Microfinance Institutions & SME Development in Tanzania 2025 | TICGL Research
📊 TICGL Economic Case Studies (TECS) · February 2026
The Contribution of Microfinance Services
to the Development of SMEs in Tanzania
A proposed evaluation of the role of Microfinance Institutions (MFIs) in supporting
Micro and Small Enterprises (MSEs) — trends, challenges and opportunities for Tanzania's
financial ecosystem in 2025.
✍️ Amran Bhuzohera — Senior Economist & Research Lead, TICGL🔬 420 MFIs Surveyed📅 Nov 2024 – April 2025 (Data collection)
420
MFIs Surveyed
TZS 800B
Total Loan Portfolio
49%
MFIs with 5–10% Default
62%
Loans Below TZS 5M
25%
Digital Finance Opportunity
📄
Abstract & Key Findings
Microfinance Institutions (MFIs) play a critical role in financial inclusion by providing capital to
Micro and Small Enterprises (MSEs) in Tanzania. Despite their importance, MFIs face challenges
such as high default rates, limited access to funding, regulatory barriers, and operational
inefficiencies. This study examines the landscape of MFIs, their risk management strategies, loan
portfolio allocations, and recommendations for strengthening financial access for MSEs.
30%
Trade & Retail — Largest Loan Sector
22%
Agriculture Loan Share
18%
Manufacturing Share
62%
Loans Below TZS 5 Million
49%
MFIs: Default Rate 5–10%
44%
MFIs Cite High Borrowing Costs
28%
See Govt-Backed Funding as Key
25%
Emphasise Digital Finance
Loan Portfolio by Business Sector
Distribution of MFI loan allocation across five key economic sectors (TZS 800 billion total)
MFI Default Rate Distribution
Percentage of surveyed MFIs reporting each default rate band (n = 410 MFIs)
Conclusion:
To enhance financial access, MFIs must adopt alternative credit scoring models, expand digital
lending platforms, and strengthen public-private partnerships. Policymakers should consider
tiered regulatory frameworks, interest rate flexibility, and credit guarantee programmes to
support sustainable lending to MSEs.
Introduction
🎯
1. Introduction & Research Objectives
This research analyses the role of Microfinance Institutions (MFIs) in supporting Micro and Small
Enterprises (MSEs) in Tanzania. The study examines key factors such as the duration of MFI
operations, the types of clients they serve, loan portfolio distribution, default rates, and challenges
in accessing capital. Additionally, the research explores risk management strategies, regulatory
challenges, financial products offered, and opportunities for enhancing MFI support for MSEs.
1.1 Specific Research Objectives
Assess the current landscape of MFIs in Tanzania, including their longevity and market reach.
Identify the major challenges MFIs face in financing and supporting MSEs.
Explore risk management techniques used by MFIs when lending to MSEs.
Evaluate the regulatory environment and its impact on MFI operations.
Recommend policy and operational strategies to strengthen MFI contributions to economic development.
🏦
1.2 Why MFIs Matter for Tanzania's MSEs
Microfinance Institutions play a crucial role in promoting financial inclusion and economic
development in Tanzania. With traditional banks often hesitant to serve small businesses due to
perceived risks, MFIs bridge the gap by providing accessible financial services to micro and
small enterprises. According to the Tanzania National Bureau of Statistics (NBS, 2022),
MSEs account for over 35% of Tanzania's GDP and provide employment to more than
5 million people.
35%+
MSE Contribution to GDP
5M+
People Employed by MSEs
Services Offered by MFIs to MSEs
💳 Micro-loans & Credit
Helping businesses expand and sustain operations through accessible, collateral-light credit facilities.
📚 Financial Literacy Training
Ensuring MSEs understand budgeting, loan management, and business planning fundamentals.
💰 Savings & Investment Products
Enabling small businesses to build financial resilience and invest in growth.
📱 Digital Financial Services
Mobile banking and digital payments to improve financial accessibility and reduce transaction costs.
⚖️
1.3 Key Challenges & Opportunities
Top Challenges Facing MFIs
Share of MFIs citing each challenge as a primary obstacle
This research utilised a quantitative survey approach to gather data on the
operations, challenges, and opportunities faced by MFIs in Tanzania. Data was collected
from November 2024 to January 2025, combining structured questionnaires with
key informant interviews and secondary data from NBS, Bank of Tanzania (BoT), and TAMFI.
📋
Structured Surveys
Standardised questionnaires on MFI operations, loan portfolios, risk strategies and regulatory challenges.
🗣️
Key Informant Interviews
In-depth interviews with MFI managers and industry experts across Tanzania.
📰
Secondary Data Review
Reports from NBS (2022), Bank of Tanzania (2024), and TAMFI (2023) to contextualise findings.
🌍
Geographic Coverage
Dar es Salaam, Mwanza, Arusha, Dodoma, Mbeya, and Zanzibar — urban, peri-urban, and rural.
2.2 Sample Size & Distribution
MFI Sample by Years in Operation
420 MFIs surveyed — distributed by operational maturity
Sample by Client Type
Distribution of MFIs by primary client category
Category
MFI Count
Share (%)
Distribution
1 – 5 Years Operation
230
55%
55%
6 – 10 Years Operation
80
19%
19%
Less than 1 Year
90
21%
21%
Over 10 Years
20
5%
5%
Serves Micro-enterprises primarily
37%
37%
Mixed Client Base (Micro + Small)
39%
39%
Serves Small Enterprises
24%
24%
2.3 Study Limitations
🔍 Self-Reported Data
Survey responses may include bias. Secondary data from NBS, BoT and TAMFI used for validation.
🌱 Informal MFIs Excluded
Community savings groups and village lending schemes not fully included; findings apply to registered MFIs.
🏙️ Urban Bias
Higher participation from urban MFIs; unique rural challenges may not be fully captured.
📐 MSE Perspective Gap
Study focuses on MFIs; MSE client perspectives on service quality not extensively covered.
Findings & Analysis
📅
3.1 Years of Operation of MFIs
A majority of MFIs in Tanzania are relatively young, with over 76% (320 MFIs)
having operated for 10 years or less. The largest category (55%) has been operating for 1–5 years,
indicating rapid sector growth. Only 5% have been in existence for more than
10 years, highlighting that long-term sustainability remains a challenge.
5%
MFIs Operating 10+ Years
55%
MFIs in Operation 1–5 Years
21%
MFIs Under 1 Year Old
19%
MFIs Operating 6–10 Years
MFI Sector Maturity Profile — Years in Operation
Distribution of 420 surveyed MFIs by operational age — indicates a young, rapidly expanding sector
3.1.2 Implications of MFI Experience
Dimension
Established MFIs (10+ yrs)
Young MFIs (<5 yrs)
Trend
Loan Default Rate
Below 5%
Up to 15%
▼ Higher Risk for Young MFIs
Investor Confidence
High — proven track record
Low — unproven viability
▲ Improves with age
Operational Costs
Lower — economies of scale
Higher — setup & hiring costs
▲ Decreases with experience
Regulatory Compliance
Resilient — adapted over time
Challenging — capital adequacy gaps
→ Policy support needed
Risk Assessment Quality
Strong frameworks
Underdeveloped
▼ Training gap critical
⚠️ Policy Implication: The dominance of young MFIs creates systemic risk. Targeted policies
— including subsidised risk management training, mentorship from established MFIs, and
access to affordable capital — are critical to improving sector sustainability.
👥
3.2 Type of Clients Served
Client segmentation directly influences lending strategies, risk management approaches, and
overall financial sustainability. The majority of MFIs (39%) serve a mixed client base covering
both micro and small enterprises, while 37% focus on micro-enterprises and 24% on small
enterprises exclusively.
Client Category
MFIs (Frequency)
Share (%)
Typical Loan Size
Risk Profile
Distribution
Micro-enterprises
150
37%
Small, short-term
High Risk
37%
Mixed (Micro & Small)
160
39%
Varied
Medium Risk
39%
Small enterprises
100
24%
Larger, longer-term
Lower Risk
24%
Total
410
100%
—
—
—
Client Segmentation Breakdown
Share of MFIs by primary client category (n = 410)
Interest Rate vs Client Type (Conceptual)
Higher micro-enterprise risk means higher interest rates; small enterprise lending is more cost-efficient
How Client Segmentation Shapes Lending Strategy
📏 Loan Size
Micro-enterprises: Smaller amounts, shorter repayment. Small enterprises: Larger loans, longer terms for equipment and expansion.
