZS 198,859 billion in 2024) boost deposits.
  • Implications: Strong deposit growth (12.1%) reflects financial deepening, but high lending rates (15.12% in January 2025) may constrain borrowing. Digital platforms like TIPS enhance inclusion, supporting Vision 2050.

Summary Table: Key Economic Indicators for Zanzibar (Year Ending June 2025)

Key Takeaways and Policy Implications

1. Robust GDP Growth:
   • Zanzibar’s 6.8% growth in 2024, driven by tourism and construction, outpaces Mainland Tanzania (5.6%). Tourism (2.2 million arrivals) and infrastructure (e.g., SGR) are key drivers, but diversification into manufacturing and agriculture is needed to reduce tourism dependency (10% of GDP).
   • Policy: Implement Zanzibar’s USD 2 billion diversification plan to boost seafood and manufactured exports, aligning with Vision 2050.
2. Stable Inflation:
   • Inflation at 3.4% (June 2025) supports purchasing power, driven by stable food and fuel prices. However, food price volatility (e.g., 7.0% for finger millet) risks impacting the 26.4% poverty rate.
   • Policy: Enhance agricultural productivity and supply chain resilience to mitigate food price shocks, as per the Second Agriculture Sector Development Program.
3. Fiscal Prudence:
   • Strong domestic revenue (TZS 874.9 billion) reduces grant reliance, but the TZS 248.5 billion deficit requires sustained borrowing and grants. Development spending (33.7%) supports growth but is constrained by recurrent costs (66.3%).
   • Policy: Rationalize recurrent expenditure and leverage FDI (USD 1.72 billion in 2024) to fund infrastructure and tourism.
4. Trade Challenges:
   • The USD 309.2 million trade deficit, driven by a 27.2% drop in clove exports and 8.4% import rise, pressures reserves. Tourism receipts (USD 3,934.5 million) offset some losses, but goods exports need boosting.
   • Policy: Promote clove market recovery and expand seafood and manufacturing exports through trade agreements (e.g., AfCFTA).
5. Financial Sector Strength:
   • Credit growth (23.5%) and deposit mobilization (12.1%) reflect financial deepening, supported by digital payments (TIPS) and a stable banking sector (3.6% NPL ratio). High lending rates (15.12%) and trade/construction exposure pose risks.
   • Policy: Reduce lending rates and enhance SME financing, as per the BoT’s 2025–2030 plan, to sustain inclusion and growth.
6. Economic Context:
   • Regional Role: Zanzibar’s tourism and trade hub status supports growth, but its small GDP share (~3% of Tanzania’s USD 105.1 billion in 2022) limits impact.
   • Risks: Global commodity price volatility, tourism seasonality, and shilling depreciation (8% in 2023) pose challenges.
   • Opportunities: Vision 2050, MKUMBI II reforms, and digital financial inclusion (87% target) offer pathways to a USD 1 trillion economy.

Stability in Lending, Competitive Deposit Market, and a Narrowing Spread Signal Sector Efficiency

In June 2025, Tanzania’s banking sector exhibited notable stability and competitiveness. The overall lending rate held steady at 15.23%, slightly up from May, while short-term lending rates eased from 15.96% to 15.69%, reflecting increased liquidity and competition. Deposit rates rose across the board, with the negotiated deposit rate jumping from 10.64% to 11.21%, driven by end-of-year liquidity needs. Importantly, the short-term interest rate spread narrowed to 5.90%, down from 6.49% in June 2024, indicating improved efficiency and a more competitive banking environment benefiting both borrowers and depositors.

1. Lending Interest Rates

Lending interest rates represent the cost of borrowing from commercial banks and are influenced by factors such as the Bank of Tanzania’s (BoT) monetary policy, liquidity conditions, credit risk, and competition in the banking sector. In June 2025, lending rates remained broadly stable, with minor fluctuations reflecting market dynamics.

Key Lending Rates

The following table summarizes the lending rates for May and June 2025, with changes noted:

• Overall Lending Rate:
  • Increased slightly from 15.18% in May 2025 to 15.23% in June 2025 (+0.05 percentage points).
  • This marginal increase suggests stable credit conditions, with banks maintaining relatively high rates to account for credit risk and operational costs. The stability aligns with the BoT’s monetary policy stance, likely aimed at controlling inflation while supporting economic growth.
  • Compared to June 2024 (15.30%), the June 2025 rate is slightly lower, indicating a modest easing in borrowing costs over the year, possibly due to improved liquidity or competitive pressures.
• Short-Term Lending Rate (loans up to 1 year):
  • Decreased from 15.96% in May 2025 to 15.69% in June 2025 (-0.27 percentage points).
  • The decline suggests increased competition among banks for short-term lending, possibly driven by higher liquidity in the banking system or demand for short-term credit from businesses managing working capital needs.
  • Compared to June 2024 (15.57%), the June 2025 rate is higher, reflecting a temporary tightening in short-term lending conditions earlier in 2025, possibly due to seasonal liquidity demands.
• Negotiated Lending Rate:
  • Decreased from 12.99% in May 2025 to 12.68% in June 2025 (-0.31 percentage points).
  • Negotiated rates are typically offered to prime customers (e.g., large corporations or low-risk borrowers with strong credit profiles). The decline indicates banks are offering better terms to attract or retain high-quality borrowers, possibly due to competitive pressures or improved borrower creditworthiness.
  • Compared to June 2024 (12.82%), the June 2025 rate is lower, suggesting a trend toward more favorable conditions for prime borrowers over the year.