🛡️ Risk Management
Micro: Group lending & peer guarantees. Small: Individual lending with collateral requirements.
Micro: Group loans, micro-loans, literacy programs. Small: Working capital, asset financing, trade credit.
🚧
3.3 Challenges in Providing Loans to MSEs
Despite their significance, MFIs face multiple barriers that hinder their ability to extend
credit effectively. Research identified five major challenges in loan disbursement.
Main Barriers — MFIs in Providing Loans to MSEs
Frequency and percentage of each challenge across all surveyed MFIs (total response n = 1,220)
Challenge
Frequency
Share (%)
Key Impact
Priority
Insufficient Funds for Lending
300
25%
Leaves many MSEs unserved
CRITICAL
Lack of Collateral from Clients
290
24%
Forces higher rates, limits approval
CRITICAL
Limited Client Financial Literacy
270
22%
Leads to missed repayments
HIGH
High Operational Costs for Small Loans
210
17%
Reduces profitability & rural reach
HIGH
High Default Rates
150
12%
Stricter lending, higher interest rates
MEDIUM
Total
1,220
100%
—
—
🔑 Key Finding:
The top two barriers — insufficient lending funds (25%) and lack of collateral
(24%) — together account for nearly half of all challenges. Addressing these through
government-backed guarantee schemes and alternative collateral models would have the
greatest impact on financial inclusion.
🛡️
3.4 Risk Management Strategies
Given the high-risk nature of lending to MSEs, MFIs implement various risk mitigation strategies.
The most widely used is credit risk assessment and scoring (26%), followed by
group lending and social collateral (23%).
Risk Mitigation Strategy Usage
Share of MFIs using each risk management approach (n = 1,080 responses)
Effectiveness vs Adoption Rate
Comparing how widely adopted each strategy is against its perceived effectiveness
Risk Strategy
Frequency
Share (%)
How It Works
Key Limitation
Trend
Credit Risk Assessment & Scoring
280
26%
Creditworthiness based on financial history & repayment behaviour
Limited MSE financial records
▲ Growing
Group Lending & Social Collateral
250
23%
Peer-guarantee groups share loan responsibility
Group conflicts can weaken model
→ Established
Strict Loan Monitoring & Follow-ups
200
19%
Regular visits & digital tracking of repayments
Raises operational costs for rural
▲ Digital shift
Loan Portfolio Diversification
180
17%
Spread exposure across sectors & geographies
Requires strong financial expertise
▲ Growing
Credit Guarantee Schemes
170
15%
Government / donor partial risk coverage
Bureaucratic delays, access issues
▲ Needed more
Total
1,080
100%
—
—
—
✅ Best Practice: The most effective approach for MFIs combines multiple strategies simultaneously —
particularly integrating alternative data sources (e.g. mobile money transaction histories)
into credit scoring models alongside group lending mechanisms.
📊
3.5 Loan Portfolio Allocation to MSEs
MFIs allocate their loan portfolios based on sectoral demand, risk assessment, and expected
returns. The total MSE loan portfolio across surveyed MFIs stands at TZS 800 billion,
with Trade & Retail taking the largest share at 30%.
TZS 250B
Trade & Retail — 30%
TZS 180B
Agriculture — 22%
TZS 150B
Manufacturing — 18%
TZS 120B
Services / ICT — 14%
TZS 100B
Construction — 12%
Loan Portfolio by Sector (TZS Billions)
Absolute value allocation across five economic sectors — TZS 800B total
Loan Size Distribution Among MSEs
62% of all loans fall below TZS 5 million — confirming micro-enterprise orientation
Business Sector
Allocation (TZS Bn)
Share (%)
Growth Driver
Trend
Trade & Retail
250
30%
Dominance of small trading businesses
→ Dominant
Agriculture & Agribusiness
180
22%
Government food security policy support
▲ Growing
Manufacturing & Processing
150
18%
Industrialisation & value-addition drive
▲ Rising
Services (Transport, ICT)
120
14%
Digital economy expansion
▲ Rising
Construction & Real Estate
100
12%
Urbanisation & infrastructure demand
→ Stable
TOTAL
800
100%
—
—
3.5.2 Loan Size Distribution
Loan Size (TZS)
Number of Loans
Share (%)
Typical Borrower
Distribution
< 2 Million
5,000
32%
Street vendors, market traders
32%
2 – 5 Million
4,500
30%
Small shop owners, small farmers
30%
5 – 10 Million
3,000
20%
Growing businesses, agribusiness
20%
10 – 20 Million
1,500
10%
Small enterprises, manufacturers
10%
> 20 Million
1,000
8%
Established SMEs, construction
8%
TOTAL
15,000
100%
—
—
📌 Key Trends in Loan Allocation:
1. Digital Lending is Rising: Mobile-based microloans are expanding through fintech partnerships with telecom companies — faster processing & repayment tracking.
2. Women-Owned Business Focus: Growing allocation to women-led businesses, reflecting inclusive finance policies.
3. Manufacturing on the Rise: Growing industrial loan share aligns with Tanzania's industrialisation goals.
Findings & Analysis: MFI Contributions to SME Development in Tanzania 2025 | TICGL Research
Deep-dive into the data from 420 MFIs in Tanzania — loan portfolios, default rates, risk management, regulatory environment, digital integration, training programs, and strategic recommendations.
The duration of operation is a key proxy for stability and financial sustainability. Most MFIs in Tanzania are relatively young, with more than three-quarters having operated for 10 years or less — signalling a rapidly expanding but still maturing sector.
55%
Operate 1–5 years
21%
Less than 1 year
19%
6–10 years
5%
Over 10 years
Distribution
MFI Age Profile (n=420)
Trend Analysis
Sectoral Impact by Operational Age
Years in Operation
No. of MFIs
Share
Distribution
Less than 1 year
90
21%
1–5 years
230
55%
6–10 years
80
19%
Over 10 years
20
5%
Total
420
100%
The prevalence of young MFIs (76% operating ≤ 10 years) reflects Tanzania's rapidly expanding microfinance market. However, only 5% have survived more than a decade, underscoring long-term sustainability as a sector-wide challenge that requires targeted policy support.
📈
Access to Capital
MFIs with longer track records attract stronger investor confidence and better financing terms. Newer MFIs often struggle to access funding before proving financial viability.
⚙️
Operational Efficiency
Experienced MFIs benefit from economies of scale and streamlined lending processes. Newer entrants face higher administrative costs as they build client trust.
🏛️
Regulatory Resilience
MFIs that have survived over 10 years have demonstrated adaptability to regulatory changes — a key indicator of institutional health and long-term sustainability.
Section 3.2
Type of Clients Served
Client segmentation directly shapes an MFI's lending strategy, risk exposure, and financial product portfolio. The near-equal distribution across client types highlights the diversity of Tanzania's MFI landscape.
Client Segmentation
MFIs by Primary Client Category
Influence on Strategy
Lending Strategy by Client Type
Client Category
Frequency
Percentage
Distribution
Micro-enterprises
150
37%
Mixed (Micro & Small)
160
39%
Small enterprises
100
24%
Total
410
100%
How Client Segmentation Influences Lending Strategies
🏪
Micro-Enterprise Focus (37%)
Higher risk profiles driven by irregular income and low financial literacy. MFIs use group lending and peer guarantee models to minimize defaults, and charge higher interest rates to offset costs.
🏢
Small Enterprise Focus (24%)
Better creditworthiness enables individual lending with collateral requirements. MFIs can offer lower interest rates as larger loans reduce per-unit administrative costs.
🔀
Mixed-Client Focus (39%)
The largest segment combines micro-loans, SME loans, working capital facilities and trade credit — diversifying both the product range and risk exposure of the institution.
Section 3.3
Challenges in Providing Loans to MSEs
MFIs face five key barriers that reduce their capacity to extend credit. Insufficient lending funds and lack of borrower collateral emerge as the dominant constraints, together accounting for nearly half of all reported challenges.
25%
Insufficient Funds
24%
Lack of Collateral
22%
Low Financial Literacy
17%
High Operational Costs
12%
High Default Rates
Key Lending Barriers
Main Challenges MFIs Face in Providing Loans to MSEs (n=1,220 responses)
Challenge
Frequency
Percentage
Distribution
Key Impact
Insufficient funds for lending
300
25%
Limits credit supply; many MSEs left unserved
Lack of collateral from clients
290
24%
Blocks informal and women-led businesses
Limited client financial literacy
270
22%
Increases default and misuse of funds
High operational costs for small loans
210
17%
Reduces rural outreach; drives up interest rates
High default rates
150
12%
Strains liquidity and limits new disbursements
Total
1,220
100%
⚠️ Critical finding: The top two barriers — insufficient funds (25%) and lack of collateral (24%) — together explain why many creditworthy MSEs remain financially excluded. Addressing these requires systemic policy intervention, not just institutional adjustment.
Section 3.4
Risk Management Strategies
Given the high-risk profile of MSE lending, MFIs deploy a combination of strategies to manage credit risk. Credit scoring and group lending dominate, collectively accounting for nearly half of all reported approaches.
Strategy Prevalence
Risk Management Strategies Used by MFIs
Effectiveness Radar
Strategy Effectiveness vs Coverage
Risk Management Strategy
Frequency
Percentage
Distribution
Credit risk assessment and scoring
280
26%
Group lending and social collateral
250
23%
Strict loan monitoring and follow-ups
200
19%
Loan portfolio diversification
180
17%
Credit guarantee schemes
170
15%
Total
1,080
100%
Best practice: MFIs with the lowest default rates consistently apply a combination of credit scoring, group lending, and strict monitoring — rather than relying on a single approach. A multi-strategy framework is the most effective risk mitigation model.
Section 3.5
Loan Portfolio Allocation to MSEs
With a total MFI loan portfolio of TZS 800 billion, trade and agriculture dominate allocations, reflecting Tanzania's economic structure. A shift toward manufacturing and digital lending is also underway.
TZS 800B
Total Loan Portfolio
30%
Trade & Retail
62%
Loans Below TZS 5M
32%
Loans Below TZS 2M
Sectoral Distribution
Loan Portfolio by Business Sector (TZS Billion)
Loan Size Distribution
MSE Loan Size Breakdown (n=15,000 loans)
Table 3.4: Loan Portfolio Allocation by Business Sector
Business Sector
Loan Allocation (TZS Billion)
Percentage
Distribution
Trade & Retail
250
30%
Agriculture & Agribusiness
180
22%
Manufacturing & Processing
150
18%
Services (Transport, ICT)
120
14%
Construction & Real Estate
100
12%
Total
800
100%
Table 3.5: Loan Size Distribution Among MSEs
Loan Size (TZS)
Number of Loans
Percentage
Distribution
< 2 Million
5,000
32%
2 – 5 Million
4,500
30%
5 – 10 Million
3,000
20%
10 – 20 Million
1,500
10%
> 20 Million
1,000
8%
Total
15,000
100%
Section 3.6
Default Rates for MSE Loans
Loan repayment performance varies significantly across MFIs, with the majority reporting moderate default rates. However, a substantial minority — more than one in four — face defaults above 10%, posing serious sustainability risks.
24%
Default < 5%
49%
Default 5–10%
27%
Default > 10%
Default Rate Distribution
MFI Default Rate Bands (n=420)
Causes of Default
Primary Drivers of MSE Loan Defaults
Key Causes of Default Among MSE Borrowers
1
Poor Financial Management
MSEs frequently mix personal and business finances, struggle with cash flow planning, and lack structured financial records — making meeting repayment deadlines difficult.
2
Limited Financial Literacy
Many borrowers misunderstand loan terms, interest rate structures, and penalty clauses — leading to unintentional defaults and disputes with MFIs.
3
Economic & Market Fluctuations
Seasonal revenue disruptions, supply chain volatility, and price shocks reduce business income below repayment thresholds — especially in agriculture and trade.
4
High Interest Rates
MFIs charge premium rates to compensate for operational costs and risk exposure. For thin-margin MSEs, cumulative interest obligations often exceed cash flow capacity.
5
Inadequate Risk Assessment
Incomplete financial histories, lack of collateral documentation, and limited credit scoring tools result in loans being extended to clients with insufficient repayment capacity.
6
External & Regulatory Barriers
Delayed payments from clients and government contracts, combined with licensing costs and tax burdens, compress disposable income available for loan repayment.
⚠️ 27% of MFIs face default rates above 10% — a threshold that strains liquidity, limits new loan disbursements, and reduces investor confidence. Without intervention, this segment risks institutional collapse.
Section 3.7
Challenges in Accessing Capital
Securing adequate funding is a persistent structural problem for Tanzanian MFIs. High borrowing costs and regulatory constraints are the dominant barriers, limiting the sector's ability to expand lending and reduce interest rates for MSE clients.
44%
Cite High Borrowing Costs
29%
Stringent Collateral Requirements
Capital Access Barriers
Key Challenges MFIs Face in Securing Funds
Role of Regulatory Policies in Financing Accessibility
📋
Licensing & Compliance Costs
Capital adequacy and reporting standards increase operating costs. Smaller MFIs often struggle to meet requirements, reducing their eligibility for external funding.
📊
Interest Rate Caps
Imposed caps limit MFI profitability and exclude high-risk borrowers, as MFIs cannot compensate for lending risks through flexible pricing.
🌍
Foreign Investment Restrictions
International investors face lengthy regulatory approvals. Delays discourage capital inflows that could significantly expand MFI lending capacity.
🏦
Central Bank Policies
Limited access to central bank refinancing forces costly commercial bank borrowing. Tight liquidity controls restrict expansion in underserved regions.
Section 3.8
Preferred Financing Options
MFIs rely on a mix of debt, equity, grants and retained earnings to fund their lending operations. Commercial bank loans dominate despite their high cost — reflecting limited availability of alternative financing.
Financing Mix
Preferred Financing Sources (n=430 MFIs)
Cost vs. Availability
Financing Source Trade-offs
Financing Option
Frequency
Percentage
Key Advantages
Commercial Bank Loans
160
40%
Readily available; consistently accessible but expensive due to high interest rates
Government & Donor Grants
120
30%
Low-cost funding; highly preferred but with inconsistent availability
Most sustainable source; but limited by operational profitability levels
Total
430
100%
Section 3.9 – 3.11
Regulatory Environment for MFIs
Tanzania's regulatory framework receives mixed reviews from MFIs. While a majority view it as broadly supportive, significant policy bottlenecks — particularly around interest rate flexibility and compliance burdens — constrain institutional growth.
Perceptions Survey
MFIs' View of Tanzania's Regulatory Landscape (n=420)
Key Bottlenecks
Regulatory Challenges Faced by MFIs
Table 3.9: MFI Perceptions of Regulatory Environment
Increases administrative burden and operational costs
High compliance costs
130
20%
Reduces funds available for lending, especially for small MFIs
Strict licensing & registration
120
19%
Limits new market entrants; slows sector innovation
Total
640
100%
Recommended Regulatory Reforms (Table 3.11)
Regulatory Change
Frequency
Percentage
Expected Impact
More flexible lending guidelines
300
39%
Expands financial access for underserved MSEs; improves approval rates
Government-backed guarantees for MSE loans
240
31%
Reduces lending risks; enables more loans to MSEs with limited collateral
Streamlined reporting requirements
120
16%
Frees resources for service delivery; reduces administrative costs
Reduction in compliance costs
110
14%
Lowers barriers for smaller MFIs; promotes inclusive market growth
Total
770
100%
Sections 3.12 – 3.14
Financial Products & Service Gaps
Tanzania's MFIs are primarily loan-focused, with micro-loans and group loans accounting for 97% of all financial products. Critical non-lending services — savings accounts, insurance, and mobile banking — remain severely underdeveloped relative to MSE demand.