Context and Insights:

• Stability in Lending Rates: The overall lending rate’s stability (15.23% in June 2025) reflects a balanced monetary policy environment, with the BoT likely maintaining the Central Bank Rate (CBR) at a level to ensure price stability while supporting credit growth. The high rates (relative to deposit rates) indicate that banks are cautious about credit risks, particularly for non-prime borrowers.
• Short-Term Lending Dynamics: The decrease in short-term lending rates may be linked to the robust interbank cash market (IBCM) activity, with a turnover of TZS 2,873.9 billion in June 2025 (as noted in the previous query). Higher liquidity in the IBCM, with a slight decline in interest rates (7.93%), likely eased funding costs for banks, enabling them to lower short-term lending rates.
• Negotiated Rates and Competition: The decline in negotiated lending rates suggests increased competition among banks to secure high-value clients. This could be driven by Tanzania’s growing private sector, particularly in sectors like agriculture, manufacturing, and mining, which require significant financing.
• Economic Implications: Stable but high lending rates (15.23% overall) may constrain borrowing for small and medium enterprises (SMEs), which are sensitive to borrowing costs. However, the lower negotiated rates benefit larger firms, potentially boosting investment in key sectors.

2. Deposit Interest Rates

Deposit interest rates reflect the returns banks offer to depositors for savings, time deposits, and other accounts. These rates are influenced by liquidity needs, competition for deposits, and the BoT’s monetary policy. In June 2025, deposit rates generally increased, driven by seasonal liquidity demands at the end of the financial year.

Key Deposit Rates

The following table summarizes the deposit rates for May and June 2025, with changes noted:

• Overall Time Deposit Rate:
  • Increased from 8.58% in May 2025 to 8.74% in June 2025 (+0.16 percentage points).
  • This rise reflects banks’ increased demand for funds, likely driven by end-of-financial-year obligations, such as loan disbursements or reserve requirements.
  • Compared to June 2024 (7.66%), the June 2025 rate is significantly higher, indicating a sustained increase in deposit rates over the year, possibly due to tighter liquidity conditions or higher competition for deposits.
• 12-Month Deposit Rate:
  • Increased slightly from 9.72% in May 2025 to 9.79% in June 2025 (+0.07 percentage points).
  • The modest increase suggests banks are offering slightly better returns to attract longer-term deposits, which provide more stable funding for lending activities.
  • Compared to June 2024 (9.09%), the June 2025 rate is higher, reflecting a trend toward higher returns for depositors, possibly to compete with alternative investment options like Treasury bonds (yields of 14.50%–14.80% in June 2025).
• Negotiated Deposit Rate:
  • Increased noticeably from 10.64% in May 2025 to 11.21% in June 2025 (+0.57 percentage points).
  • Negotiated rates are offered to large or institutional depositors (e.g., pension funds, corporations). The significant rise indicates banks’ willingness to pay a premium to secure large deposits, likely to meet liquidity needs or fund lending activities.
  • Compared to June 2024 (9.86%), the June 2025 rate is much higher, suggesting increased competition for high-value deposits over the year.
• Savings Deposit Rate:
  • Increased from 2.52% in May 2025 to 2.90% in June 2025 (+0.38 percentage points), recovering from a dip in May.
  • Compared to June 2024 (2.86%), the June 2025 rate is slightly higher, indicating a modest improvement in returns for retail depositors.
  • The low savings rate reflects the lower risk and liquidity of savings accounts compared to time deposits, but the increase suggests banks are incentivizing retail savings to bolster their deposit base.

Context and Insights:

• Seasonal Liquidity Needs: The rise in deposit rates, particularly the negotiated rate (+0.57%), is attributed to seasonal liquidity demands at the end of the financial year (June 2025). Businesses and individuals often settle obligations, increasing banks’ need for funds to meet withdrawal demands or loan disbursements.
• Competition for Deposits: The significant increase in negotiated deposit rates suggests banks are competing aggressively for large deposits from institutional clients, who have bargaining power to secure better terms. This could be driven by the high yields on Treasury bonds (14.50%–14.80%), which compete with bank deposits as investment options.
• Retail Depositor Trends: The recovery in savings deposit rates (from 2.52% to 2.90%) indicates banks are also targeting retail depositors to diversify their funding sources. However, the low savings rate compared to time deposits reflects the limited bargaining power of retail clients.
• Economic Implications: Rising deposit rates encourage savings, which can support bank lending capacity and economic growth. However, higher deposit rates increase banks’ funding costs, which could pressure profit margins unless offset by lending income or operational efficiencies.

3. Interest Rate Spread

The interest rate spread is the difference between lending and deposit rates, typically measured for short-term instruments to reflect banking efficiency and profitability. A narrower spread indicates improved financial intermediation and a more competitive banking environment.

• Short-Term Interest Rate Spread:
  • June 2024: 6.49%
  • May 2025: 6.24%
  • June 2025: 5.90%
  • The spread narrowed by 0.34 percentage points from May to June 2025 and by 0.59 percentage points from June 2024 to June 2025.

Context and Insights:

• Calculation: The short-term interest rate spread is derived from the short-term lending rate (15.69% in June 2025) and the 12-month deposit rate (9.79% in June 2025), as these are comparable tenors. The spread is calculated as:
  • 15.69% - 9.79% = 5.90%
• Narrowing Spread: The decline in the spread reflects:
  • Increased Competition: Banks are lowering short-term lending rates (15.69%) and raising deposit rates (9.79%) to attract customers, reducing their profit margins per transaction.
  • Improved Efficiency: A narrower spread suggests banks are improving financial intermediation, passing on liquidity benefits to borrowers and depositors.
  • Liquidity Conditions: The robust IBCM turnover (TZS 2,873.9 billion) and lower IBCM rate (7.93%) in June 2025 indicate ample liquidity, enabling banks to offer better terms to borrowers and depositors.
• Economic Implications: A narrower spread benefits borrowers by reducing borrowing costs and encourages lending, supporting economic activity. However, it may squeeze bank profitability, prompting banks to seek operational efficiencies or alternative revenue sources.

Summary Table

Key Insights and Broader Implications

1. Stable Lending Environment:
   • The overall lending rate’s stability (15.23% in June 2025) and slight year-on-year decline (from 15.30% in June 2024) suggest that credit risk perceptions have not worsened, despite high rates. This stability supports private sector borrowing, particularly for large firms benefiting from lower negotiated rates (12.68%).
   • The decrease in short-term lending rates (15.69%) reflects competitive pressures and ample liquidity, as evidenced by the IBCM’s high turnover and lower rates. These benefits businesses seeking working capital loans, supporting sectors like trade and agriculture.
2. Rising Deposit Rates:
   • The increase in deposit rates, particularly the negotiated rate (11.21%), reflects banks’ efforts to attract funds to meet liquidity needs at the financial year-end. This aligns with the absence of Treasury bill auctions in June 2025, which may have increased banks’ reliance on deposits for liquidity.
   • Higher deposit rates encourage savings, strengthening banks’ funding base. However, the low savings deposit rate (2.90%) indicates limited benefits for retail depositors, potentially constraining household savings growth.
3. Narrowing Interest Rate Spread:
   • The narrowing spread (5.90% in June 2025) is a positive signal for Tanzania’s banking sector, indicating improved efficiency and competition. This benefits borrowers through lower borrowing costs and depositors through higher returns, fostering financial inclusion and economic activity.
   • The spread’s decline from 6.49% in June 2024 suggests structural improvements in the banking sector, possibly driven by technological advancements, regulatory reforms, or increased market participation.
4. Monetary Policy Context:
   • The BoT’s monetary policy likely played a role in stabilizing lending rates and supporting liquidity, as seen in the IBCM’s performance. The CBR, while not specified, is likely set to balance inflation (targeted at 3%–5%) and growth (projected at 5.5%–6% for 2025).
   • The rise in deposit rates and narrowing spread suggest the BoT’s liquidity management tools (e.g., open market operations, reserve requirements) are effective in maintaining a stable financial environment.
5. Economic Implications:
   • The trends in lending and deposit rates support Tanzania’s economic growth by facilitating credit access and encouraging savings. However, high lending rates (15.23% overall) may limit SME borrowing, a critical driver of employment and growth.
   • The competitive banking environment, as evidenced by the narrowing spread, could attract more players to the financial sector, enhancing financial inclusion and supporting Tanzania’s Development Vision 2025 goals.

Tanzania’s Economic Growth Strengthens with Rising Credit and Financial Stability

Tanzania's economy has shown strong growth from 2021 to 2024, driven by rising domestic credit, expanding private sector lending, and increasing money supply. Domestic credit grew from 27.37 trillion TZS in 2021 to 46.82 trillion TZS in 2024 (+71%), while private sector lending increased by 72% over the same period, boosting investments and job creation. Additionally, broad money (M3) rose by 47%, and foreign currency deposits surged by 57%, reflecting greater financial confidence and economic resilience. These trends highlight Tanzania’s robust economic expansion and a strengthening financial sector.

Tanzania’s economic performance from 2021 to 2024/2025 has shown positive growth trends, primarily driven by increased credit availability, expanding money supply, and strong private sector growth. The following key indicators explain why Tanzania’s economy is performing well:

1. Strong Growth in Domestic Credit – Economic Expansion

• Domestic credit rose from 27.37 trillion TZS in 2021 to 46.82 trillion TZS in 2024, a 71% increase over four years.
• This growth suggests higher business investments, household consumption, and overall economic expansion.

2. Increased Private Sector Lending – Business Growth

• Claims on the private sector increased from 19.64 trillion TZS in 2021 to 33.76 trillion TZS in 2024, a 72% rise.
• This reflects higher business confidence, increased production, and job creation, all contributing to economic growth.

3. Rising Money Supply – Expanding Financial Sector

• Reserve Money (M0) increased from 7.91 trillion TZS in 2021 to 11.04 trillion TZS in 2024 (40% increase), ensuring liquidity in the banking sector.
• Broad Money (M2) expanded from 24.77 trillion TZS to 35.50 trillion TZS, showing more cash circulation and financial inclusion.
• Extended Broad Money (M3) grew from 32.12 trillion TZS to 47.09 trillion TZS, supporting increased lending and economic transactions.

4. Foreign Currency Deposits (FCD) Growth – Investor Confidence

• Foreign currency deposits rose from 7.35 trillion TZS in 2021 to 11.58 trillion TZS in 2024, indicating a growing trust in the banking sector.
• In 2024, foreign deposits reached 4.35 billion USD, reflecting an increase in foreign investment and trade activity.

5. Recovery of Foreign Financial Assets – Improved External Stability

• While foreign financial assets declined from 12.24 trillion TZS in 2021 to 9.66 trillion TZS in 2023, they recovered to 12.09 trillion TZS in 2024.
• This recovery suggests improved foreign exchange reserves, better trade balance management, and reduced external vulnerabilities.

6. Increased Government Borrowing for Development

• Government net claims increased from 6.50 trillion TZS in 2021 to 11.57 trillion TZS in 2024, indicating more public investment in infrastructure, education, and healthcare.
• While borrowing increased, if well-managed, it supports economic growth through capital projects that drive long-term productivity.