Products Offered
Financial Products Currently Offered by MFIs
Services Requested
Most Requested Financial Services by MSEs
Demand vs. Supply Gap Analysis (Table 3.13)
Financial Service
MSE Demand (%)
MFI Supply (%)
Gap
Assessment
Small Business Loans
60%
55%
Mostly Met More flexible products needed
Financial Literacy Training
21%
2%
Critical Gap MFIs must integrate structured programs
Key Barriers to Expanding Financial Products (Table 3.14)
Barrier
Frequency
Percentage
Core Impact
High development & operational costs
230
31%
Prevents introduction of new products due to high administrative and tech expenses
Regulatory restrictions
230
31%
Capital requirements and licensing limit savings, insurance and fintech services
Lack of technical expertise
210
28%
Skill gaps in risk assessment, digital finance and product innovation
Limited client demand
70
9%
Low awareness and financial literacy reduce uptake of non-lending products
Total
740
100%
Section 3.15
Barriers to Digital Financial Integration
Digital financial services (DFS) hold transformative potential for Tanzania's MFI sector. However, infrastructure costs, security concerns and low digital literacy among clients are slowing the pace of adoption.
Digital Barriers
Primary Barriers to Digital Financial Integration (n=740 responses)
Barrier
Frequency
Percentage
Impact on Digital Integration
High costs of digital infrastructure
250
34%
Fintech platforms, mobile apps and cloud systems remain unaffordable for smaller MFIs
Data privacy & security concerns
200
27%
Cyber threats and weak data protection frameworks deter MSE adoption
Low digital literacy among clients
200
27%
Despite availability, MSEs lack skills to use mobile banking or digital loan tools
Regulatory barriers
82
11%
Strict licensing and KYC requirements slow digital onboarding
Total
740+
100%
🔒
Security & Trust Solution
Strengthen cybersecurity frameworks, enforce data protection laws, and launch client education programs on digital safety and fraud prevention.
💡
Infrastructure Cost Reduction
Partner with fintech firms to share technology costs; leverage cloud-based solutions and seek government subsidies or donor grants for digital platform adoption.
📱
Digital Literacy Programs
Launch targeted digital finance training for MSEs; develop simplified, user-friendly mobile banking apps with local language support and intuitive interfaces.
📜
Regulatory Sandbox
Advocate for streamlined compliance for digital MFIs; work with policymakers to create regulatory sandboxes that allow controlled testing of new digital financial services.
Sections 3.16 – 3.18
Training, Support & Loan Management Challenges
Financial literacy and business training are not luxuries — they are structural components of a sustainable MFI ecosystem. Yet gaps in delivery, reach and content quality remain significant obstacles.
Training Availability
MFIs with Training Programs
Training Types
Types of Training Offered by MFIs
Loan Management Challenges
MSE Difficulties in Managing Loans
Table 3.16: Training Program Availability
Training Status
Frequency
Percentage
Implications
Training programs already in place
290
73%
Majority of MFIs have active programs for financial literacy and business skills
Planning to introduce programs
90
23%
These MFIs recognise the need but lack implementation frameworks
No training programs offered
20
5%
Focus solely on financial services without capacity-building support
Total
400
96% offer or plan to offer training
Table 3.17: Types of Training Offered
Training Type
Frequency
Percentage
Impact on MSEs
Financial literacy & budgeting
280
35%
Teaches cash flow management, expense tracking, and sustainable fund allocation
Loan management & repayment
200
25%
Reduces defaults by improving understanding of repayment obligations and terms
Business planning & management
200
25%
Helps entrepreneurs develop strategic plans and make better investment decisions
Digital literacy
120
15%
Enables transition to mobile banking, digital payments and online loan management
Total
800
100%
Table 3.18: Challenges MSEs Face in Loan Management
Challenge
Frequency
Percentage
Impact on Repayment
Limited financial literacy
330
35%
Affects budgeting, planning and ability to track loan obligations
Poor cash flow management
330
35%
Results in irregular repayments and difficulty covering business expenses
Difficulty understanding loan terms
190
20%
Confusion over schedules, rates and penalties leads to unintentional defaults
Low digital skills
90
10%
Limits access to digital loan management tools and mobile repayment options
Total
940
100%
Section 3.19
Opportunities for Strengthening MFI Support
MFIs themselves identify four key pathways to enhance their impact on MSE development — government-backed funding, digital transformation, strategic partnerships, and expanded financial literacy programs.
Opportunity Landscape
Opportunities to Improve MFI Support for MSEs in Tanzania (n=1,140)
Opportunity
Frequency
Percentage
Expected Impact
Access to government-backed funding programs
320
28%
Provides MFIs with low-cost capital to expand lending to underserved MSEs
Expanding digital financial services
290
25%
Lowers transaction costs; improves accessibility for rural and informal MSEs
Forming partnerships with fintech providers
310
27%
Enables AI credit scoring, blockchain lending, and advanced risk management
Expanding financial literacy programs
220
19%
Reduces default rates; improves loan utilisation and business outcomes for MSEs
Total
1,140
100%
Section 4
Conclusion & Policy Recommendations
This study establishes that MFIs are critical but structurally constrained drivers of MSE development in Tanzania. Sustainable growth requires a coordinated response across three levels: institutional reform within MFIs, enabling regulatory changes, and broader stakeholder collaboration.
4.1 Summary of Key Findings
📋
Risk Management
A combination of credit scoring, group lending, portfolio diversification, and credit guarantee schemes are most effective in mitigating default risks.
💰
Loan Portfolio
Trade & retail (30%) and agriculture (22%) dominate allocations. Manufacturing and digital lending are growing in share.
🏦
Capital Access
44% cite high borrowing costs; 29% face stringent collateral requirements — both major barriers to expanding affordable lending services.
📜
Regulatory Constraints
Capital adequacy requirements, compliance costs, and interest rate caps limit operational flexibility and restrict financial innovation.
📚
Financial Literacy Gaps
MSE borrowers struggle with loan terms, cash flow management and digital tools — directly increasing default risks and loan misuse.
4.2 Recommendations for MFIs
For MFIs
Strengthen Credit Assessment
Integrate mobile money transaction histories as alternative credit data
Use AI-powered scoring to assess informal MSEs
Conduct rigorous pre-loan screening to improve repayment outcomes
For MFIs
Expand Financial Literacy
Offer mandatory budgeting and repayment workshops prior to loan disbursement
Develop simplified, jargon-free loan agreements
Provide post-disbursement advisory services to at-risk borrowers
For MFIs
Embrace Digital Transformation
Partner with telecoms to enable mobile-based loans and repayments
Invest in user-friendly digital platforms for underserved MSEs
Implement cloud-based systems to reduce operational overhead
4.2 Recommendations for Regulators
For Regulators
Flexible Interest Rate Policies
Implement risk-based pricing to allow MFIs to adjust rates by borrower profile
Encourage blended finance models with public-private subsidies
Review interest rate caps to reflect operational realities of MSE lending
For Regulators
Tiered Compliance Framework
Introduce differentiated requirements based on MFI size and risk exposure
Reduce licensing fees and fast-track approvals for new institutions
Implement digital submission systems to reduce reporting burden
For Regulators
Digital Regulatory Sandbox
Create controlled testing environments for new digital financial products
Streamline KYC processes to ease digital onboarding for MSEs
Establish transparent consultation processes before policy changes
4.2 Recommendations for Other Stakeholders
For Partners & Development Institutions
Public-Private Partnerships
Strengthen collaboration between MFIs, banks, and development finance institutions
Promote government-backed credit guarantee schemes to reduce MFI lending risks
Support blended finance models that combine grants with commercial capital
For Partners & Development Institutions
Support Digital Infrastructure
Invest in mobile banking infrastructure for underserved rural regions
Encourage fintech innovation through funding incentives and sandboxes
Develop shared platforms to reduce per-MFI digital investment costs
For Partners & Development Institutions
Strengthen MSE Capacity
Fund national financial literacy campaigns targeting MSE owners
Support women-led and youth-owned enterprises through targeted credit lines
Develop business incubator programs linked to microfinance access
✅ Way forward: By implementing these recommendations, Tanzania has the opportunity to build a more inclusive, efficient, and sustainable microfinance ecosystem — one where MFIs can serve as genuine growth engines for the country's 5 million+ MSE employees and the broader TZS economy.