Conclusion – Tanzania’s Economic Strength

From 2021 to 2024, Tanzania has demonstrated consistent economic growth, supported by:
✅ 71% growth in domestic credit, fueling business expansion.
✅ 72% rise in private sector lending, boosting investments and job creation.
✅ Strong money supply growth, ensuring liquidity and financial inclusion.
✅ Increasing foreign currency deposits, reflecting confidence in the banking system.
✅ Recovery of foreign financial assets, improving economic resilience.

Table summary of Tanzania’s economic performance indicators from 2021 to 2024, showing why the economy is performing well:

Key Takeaways from the Table

✅ 71% growth in domestic credit – More loans for businesses and households, leading to higher economic activity.
✅ 72% increase in private sector lending – Boosts business expansion, investment, and job creation.
✅ Broad money (M2 & M3) increased by 43%-47% – Showing higher liquidity and financial inclusion.
✅ Foreign deposits (FCD) rose by 57%, indicating growing investor confidence in Tanzania’s economy.
✅ Foreign financial assets recovered in 2024, improving external stability.
✅ Government credit rose by 78%, signaling investment in infrastructure and development projects.

The banking and finance sector in Tanzania is undergoing a remarkable transformation. Anchored by digital innovation, regulatory reforms, and increased financial inclusivity, this sector is driving significant economic growth. An exploration of its current landscape, challenges, and opportunities.

Sector Growth and Digital Transformation

By 2024, Tanzania's banking assets reached TZS 43 trillion (USD 18 billion), equivalent to 20% of the GDP. This growth has been powered by a surge in mobile banking, which saw a 116% increase in mobile accounts between 2019 and 2024. As of 2024, mobile money accounts exceeded 55.8 million, with monthly transactions surpassing 310 million. By 2030, these accounts are projected to grow to 90 million, marking a pivotal shift towards digital financial services.

Financial Inclusivity

The financial inclusion rate in Tanzania rose from 16% in 2009 to 70% in 2024, driven by mobile and microfinance services. Urban areas boast 85% financial access, but rural regions lag at 55%, reflecting significant disparities. The government aims for a 75% inclusion rate by 2025 and an ambitious 90% by 2030.

Challenges in the Sector

Despite the impressive growth, Tanzania’s banking sector faces critical challenges:

• High Compliance Costs: Stringent regulations have increased operational expenses by 20%, impacting profitability.
• Rural Access: A lack of physical bank branches in rural areas leaves many reliant on mobile banking.
• Lending Rates: High average interest rates (16%) restrict SMEs' access to affordable credit, stifling private sector growth.

Opportunities for Investment

1. Digital and Mobile Banking: Projected to grow at 12% annually, this sector offers vast potential for fintech and infrastructure investments.
2. SME Financing: With SMEs comprising over 90% of businesses but only 16% accessing formal finance, the loan market is poised for a 10% annual growth.
3. Green Financing: This emerging sector, targeting eco-friendly projects, is expected to grow by 15% yearly, particularly in agriculture and renewable energy.

Future Outlook

By 2030, Tanzania’s banking landscape will likely host 60-65 banks, with microfinance representing 30% of total assets. With streamlined regulations and targeted digital literacy programs, financial inclusivity could rise to 85-90%. Investment in key sectors like digital banking, SME financing, and green financing is anticipated to create a competitive, resilient, and inclusive banking environment.

Conclusion

Tanzania’s banking sector is at the cusp of transformative growth. Addressing compliance challenges, bridging urban-rural disparities, and fostering innovations in digital finance will be critical. With the right investments and policy adjustments, the sector is well-positioned to drive inclusive economic development and solidify Tanzania's leadership in East Africa's financial landscape.

In 2023, Tanzania’s Local Government Authorities (LGAs) disbursed TZS 43.94 billion in loans to women and youth, benefiting over 23,000 recipients. This funding, part of a government initiative to promote financial inclusion, is aimed at empowering underserved groups and fostering local entrepreneurship. However, there was a 60.8% decline in women recipients and a 57.0% decline in youth recipients due to a shift from direct lending to bank-managed loans. Despite these challenges, the loans have contributed to economic empowerment, especially in rural and marginalized regions, as reflected in the increase in loan disbursements in Zanzibar to TZS 16.83 billion for 16,432 beneficiaries.

Local Government Authorities (LGAs) in Tanzania have played a pivotal role in providing financial support to underserved groups, particularly women, youth, and people with disabilities. These loans are part of the government's broader financial inclusion efforts, aimed at empowering vulnerable populations and promoting small-scale entrepreneurship:

Key Statistics

1. Total Loan Disbursement in 2023:
   • LGAs in mainland Tanzania disbursed TZS 43.94 billion in loans to women and youth in 2023. This funding aimed to promote financial independence and economic empowerment within these groups.
2. Disbursement by Gender:
   • Women received TZS 24.02 billion across 16,724 loan recipients in 2023.
   • Youth (primarily young entrepreneurs) received TZS 19.92 billion across 10,032 loan recipients.
   • This reflects a strategic focus on empowering women and youth, who often face greater challenges accessing formal financial services.
3. Loan Distribution in Zanzibar:
   • In Zanzibar, the Zanzibar Economic Empowerment Authority (ZEEA) also facilitated access to loans for local businesses, with 16,432 beneficiaries receiving TZS 16.83 billion in 2023, up from TZS 7.32 billion in 2022.
   • This significant increase in loan disbursements in Zanzibar reflects the government's ongoing push to improve financial access for entrepreneurs and small businesses in the region.

Key Programs and Impact

1. Government Loan Schemes:
   • LGAs allocate 10% of their own-source revenues to be used for loans to women, youth, and people with disabilities. This 10% loan allocation is divided as follows:
     • 4% for women
     • 4% for youth
     • 2% for people with disabilities
   • These allocations ensure targeted support for vulnerable groups that may face barriers in accessing credit from mainstream financial institutions.
2. Empowerment through Financial Support:
   • These loans have been crucial in enabling small-scale businesses, particularly in rural and underserved areas, to grow and expand.
   • The funding has supported entrepreneurial initiatives, ranging from agriculture to small retail businesses, allowing beneficiaries to improve their livelihoods and contribute to the local economy.

Challenges and Trends

1. Challenges:
   • Declining Loan Access: There was a 60.8% decrease in the number of women accessing loans in 2023 compared to 2022, from 69,926 to 33,485 beneficiaries. Similarly, youth beneficiaries also decreased by 57.0%, from 69,926 in 2022 to 33,485 in 2023.
   • This decline is primarily due to changes in the loan distribution model, where LGAs shifted from direct lending to bank-managed lending processes, aimed at increasing transparency, loan recovery, and accessibility. However, this shift may have caused delays or complicated loan access for some beneficiaries.
2. Opportunities:
   • The new bank-managed model could improve loan sustainability and collection efficiency, ensuring more responsible lending practices.
   • The increased focus on Zanzibar and the expansion of funding to MSMEs there offer opportunities for regional development, which could have a positive impact on the island’s economy.

Impacts of LGA Loans

1. Economic Empowerment:
   • These loans have played an instrumental role in providing economic opportunities to marginalized groups, especially women and youth, who traditionally face difficulties accessing finance.
   • By supporting local businesses, these loans contribute to poverty reduction, job creation, and the expansion of the informal sector.
2. Social Inclusion:
   • The targeted approach to lending, focusing on women, youth, and people with disabilities, enhances social inclusion and encourages equal participation in economic activities, helping to bridge the gender and generational gap in business ownership.

The local government authority loans in Tanzania, with TZS 43.94 billion disbursed to women and youth in 2023, are a vital component of the country’s financial inclusion strategy. Although challenges like a decline in loan access due to changes in loan management exist, the increased focus on vulnerable groups continues to drive economic empowerment and social inclusion. The shift towards bank-managed processes is a positive step toward sustainable financial support, which can strengthen Tanzania's economy and create more equitable opportunities for underserved populations.

Loans from Local Government Authorities (LGAs) in Tanzania (2023)

The data on loans from Local Government Authorities (LGAs) in Tanzania in 2023 reveals several key trends and insights:

1. Targeted Financial Inclusion

• The loans allocated to women and youth highlight Tanzania's commitment to promoting economic empowerment and financial inclusion for underserved groups. With TZS 43.94 billion disbursed to over 23,000 beneficiaries, this initiative is key in fostering entrepreneurship and job creation, particularly in vulnerable sectors like women and youth-owned businesses.

2. Regional Disparities and Focus

• The increase in Zanzibar loan disbursements to TZS 16.83 billion for 16,432 beneficiaries reflects a focused effort on regional development, targeting small businesses and entrepreneurs in Zanzibar, which often face greater barriers to financial access.
• This targeted support indicates that the government is recognizing the importance of regional economic development and ensuring that financial services reach beyond urban centers.

3. Shift in Loan Distribution Model

• The decline in the number of women and youth receiving loans due to the shift from direct lending to a bank-managed model shows a change in the distribution process. While the aim is to improve loan recovery and transparency, this shift appears to have led to temporary setbacks in accessibility, particularly for those who are less familiar with the banking system or face barriers in navigating it.
• The decreased number of loan recipients (60.8% fewer women and 57.0% fewer youth) suggests that some beneficiaries might have faced challenges in adapting to the new loan process, affecting overall loan uptake in the short term.

4. Economic and Social Empowerment

• Despite the challenges, these loans are having a positive social impact. By targeting women, youth, and people with disabilities, these schemes help bridge social gaps, ensuring that traditionally marginalized groups have access to resources needed for economic participation.
• This financial inclusion effort contributes to poverty reduction, business growth, and increased productivity, supporting the broader national goal of inclusive economic growth.

5. Long-Term Sustainability and Efficiency

• The shift to bank-managed loans may improve loan sustainability and recovery rates, making the program more efficient in the long term. Although there may be short-term access issues, this approach could lead to better financial discipline and more effective allocation of resources in the future.

The local government loans in Tanzania for 2023 highlight significant strides in financial inclusion and economic empowerment for vulnerable groups, particularly women and youth. However, the shift in the loan distribution model has created some temporary barriers, limiting access in the short term. Despite these challenges, the focus on marginalized populations and regional development reflects a commitment to equitable economic growth and the creation of a more inclusive financial ecosystem.

The long-term impact of these efforts will depend on how the new distribution model evolves and how the accessibility barriers for underserved groups can be addressed moving forward.

Digital loans have experienced significant growth in Tanzania, driven by mobile technology, increased phone ownership, and partnerships between banks, microfinance institutions, and mobile network operators (MNOs).