AB
Amran Bhuzohera
Senior Economist & Research Lead, TICGL
Research areas include public-private partnerships, SME development, inclusive banking, and microfinance policy in Tanzania. Managing Director of Tanzania Investment and Consultant Group Ltd. Contact: amran@ticgl.com | +255 768 699 002
References
Bibliography
Bank of Tanzania. (2024). Microfinance Sector Performance Report. Bank of Tanzania.
National Bureau of Statistics Tanzania. (2022). Micro, Small, and Medium Enterprises Survey Report.
Kessy, S., & Urassa, G. (2020). The role of microfinance institutions in supporting small businesses in Tanzania. Journal of African Finance, 18(2), 45–62.
Nyamsogoro, G. (2017). Financial sustainability of rural microfinance institutions in Tanzania. African Journal of Economic Policy, 25(3), 78–91.
Tanzania Association of Microfinance Institutions (TAMFI). (2023). Annual Report on Microfinance Institutions in Tanzania.
Ministry of Finance and Planning. (2023). Microfinance Policy and Financial Inclusion Strategy in Tanzania.
GSMA. (2022). Mobile Money Adoption in Tanzania: Trends and Future Growth.
World Bank. (2023). Financial Inclusion and Digital Transformation in Sub-Saharan Africa.
Related TICGL Resources
Explore more economic research, data tools and investment intelligence from Tanzania Investment and Consultant Group Ltd.
The financial sector in Tanzania demonstrated significant growth in Q1 2025, as outlined in the National Bureau of Statistics report, with bank deposits rising by 18.5% to TZS 43.0 trillion from TZS 36.3 trillion in Q1 2024, reflecting enhanced savings and trust in the banking system, as noted in Figure 8. This surge, coupled with a 14.7% increase in bank loans to TZS 39.1 trillion from TZS 34.1 trillion, indicates a robust expansion in credit availability, supporting investment and consumption across key sectors like manufacturing and mining, which contributed 10.4% and 15.4% to GDP growth respectively. However, the loan-to-deposit ratio declined from 94.0% to 90.9% (-3.1 percentage points), suggesting a more cautious lending approach, potentially strengthening financial stability but possibly limiting credit flow to the private sector, as highlighted in the sector’s 15.4% growth rate and 3.5% GDP share. This cautious stance, amid a stable 5.4% GDP growth (up from 5.2% in Q1 2024 per Figure 3), positions the sector to bolster economic resilience, though it may necessitate targeted policies to ensure broader credit access, especially for SMEs, to sustain long-term growth momentum.
1. Financial Sector (TZS Trillion)
Bank Deposits:
Rose from TZS 36.3 trillion (Q1 2024) to TZS 43.0 trillion (Q1 2025).
This is an 18.5% increase, reflecting stronger household and corporate savings.
Suggests financial deepening, improved trust in the banking system, and rising liquidity.
Bank Loans:
Increased from TZS 34.1 trillion to TZS 39.1 trillion (+14.7%).
Indicates expansion in credit to businesses and households, supporting investment and consumption.
Loan-to-Deposit Ratio:
Fell from 94.0% to 90.9% (-3.1 percentage points).
Implies that while deposits surged, lending grew slightly slower, showing more conservative lending or stricter credit assessments.
This can strengthen financial stability but may also slow private sector financing.
The banking system shows healthy growth in deposits and loans, but lending is becoming more cautious relative to deposits.
Indicator
Q1 2024
Q1 2025
Growth/Change
Key Implication
Bank Deposits (TZS Trillion)
36.3
43.0
+18.5%
Enhanced liquidity; supports investment
Bank Loans (TZS Trillion)
34.1
39.1
+14.7%
Boosts private sector activity; aids GDP
Loan-to-Deposit Ratio
94.0%
90.9%
-3.1pp
Promotes stability; may limit credit flow
1. Implications of Bank Deposits Growth (18.5% to TZS 43.0 Trillion)
The 18.5% surge in bank deposits from TZS 36.3 trillion in Q1 2024 to TZS 43.0 trillion in Q1 2025 signals robust financial deepening and increased public confidence in the banking system, driven by rising household savings amid stable inflation (around 3.2% year-on-year in April 2025) and economic recovery. This liquidity boost enhances banks' capacity to fund economic activities, contributing to the financial sector's 15.4% growth rate and 12.0% share of overall GDP expansion in Q1 2025. Economically, it supports monetary policy transmission, as noted in the Bank of Tanzania's (BOT) April 2025 Monetary Policy Report, where money supply (M3) grew by 15.1%, fostering a stable environment for investment and potentially lowering borrowing costs if channeled effectively. However, uneven distribution— with personal and corporate savings concentrated in urban areas—could exacerbate regional inequalities, limiting inclusive growth in rural economies reliant on agriculture.
2. Implications of Bank Loans Expansion (14.7% to TZS 39.1 Trillion)
The 14.7% increase in bank loans to TZS 39.1 trillion from TZS 34.1 trillion indicates expanding credit access for businesses and households, bolstering investment in key sectors like manufacturing (7.2% growth) and mining (16.6% growth), which together drove much of Tanzania's 5.4% GDP rise. This credit growth, estimated at 13.2% for private sector lending in Q1 2025 per investor briefings, aligns with high demand for capital projects and consumption, potentially accelerating job creation and productivity. According to the IMF's June 2025 Staff Report, the banking sector's profitability and adequate capitalization (with non-performing loans at 3.6%, below the 5% threshold) underpin this expansion, reducing systemic risks and supporting fiscal stability. Yet, slower loan growth relative to deposits may signal selective lending, prioritizing high-return sectors and possibly constraining SMEs, which could hinder broader diversification away from resource dependence.
3. Implications of Loan-to-Deposit Ratio Decline (to 90.9%)
The drop in the loan-to-deposit ratio (LDR) from 94.0% to 90.9% (-3.1 percentage points) reflects a more conservative banking approach, where deposit inflows outpaced lending, possibly due to stricter credit assessments amid regulatory emphasis on stability post-2024 reforms. This prudence strengthens financial resilience, as highlighted in Fitch Solutions' 2025 analysis, by building buffers against shocks like global trade tensions, and maintains liquidity ratios above BOT thresholds, contributing to the sector's sound profile. Positively, it mitigates risks of over-leveraging, with personal loans comprising 37.6% of credit in early 2025, but it could slow private sector financing, particularly for infrastructure and agriculture, potentially capping GDP growth below the 6% target for FY 2025/26. In a subdued economic context, as per NCBA Group's Q1 2025 report, this caution might preserve stability but delay stimulus effects from monetary easing.
Key Takeaways and Broader Economic Implications
Tanzania's financial sector in Q1 2025 demonstrates healthy expansion, with deposits and loans fueling liquidity and credit for growth, yet the lower LDR underscores a shift toward stability over aggressive expansion, aligning with BOT's neutral monetary stance. This balance supports Tanzania's resilient 5.4% GDP trajectory amid Sub-Saharan Africa's projected 3.8% growth, attracting FDI (e.g., in banking via digital lending platforms like Weza and Mgodi, disbursing billions in Q1). However, challenges include potential credit gaps for underserved sectors, which could widen inequality if not addressed through inclusive policies like mobile money integration. Overall, a stable sector positions Tanzania for sustainable development, with projections for 13-15% credit growth in 2025, but requires vigilant oversight to avoid liquidity risks in a volatile global environment.
The United Republic of Tanzania's economy showcased a steady performance in the first quarter of 2025, with GDP growth rising to 5.4% from 5.2% in the same period of 2024, as detailed in the National Bureau of Statistics report. Key insights reveal the top contributors to this growth include Mining & Quarrying (15.4%), Agriculture (14.2%), Finance & Insurance (12.0%), Construction (11.3%), Manufacturing (10.4%), and Transport & Storage (9.3%). The strongest growth rates were observed in Electricity (19.0%), Mining (16.6%), Finance & Insurance (15.4%), and Education (8.6%), highlighting robust sectoral advancements. However, weaker performers such as Construction (slowed to 4.3%), Trade (fell to 3.5%), and Information & Communication (halved from 14.6% to 7.8%) indicate areas needing attention to sustain overall economic momentum.