Key Statistics

1. Total Number of Digital Loan Accounts:
   • The number of digital loan accounts in Tanzania skyrocketed by 198% from 32.09 million in 2022 to 95.89 million in 2023.
   • This dramatic increase highlights a growing trend of digital borrowing, especially among low-income and rural populations who find traditional banking inaccessible.
2. Amount of Digital Credit Issued:
   • The total amount of digital credit issued in Tanzania surged from TZS 26.79 billion in 2022 to TZS 126.03 billion in 2023, marking a 370% increase.
   • This indicates that while the number of loans has grown significantly, the total value of loans issued has also risen, suggesting an increasing demand for larger loans.
3. Demographic Trends:
   • Men represent 66.5% of all digital loan borrowers, while women account for 33.5%. However, the number of women accessing digital loans is steadily increasing, indicating greater financial empowerment among women.
   • Youth and young adults (primarily those aged 18–35) make up a large proportion of digital loan borrowers, as they are more likely to use mobile phones and digital financial services.
4. Active Mobile Money Accounts:
   • The increase in mobile money accounts (from 38.34 million in 2022 to 51.72 million in 2023) has contributed to the growth of digital loan services, as digital loan products are typically linked to mobile wallets.
   • The growth in mobile money accounts and the availability of National Identification Numbers (NINs) have made it easier for more people to access mobile financial services.

Key Drivers of Growth

1. Technology and Mobile Penetration:
   • The expansion of 3G and 4G network coverage and the increased availability of smartphones have made digital loans more accessible to Tanzanians, particularly in rural areas.
   • The ease of instant loans via mobile platforms has allowed users to access credit without needing a bank account or physical collateral.
2. Partnerships between Banks and MNOs:
   • Many financial institutions have partnered with mobile network operators (MNOs) to offer digital loans. These partnerships leverage MNOs' extensive mobile money networks, enabling quicker disbursement and repayment of loans.
   • Artificial Intelligence (AI) is used to assess the creditworthiness of borrowers, allowing for faster loan approval processes based on transaction history and mobile phone usage.
3. Government Support:
   • Regulatory changes by the Bank of Tanzania (BoT) and other financial authorities have helped create a favorable environment for digital lending, supporting the development of mobile loan platforms and enhancing financial inclusion.

Impact of Digital Loans

1. Financial Inclusion:
   • Digital loans have significantly improved financial inclusion by providing access to credit for underserved populations, particularly in rural areas where traditional banks have limited reach.
   • The increased access to instant loans has enabled individuals to meet urgent financial needs, such as healthcare, education, or emergency expenses.
2. Economic Growth:
   • By giving small businesses and individuals access to capital, digital loans contribute to economic activity, especially for MSMEs and entrepreneurs who may otherwise struggle to access credit from traditional financial institutions.

Challenges and Opportunities

1. Challenges:
   • Despite their growth, digital loans often carry high-interest rates, which can burden borrowers, especially those in low-income segments.
   • There is also concern over the sustainability of digital lending models, as some borrowers may struggle to repay loans on time, leading to over-indebtedness.
2. Opportunities:
   • The growth of digital credit presents opportunities for further product innovation in micro-lending, especially targeting women and youth.
   • There is potential for regulatory improvements to balance the rapid growth of digital lending with consumer protection to ensure long-term stability and sustainability.

Conclusion

The surge in digital loans in Tanzania, with a 198% increase in loan accounts and a 370% rise in the value of loans, demonstrates the country's rapid adoption of mobile financial services. While digital loans have opened up new opportunities for financial inclusion, they also present challenges related to affordability and long-term sustainability. Continued innovation, coupled with regulatory oversight, will be key to maximizing the benefits of digital lending in Tanzania's evolving financial landscape.

In 2023, access to finance for MSMEs in Tanzania saw significant growth, with the number of MSME loan accounts rising by 21.9% to 176,213 and total loan values increasing by 16.2% to TZS 3,612.72 billion. This surge was driven by government-backed programs like the SME Credit Guarantee Scheme and local government loans, which collectively supported over 23,000 MSMEs, with TZS 43.94 billion disbursed. Despite these advances, challenges such as limited collateral and high borrowing costs continue to hinder some MSMEs from fully accessing financial services.

MSMEs Access to Finance in Tanzania (2023)

Micro, Small, and Medium Enterprises (MSMEs) in Tanzania have seen significant advancements in accessing finance, supported by tailored financial products, government initiatives, and public-private collaborations:

Key Statistics

1. Bank Loans to MSMEs:
   • The number of loan accounts held by MSMEs in the banking sector increased to 176,213 in 2023 from 144,522 in 2022, a growth of 21.9%.
   • The total value of these loans rose by 16.2%, from TZS 3,109.20 billion in 2022 to TZS 3,612.72 billion in 2023.
   • MSME loans accounted for 12% of the total loan portfolio in the banking sector.
2. Microfinance Loans:
   • Tier II microfinance service providers granted loans to 4.14 million MSMEs in 2023, compared to 5 million in 2022, showing a slight decline in the number of accounts.
   • However, the value of loans granted by these providers increased significantly by 39.15%, reaching TZS 749.99 billion in 2023.
3. Local Government Loans:
   • Local Government Authorities (LGAs) disbursed loans amounting to TZS 24.02 billion to 16,724 women and TZS 19.92 billion to 10,032 youth in 2023.
   • In Zanzibar, the Zanzibar Economic Empowerment Authority (ZEEA) provided loans to 16,432 beneficiaries in 2023, up from 3,980 in 2022, with the value increasing to TZS 16.83 billion.

Government Programs Supporting MSMEs

1. Small and Medium Enterprises Credit Guarantee Scheme (SME-CGS):
   • Administered by the Bank of Tanzania, this scheme facilitated loans for viable MSME projects lacking sufficient collateral.
2. NEEC and SIDO Programs:
   • Under the National Economic Empowerment Council (NEEC), loans to MSMEs increased from TZS 713.79 billion in 2022 to TZS 743.66 billion in 2023, benefiting 6.1 million MSMEs.
   • The Small Industries Development Organization (SIDO) issued TZS 17.76 billion in loans to MSMEs in 2023.
3. Zanzibar MSMEs Development Program:
   • A total of TZS 2.10 billion was disbursed to 18 MSME projects in Zanzibar in 2023.