1. Overall GDP
Growth: Q1 2025 GDP grew by 5.4%, slightly higher than 5.2% in Q1 2024.
Size: At constant 2015 prices, GDP rose to TZS 40.7 trillion from TZS 38.6 trillion in Q1 2024.
2. Primary Activities (40.7% of GDP)
Agriculture, Forestry & Fishing:
Growth improved from 2.5% (2024) to 3.0% (2025).
Key drivers:
Paddy production rose by 9.6% (568.9k tons → 623.3k tons).
Wheat output jumped 29.4% (29.6k → 38.3k tons).
Oil seeds +5.5%, beans +0.9%.
Contribution: 14.2% of total GDP growth.
Share in GDP: 27.2%.
Mining & Quarrying:
Explosive growth: 3.5% (2024) → 16.6% (2025).
Production surged in key minerals:
Gold +16.1% (13,610 kg → 15,797 kg).
Coal +19.1% (745k tons → 888k tons).
Mica +475.6%, Iron ore +256%, Phosphate +465%.
Contribution: largest, at 15.4% of total GDP growth.
Share in GDP: 11.0%.
3. Secondary Activities (21.4% of GDP)
Manufacturing:
Growth: 5.8% → 7.2%.
Supported by increased production of consumer and industrial goods.
Contribution: 10.4% of growth.
Share in GDP: 6.8%.
Electricity:
Massive jump: 7.6% → 19.0%.
Boosted by Julius Nyerere Hydropower Dam coming online.
Share in GDP: 0.2% (small, but impactful growth driver).
Water Supply:
Growth: 3.1% → 4.2%, linked to production rising to 98.9m m³ (from 94.7m).
Share in GDP: 0.4%.
Construction:
Slowed: 6.4% → 4.3%.
Still important with 11.3% contribution to GDP growth.
Supported by cement & iron-steel output.
Share in GDP: 12.7%.
4. Tertiary Activities (37.9% of GDP)
Trade & Repair:
Decline in growth: 5.3% → 3.5%.
Impacted by moderate import and agriculture trade flows.
Share in GDP: 8.4%.
Transport & Storage:
Growth: 5.7% → 6.5%, driven by cargo tonnage and SGR rail services.
Contribution: 9.3% of GDP growth.
Share in GDP: 7.2%.
Financial & Insurance:
Growth: 14.9% → 15.4%.
Supported by:
Deposits up 18.5% (TZS 36.3T → 43.0T).
Loans up 14.7% (TZS 34.1T → 39.1T).
Contribution: 12.0%.
Share in GDP: 3.5%.
Information & Communication:
Slowed sharply: 14.6% → 7.8%.
Still supported by mobile money, internet expansion & broadcasting.
Share in GDP: 1.6%.
Education:
Growth: 5.5% → 8.6%, thanks to rising student enrollments.
Share in GDP: 2.2%.
Table 1: Sectoral Growth Performance and Contribution Analysis
Economic Sector
Q1 2024 Growth (%)
Q1 2025 Growth (%)
Growth Change (pp)
Contribution to Total Growth (%)
Share of GDP (%)
Primary Activities
-
-
-
-
40.7
Agriculture, Forestry & Fishing
2.5
3.0
+0.5
14.2
27.2
Mining and Quarrying
3.5
16.6
+13.1
15.4
11.0
Secondary Activities
-
-
-
-
21.4
Manufacturing
5.8
7.2
+1.4
10.4
6.8
Electricity
7.6
19.0
+11.4
-
0.2
Water Supply
3.1
4.2
+1.1
-
0.4
Construction
6.4
4.3
-2.1
11.3
12.7
Tertiary Activities
-
-
-
-
37.9
Trade and Repair
5.3
3.5
-1.8
-
8.4
Transport and Storage
5.7
6.5
+0.8
9.3
7.2
Financial & Insurance
14.9
15.4
+0.5
12.0
3.5
Information & Communication
14.6
7.8
-6.8
-
1.6
Education
5.5
8.6
+3.1
-
2.2
Total GDP Growth
5.2
5.4
+0.2
100.0
100.0
The economic implications of Tanzania's sectoral growth and contributions in Q1 2025 are multifaceted, reflecting both strengths and challenges:
Tanzania's Q1 2025 GDP growth of 5.4% at constant 2015 prices, rising from TZS 38.6 trillion in Q1 2024 to TZS 40.7 trillion, signals a resilient and accelerating economy amid a global slowdown. This performance outpaces the revised global projection of 2.8% for 2025, influenced by U.S. tariff policies and trade tensions, as well as Sub-Saharan Africa's expected 3.8% growth. It also exceeds regional peers in the SADC (e.g., South Africa's 0.8%, Namibia's 2.7%) and aligns with strong EAC growth (Uganda at 8.6%, Rwanda at 7.8%). This implies sustained macroeconomic stability, potentially boosting investor confidence and supporting Tanzania's ambition to reach a USD 1 trillion economy by 2050 through structural reforms. However, reliance on public sector-driven growth could strain fiscal balances if external shocks like commodity price volatility or climate events intensify.
The growth trajectory suggests potential for full-year 2025 GDP expansion of 5.8-6.0%, driven by infrastructure and sectoral diversification, but it highlights vulnerabilities: inflation risks from rising energy and food costs, and the need for private sector-led reforms to enhance job creation, as agriculture employs 65% of the workforce yet grows modestly. Positive spillovers include improved foreign exchange reserves from mining exports and reduced energy imports due to hydropower advancements, potentially stabilizing the Tanzanian shilling.
Primary Sector Implications (40.7% of GDP)
Agriculture, Forestry & Fishing (27.2% share, 3.0% growth, 14.2% contribution): The sector's uptick from 2.5% in Q1 2024, fueled by paddy (+9.6% to 623.3k tons) and wheat (+29.4% to 38.3k tons), implies enhanced food security and rural income growth, supporting poverty reduction in a sector employing most Tanzanians. However, modest overall growth underscores challenges like weather dependency and low productivity, potentially exacerbating inequality if not addressed through investments in irrigation and value chains. Positive linkages to manufacturing (e.g., agro-processing) could amplify multiplier effects, but slower trade flows might limit export gains.
Mining & Quarrying (11.0% share, 16.6% growth, 15.4% contribution): Explosive growth from gold (+16.1% to 15,797 kg), coal (+19.1% to 888k tons), and surges in mica (+475.6%), iron ore (+256%), and phosphate (+465%) positions mining as the top growth driver, boosting export revenues (gold alone accounts for ~50% of non-traditional exports) and government royalties. Implications include stronger fiscal space for infrastructure, but risks of Dutch disease—where resource booms crowd out other sectors—and environmental concerns from expanded operations. This could attract FDI but heighten volatility tied to global commodity prices.
Secondary Sector Implications (21.4% of GDP)
Manufacturing (6.8% share, 7.2% growth, 10.4% contribution): Acceleration from 5.8% reflects increased production of consumer and industrial goods, signaling progress in industrialization under Tanzania's FYDP III. This implies job creation in urban areas and reduced import dependence, with linkages to agriculture (e.g., food processing) and mining (e.g., metal fabrication). However, energy-intensive industries benefit from electricity growth, potentially lowering costs and enhancing competitiveness.
Electricity (0.2% share, 19.0% growth): The massive jump, driven by the Julius Nyerere Hydropower Dam's commissioning, enhances energy security, reduces reliance on costly imports, and supports industrial expansion. Implications include lower electricity tariffs (potentially curbing inflation), improved manufacturing productivity, and export potential via regional grids, but risks from hydrological variability due to climate change.
Water Supply (0.4% share, 4.2% growth): Tied to production rising to 98.9 million m³, this suggests better urban access, aiding health and sanitation. Broader implications: Supports agriculture and manufacturing, but urban-rural disparities could persist without expanded infrastructure.
Construction (12.7% share, 4.3% growth, 11.3% contribution): Slowdown from 6.4% amid cement and iron-steel output growth indicates a maturing infrastructure cycle (e.g., SGR rail). This implies sustained employment in labor-intensive projects but potential fiscal pressure if public spending tapers. Positive: Multiplier effects on transport and real estate.
Tertiary Sector Implications (37.9% of GDP)
Trade & Repair (8.4% share, 3.5% growth): Decline from 5.3% due to moderate imports and agriculture flows suggests subdued consumer demand or supply chain issues, potentially signaling inflationary pressures or weaker external trade amid global tensions. Implications: Slower retail growth could limit informal sector jobs, but ties to agriculture imply recovery with better harvests.
Transport & Storage (7.2% share, 6.5% growth, 9.3% contribution): Driven by cargo and SGR services, this enhances logistics efficiency, reducing costs for exports and imports. Implications: Boosts trade competitiveness, tourism, and regional integration (EAC), with potential for more FDI in ports/rail.
Financial & Insurance (3.5% share, 15.4% growth, 12.0% contribution): Supported by deposits (+18.5% to TZS 43.0 trillion) and loans (+14.7% to TZS 39.1 trillion), this reflects deepening financial inclusion via mobile money and credit expansion. Implications: Stimulates investment across sectors, but rapid credit growth risks non-performing loans if economic shocks hit.
Information & Communication (1.6% share, 7.8% growth): Sharp slowdown from 14.6% despite mobile/internet expansion implies saturation or competition. Implications: Digital economy growth supports fintech and e-commerce, enhancing productivity, but slower pace could hinder tech-driven diversification.
Education (2.2% share, 8.6% growth): Rising enrollments signal human capital investment, implying long-term productivity gains and reduced inequality.
Key Insights and Broader Risks
Top contributors (mining 15.4%, agriculture 14.2%, finance 12.0%) highlight a balanced yet resource-heavy growth model, with strongest rates in electricity (19.0%) and mining (16.6%) pointing to infrastructure-led momentum. Weaker areas like construction (4.3%), trade (3.5%), and ICT (7.8%) suggest external vulnerabilities. Overall, this fosters employment (especially in services/mining), fiscal revenues, and poverty alleviation, but calls for diversification to mitigate climate risks, global trade disruptions, and debt sustainability. IMF recommendations emphasize reforms for private sector growth to sustain 6%+ annual expansion.
The Bank of Tanzania's Monthly Economic Review for August 2025 highlights a stable national debt profile, with the total debt stock at USD 46,586.6 million as of the end of June 2025, marking a modest 1% increase from the previous month. This stability is evidenced by minimal fluctuations in both external and domestic components: external debt rose by just 0.1% to USD 32,955.5 million (70.7% of total debt), while domestic debt decreased by 0.4% to TZS 35,351.4 billion as of July 2025. The review attributes this equilibrium to prudent fiscal management, balanced debt inflows and outflows, and a focus on long-term instruments, which mitigate volatility. Supplementing this, external analyses from sources like the IMF and World Bank emphasize broader factors such as fiscal discipline and economic diversification, projecting a downward trend in public debt over the medium term.
Key Factors Contributing to Debt Stability
Several interconnected factors contribute to the stability of Tanzania's national debt, as outlined in the review and corroborated by recent economic assessments. These include controlled debt accumulation, effective revenue and expenditure management, and a strategic shift toward domestic financing, which reduces exposure to external risks like currency fluctuations.
1. Balanced Debt Inflows and Outflows
External debt disbursements significantly outpaced service payments, supporting liquidity without excessive accumulation. In June 2025, disbursements totaled USD 868.4 million, compared to debt service payments of USD 234.4 million (including USD 173.6 million in principal repayments). This net positive inflow (USD 634.0 million in net transfers) helped maintain stability while funding development needs.
The composition of external debt remained largely unchanged, with multilateral institutions holding 58.7% (USD 19,328.5 million), providing concessional terms that lower servicing costs and enhance sustainability.
Domestic borrowing was managed conservatively: The government raised TZS 514.4 billion (TZS 356.8 billion via Treasury bonds and TZS 157.6 billion via bills) but serviced TZS 670.8 billion, resulting in a net reduction. This reflects a deliberate strategy to align borrowing with repayment capacity.
2. Strong Fiscal Performance and Revenue Mobilization
Government revenue in June 2025 exceeded targets by 5.1%, reaching TZS 3,753.4 billion, driven by tax collections of TZS 3,108.7 billion (7.8% above target). This surplus enabled expenditures to stay within available resources at TZS 3,350.0 billion, reducing the need for additional borrowing.
Non-tax revenue, while below target at TZS 470.5 billion, was offset by robust tax administration improvements, contributing to fiscal space for debt management.
Broader fiscal discipline, including setting debt ceilings and coordinating monetary-fiscal policies, has been highlighted as a key stabilizer, preventing rapid debt growth amid spending pressures.
3. Shift Toward Domestic and Long-Term Financing
Domestic debt's slight decline (0.4%) was primarily due to reduced overdraft usage (from TZS 5,314.0 billion in June to TZS 4,990.5 billion in July), signaling improved liquidity management. Long-term instruments like Treasury bonds dominated at 79.7% (TZS 28,189.8 billion), offering predictable servicing and reducing rollover risks.
This domestic focus minimizes reliance on volatile external funds, as noted in analyses, where forex fluctuations (e.g., shilling depreciation) have historically driven debt increases. Commercial banks and pension funds held 28.8% and 26.4% of domestic debt, respectively, providing stable local creditor bases.
4. Economic Resilience and External Support
Stable inflation (3.3% in July 2025) and strong GDP growth projections (around 6% for 2025) underpin debt sustainability by boosting revenue and export performance. The current account deficit narrowed to USD 2,079.2 million in the year ending July 2025 (from USD 2,713.5 million), driven by export growth, reducing external borrowing needs.
Multilateral support and economic diversification (e.g., in mining and agriculture) further bolster stability, with Fitch affirming a 'B+' rating and stable outlook in June 2025, citing prudent policies despite wider deficits.
These figures demonstrate controlled growth and effective management, ensuring debt remains sustainable at around 60-65% of GDP based on recent estimates. However, risks like shilling depreciation and global uncertainties persist, underscoring the need for continued reforms.
In July 2025, Tanzania's headline inflation rate remained stable at 3.3%, unchanged from June 2025 and well within the Bank of Tanzania's medium-term target range of 3-5%. This stability was driven by offsetting dynamics in the inflation basket: a slight rise in food inflation was counterbalanced by decelerations in non-food components, particularly energy, fuel, and utilities. According to the National Bureau of Statistics and Bank of Tanzania computations, this outcome aligned with regional convergence benchmarks in the East African Community (EAC) and Southern African Development Community (SADC), where inflation trends were mixed but generally moderate.
Key Figures from the Bank of Tanzania Monthly Economic Review (August 2025):
Headline Inflation: 3.3% (annual rate), stable from the previous month (Headline inflation consistently within the 3-5% target band over recent periods).
Food and Non-Alcoholic Beverages Inflation: Rose to 7.6% from 7.3% in June 2025, driven by increases in staple prices like rice and finger millet (Annual wholesale price changes, with rice showing upward trends).
Core Inflation: Unchanged at 1.9%, down from 3.6% in July 2024, reflecting limited pressures in non-volatile categories (Depicts twelve-month inflation trends, with core remaining low).
Energy, Fuel, and Utilities Inflation: Decelerated to 1.0% from 2.1% in June 2025, attributed to declining wood charcoal and petroleum product prices (Domestic petroleum prices trending downward in line with global oil markets, with petrol, diesel, and kerosene averaging below TZS 3,200 per liter).
This stability contributed to a subdued inflation outlook, enabling supportive monetary policy adjustments.
Influence on Economic Development
Stable inflation fosters economic development by preserving purchasing power, reducing uncertainty for investors and consumers, and allowing central banks to ease monetary policy without risking price spirals. In Tanzania's case, the July 2025 inflation stability directly influenced development through enhanced credit availability, boosted economic activity, and sustained growth momentum. Low and predictable inflation encourages household consumption, business investment, and foreign direct investment, which are critical for Tanzania's transition toward middle-income status.