Impact of Access to Finance

1. Economic Growth:
   • Enhanced access to credit enabled MSMEs to expand operations, contributing to job creation and economic development.
2. Formalization and Inclusivity:
   • Increased financial literacy and business formalization programs allowed more MSMEs, especially women-led and youth-led businesses, to participate in formal financial systems.
3. Support for Targeted Groups:
   • Government initiatives prioritized financing for underserved groups, including women and youth, fostering inclusivity in economic opportunities.

Challenges and Opportunities

• Challenges: Limited collateral, high lending costs, and urban-rural disparities remain obstacles.
• Opportunities: Expanding digital credit solutions and government-guaranteed schemes can further enhance MSMEs' financial access.

MSMEs Access to Finance in Tanzania (2023)

The data on MSMEs access to finance in Tanzania in 2023 highlights significant progress and emerging opportunities, as well as some challenges:

1. Growing Access to Finance for MSMEs

• Increase in Loan Accounts: The 21.9% growth in the number of MSME loan accounts (from 144,522 in 2022 to 176,213 in 2023) and the 16.2% rise in loan values reflect a positive trend in MSMEs' access to formal financial services. This suggests that more MSMEs are tapping into formal financing channels, indicating a growing confidence in the financial system.
• Rising Loan Values: The increase of TZS 503.52 billion in loan value for MSMEs (from TZS 3,109.20 billion in 2022 to TZS 3,612.72 billion in 2023) points to greater access to larger sums of credit, which can help fuel business growth, expansion, and innovation.

2. Strong Support from Government and Financial Institutions

• Government Schemes: The continuation and expansion of government programs like the SME-CGS, which allows MSMEs to access loans with lower collateral requirements, play a critical role in boosting financial access. Similarly, local government programs supporting women, youth, and MSMEs have helped create a more inclusive financial ecosystem.
• Local Government Loans: Disbursements from Local Government Authorities (LGAs), totaling TZS 43.94 billion to over 23,000 MSME owners (across women and youth), show targeted efforts to empower underserved groups. This indicates focused governmental efforts to integrate vulnerable populations into the formal financial system.

3. Increased Focus on Financial Inclusion

• The 39.15% increase in loan value from Tier II microfinance institutions (from TZS 539.84 billion in 2022 to TZS 749.99 billion in 2023) signifies that microfinance remains an essential pillar for MSMEs, particularly for smaller or informal businesses that face more significant barriers in accessing bank loans.
• Zanzibar MSME Development: The TZS 2.10 billion allocated to 18 MSME projects in Zanzibar highlights the government's regional and local focus on inclusivity, ensuring that MSMEs across the country benefit from financial access, not just in larger urban areas.

4. Continued Challenges

• Collateral and High Costs: Despite the increases in access to credit, many MSMEs, particularly in rural areas, still face difficulties accessing loans due to lack of collateral and the high cost of credit. This limits the growth potential of some businesses, especially smaller and informal ones.
• Disparities Between Sectors: There remains a gap between larger and smaller MSMEs in accessing finance, with smaller businesses still relying heavily on microfinance institutions or government-backed loans, rather than banks.

5. Significant Economic and Social Impact

• Economic Growth and Job Creation: Increased access to finance enables MSMEs to expand operations, improve productivity, and generate employment. This supports Tanzania’s economic growth and job creation in the informal and formal sectors.
• Focus on Women and Youth: Government-targeted schemes are fostering economic empowerment for women and youth, key drivers of sustainable development, by enabling these groups to establish and scale businesses, contributing to social inclusion and gender equality.

Conclusion

The progress in MSMEs' access to finance in Tanzania in 2023 tells a story of positive growth, government commitment, and increased financial inclusion. While challenges like collateral requirements and high loan costs persist, the growing access to financial products, combined with targeted initiatives for women, youth, and smallholder farmers, highlights Tanzania’s path toward fostering a more inclusive and vibrant economy. The increased focus on microfinance and government programs also indicates a shift towards supporting underserved sectors, ensuring that more businesses, especially in rural areas, can thrive.

Between 2019 and 2023, Tanzania's financial landscape experienced remarkable growth, with total financial access points increasing by 130%, from 609,956 in 2019 to 1,402,609 in 2023. This expansion was driven by a 116% rise in mobile money agents (from 573,444 to 1,240,106) and a 365% growth in bank agents (from 28,358 to 106,176). The country’s financial inclusion rate improved from 65% in 2017 to 76% in 2023, showcasing the success of digital innovations and policy reforms under the National Financial Inclusion Framework. This growth underscores Tanzania's commitment to bridging the financial access gap, particularly in underserved areas.

Financial Services Providers Landscape in Tanzania

Tanzania's financial services landscape is diverse and rapidly growing, driven by digital innovations and regulatory improvements. The sector comprises banking institutions, microfinance, insurance, capital markets, and payment service providers:

Access to Financial Services

• Banking Services:
  • Number of bank agents grew from 28,358 in 2019 to 106,176 in 2023.
  • Banking access points increased to 107,238 in 2023, driven by reforms in agent banking.
• Microfinance Institutions (MFIs):
  • Access points reached 51,253 in 2023, marking a 31% annual growth.
  • Community Microfinance Groups (CMGs) dominate with 48,659 access points, reflecting a formalization trend.
• Payment Services:
  • Mobile money agents grew by 19.4% to 1.24 million in 2023.
  • Mobile money accounts increased by 34.9% to 51.72 million.

Usage of Financial Services

• Savings:
  • Banking sector savings reached TZS 6.99 trillion, an 18.1% increase.
  • Savings accounts in SACCOs decreased in value to TZS 870 billion, as some members preferred borrowing.
• Credit:
  • Total bank loans grew by 24.4% to TZS 33.10 trillion.
  • SACCOs' loans amounted to TZS 1.12 trillion, a 3.7% increase.
• Insurance:
  • Policyholders increased by 94.4% to 7.68 million, mainly due to mandatory motor insurance and health coverage expansion.
• Capital Markets:
  • Investors in securities increased by 12.5% to 907,969, supported by technology-enabled platforms.

Growth Drivers

1. Digital Financial Services: The rise of mobile money and online platforms improved accessibility and efficiency.
2. Policy Frameworks: The National Financial Inclusion Framework (2023-2028) prioritized underserved populations.
3. Regulatory Enhancements: New guidelines fostered innovations, such as digital insurance platforms and microfinance formalization.
4. Government Programs: Local Government Authority loans provided TZS 24.02 billion to women and TZS 19.92 billion to youth in 2023.

Total Number of Financial Access Points in Tanzania (2019–2023)

The number of financial access points in Tanzania grew significantly between 2019 and 2023, driven by expansion across banking, microfinance, insurance, and payment systems:

Overall Growth

• In 2019, Tanzania had 609,956 financial access points.
• By 2023, this number increased to 1,402,609, representing a 130% growth over the period.

Yearly Breakdown of Access Points

Sector-wise Contribution

1. Banking Services:
   • Grew from 29,371 access points in 2019 to 107,238 in 2023.
   • Bank agents contributed most to this increase, quadrupling during the period.
2. Microfinance Services:
   • Increased from 6,241 access points in 2019 to 53,371 in 2023, driven by the formalization of Community Microfinance Groups (CMGs).
3. Insurance Services:
   • Access points rose from 795 in 2019 to 1,495 in 2023, a 88% growth, fueled by digital platforms and bancassurance agents.
4. Payment Systems (Non-Bank):
   • Dominated the landscape, growing from 573,444 access points in 2019 to 1,240,106 in 2023, representing 116% growth.
   • Mobile money agents were the largest contributors.
5. Capital Markets Services:
   • Modest growth from 91 access points in 2019 to 380 in 2023, reflecting a focus on investment advisory and fund management.
6. Social Security Services:
   • Grew slightly from 14 access points in 2019 to 19 in 2023, limited by the niche nature of this sector.

Key Drivers of Growth

• Digital Transformation: Mobile money platforms and digital payment systems rapidly increased access.
• Policy and Regulation: The implementation of the National Financial Inclusion Framework (NFIF) facilitated formalization and innovation.
• Public-Private Partnerships: Collaboration with stakeholders such as banks, microfinance institutions, and insurers expanded reach.

Implications

The steady increase in financial access points reflects Tanzania's progress in financial inclusion, ensuring more adults live within a 5 km radius of financial services (89% in 2023, up from 86% in 2017).

Insights from Tanzania's Financial Services Providers Landscape (2023) and Financial Access Points (2019–2023)

1. Strong Progress in Financial Inclusion

The rapid growth in financial access points and the diversification of financial service providers illustrate Tanzania's consistent strides in financial inclusion. The financial inclusion rate increased from 65% in 2017 to 76% in 2023, demonstrating that more Tanzanians are accessing formal financial services.

2. Dominance of Digital Financial Services

• The exponential growth in mobile money agents (from 573,444 in 2019 to 1,240,106 in 2023) highlights how digital financial services dominate the financial landscape.
• Digital innovations, such as mobile money, are bridging the gap in rural and underserved areas, making financial services more accessible and affordable.

3. Role of Policy and Regulation

• The implementation of frameworks like the National Financial Inclusion Framework (NFIF-3, 2023–2028), along with regulatory reforms for digital platforms, insurance, and microfinance, has created an enabling environment for growth.
• This alignment between public and private stakeholders reflects a focused approach to tackling barriers to financial access.

4. Significant Growth in Banking Services

• The growth in banking agents (from 28,358 in 2019 to 106,176 in 2023) shows that agent banking reforms have effectively decentralized banking, bringing services closer to people, especially in rural areas.

5. Increased Focus on Underserved Segments

• Initiatives targeting women, youth, MSMEs, and smallholder farmers have driven tailored products, like women-friendly savings accounts and micro-loans, showcasing a shift towards inclusive financial services.

6. Opportunities in Microfinance and Capital Markets

• The formalization of Community Microfinance Groups (CMGs) and the growth of capital markets (e.g., fund managers and collective investment schemes) indicate untapped potential for rural financing and investment.

7. Persistent Challenges

• Despite improvements, certain challenges persist:
  • Social security services access points remain limited (only 19 access points in 2023).
  • Urban-rural disparities still exist, as infrastructure in rural areas lags behind urban centers.
  • Low uptake of advanced financial services like pensions and insurance, indicating a need for more public awareness and tailored products.

8. Economic and Social Impacts

• Economic Growth: With credit values increasing by 24.4% in banks and 3.7% in SACCOs in 2023, the financial sector has become a key driver of economic growth by mobilizing savings and enabling trade.
• Social Benefits: Financial inclusion efforts have empowered previously underserved populations, enhancing their ability to save, invest, and access credit.

Key Takeaways

1. Growth with Innovation: The financial services landscape in Tanzania is becoming increasingly diversified, with digital financial services leading the charge.
2. Policy as a Catalyst: The alignment of policy, innovation, and private-sector initiatives ensures sustainable growth in financial inclusion.
3. Targeted Efforts are Essential: Continued focus on underserved segments like rural populations and MSMEs is crucial for equitable economic growth.