Direct Impacts from Monetary Policy Adjustments:
The Monetary Policy Committee (MPC) cited the stable inflation environment as a key factor in lowering the Central Bank Rate (CBR) to 5.75% from 6.00% for the quarter ending September 2025. This decision aimed to stimulate credit growth amid strengthening domestic conditions and diminishing global risks. As a result:
Extended Broad Money Supply (M3) Growth: Accelerated to 19.9% annually in July 2025, up from 18.7% in June 2025 (M3 stock reaching around TZS 50,000 billion, with growth rates climbing steadily).
Private Sector Credit Growth: Remained strong at 15.9%, consistent with prior months (Though not fully detailed in the provided excerpts, indicates sustained expansion supporting sectors like agriculture and manufacturing).
These figures reflect how inflation stability enabled liquidity injections—such as TZS 758.8 billion in reverse repo operations—to steer interbank rates within the 3.75-7.75% corridor, facilitating cheaper borrowing and investment.
Broader Economic Growth Context:
Tanzania's overall economic growth has benefited from this inflation stability, with real GDP expanding robustly in 2025. Projections indicate GDP growth of approximately 6% for the year, up from an estimated 5.4% in 2024, supported by low inflation that mitigates cost-of-living pressures and enhances fiscal space. Stable inflation has also helped maintain a manageable fiscal balance and improved the current account, as noted by the IMF, contributing to foreign exchange reserve buildup and reduced external vulnerabilities.
In the agricultural sector—a key driver of Tanzania's economy—inflation stability intersected with food security measures. The National Food Reserve Agency maintained stocks at 485,930 tonnes in July 2025, up significantly from 368,855 tonnes in July 2024, buffering against food price volatility and supporting rural livelihoods.
Challenges and Long-Term Implications:
While positive, food inflation's uptick (7.6%) highlights vulnerabilities to supply-side shocks, such as weather or global commodity trends (Mixed world commodity prices, with declines in maize and rice aiding stability). Overall, stable inflation has reinforced Tanzania's resilience, with the World Bank noting robust growth amid single-digit inflation. This environment positions Tanzania for sustained development, potentially accelerating poverty reduction and infrastructure investment, though external factors like global trade uncertainties could pose risks if inflation deviates.
Tanzania Monthly Economic Review - August 2025," a table of key figures relevant to Tanzania's economic performance, inflation, monetary policy, and related indicators:
Category
Indicator
Value (July 2025)
Previous Month (Jun 2025)
Inflation
Headline Inflation Rate
3.3%
3.3%
Food and Non-Alcoholic Beverages
7.6%
7.3%
Core Inflation
1.9%
1.9%
Energy, Fuel, and Utilities
1.0%
2.1%
Monetary Policy
Central Bank Rate (CBR)
5.75%
6.00%
7-Day Interbank Cash Market (IBCM) Rate
3.75% - 7.75% (corridor)
N/A
Reverse Repo Transactions
TZS 758.8 billion
N/A
Money Supply
Extended Broad Money Supply (M3) Growth
19.9%
18.7%
Private Sector Credit Growth
15.9%
15.9%
Food Stocks
National Food Reserve Agency Stock
485,930 tonnes
477,923 tonnes
Maize Released
1,855.3 tonnes
N/A
Petroleum Prices
Petrol (TZS per liter)
~TZS 3,200
Slight decline
Diesel (TZS per liter)
~TZS 3,200
Slight decline
Kerosene (TZS per liter)
~TZS 3,200
Slight decline
Notes:
Inflation rates are annual percentages based on the 2020 = 100 index.
Monetary policy figures reflect decisions from the 237th MPC meeting in July 2025.
Petroleum prices are approximate, based on trends, with values in Tanzanian Shillings (TZS) per liter.
"N/A" indicates data not available or not directly comparable in the provided excerpts for the previous month.
This table summarizes key economic indicators that reflect Tanzania's economic stability and policy responses as of July 2025, providing a snapshot for further analysis.
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:
Type of Lending Rate
May 2025
June 2025
Change
Overall Lending Rate
15.18%
15.23%
↑ +0.05%
Short-Term Lending Rate
15.96%
15.69%
↓ -0.27%
Negotiated Lending Rate
12.99%
12.68%
↓ -0.31%
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:
Type of Deposit Rate
May 2025
June 2025
Change
Overall Time Deposit Rate
8.58%
8.74%
↑ +0.16%
12-Month Deposit Rate
9.72%
9.79%
↑ +0.07%
Negotiated Deposit Rate
10.64%
11.21%
↑ +0.57%
Savings Deposit Rate
2.52%
2.90%
↑ +0.38%
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
Indicator
June 2024
May 2025
June 2025
Overall Lending Rate
15.30%
15.18%
15.23%
Short-Term Lending Rate
15.57%
15.96%
15.69%
Negotiated Lending Rate
12.82%
12.99%
12.68%
Overall Time Deposit Rate
7.66%
8.58%
8.74%
12-Month Deposit Rate
9.09%
9.72%
9.79%
Negotiated Deposit Rate
9.86%
10.64%
11.21%
Savings Deposit Rate
2.86%
2.52%
2.90%
Short-Term Interest Rate Spread
6.49%
6.24%
5.90%
Key Insights and Broader Implications
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.
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.
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.
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.
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 financial sector has experienced steady expansion from 2021 to 2024, with domestic credit growing from 27.37 trillion TZS in 2021 to 46.82 trillion TZS in 2024, reflecting increased economic activity. Private sector lending also rose significantly, from 19.64 trillion TZS to 33.76 trillion TZS, showing business growth. Meanwhile, foreign financial assets fluctuated, declining from 12.24 trillion TZS in 2021 to 9.66 trillion TZS in 2023, before recovering to 12.09 trillion TZS in 2024. The money supply (M3) expanded from 32.12 trillion TZS in 2021 to 47.09 trillion TZS in 2024, indicating increased liquidity and banking activity. These trends highlight Tanzania’s growing financial sector, with expanding credit and liquidity supporting economic growth.
Analyzing Tanzania's monetary and financial data from January 2021 to February 2025 reveals key trends across various financial indicators:
1. Foreign Financial Assets (Net)
2021 average: 12,240,636 million TZS
2022 average: 10,571,449 million TZS
2023 average: 9,663,721 million TZS
2024 average: 12,099,428 million TZS
Trend Analysis: There was a decline in net foreign financial assets from 2021 to 2023, followed by a recovery in 2024. This fluctuation may reflect changes in foreign exchange reserves and international investment positions.
2. Domestic Credit
2021 average: 27,371,154 million TZS
2022 average: 34,595,463 million TZS
2023 average: 41,047,502 million TZS
2024 average: 46,824,755 million TZS
Trend Analysis: Domestic credit exhibited consistent growth over the period, indicating an expansion in lending activities within the economy.
3. Government Claims (Net)
2021 average: 6,501,863 million TZS
2022 average: 9,562,896 million TZS
2023 average: 11,603,732 million TZS
2024 average: 11,576,752 million TZS
Trend Analysis: Net claims on the government increased from 2021 to 2023, stabilizing in 2024. This suggests increased government borrowing during the initial years, possibly for developmental projects or budgetary support, followed by stabilization.
4. Claims on Private Sector
2021 average: 19,643,860 million TZS
2022 average: 23,815,125 million TZS
2023 average: 28,528,613 million TZS
2024 average: 33,759,428 million TZS
Trend Analysis: There was a steady increase in claims on the private sector, reflecting robust credit growth. Notably, private sector credit expanded by approximately 22% in both July and August 2023, before moderating to 19.5% in September 2023, surpassing the initial projection of 16.4% for December 2023. This growth is attributed to an improved business environment and supportive monetary policies.
5. Reserve Money (M0)
2021 average: 7,913,564 million TZS
2022 average: 9,103,874 million TZS
2023 average: 9,922,327 million TZS
2024 average: 11,049,539 million TZS
Trend Analysis: Reserve money showed consistent growth, indicating an increase in the central bank's monetary base.
6. Extended Broad Money (M3)
2021 average: 32,127,715 million TZS
2022 average: 36,201,424 million TZS
2023 average: 41,107,812 million TZS
2024 average: 47,090,824 million TZS
Trend Analysis: M3, which includes M2 plus foreign currency deposits, grew steadily, reflecting an overall increase in the money supply.
7. Broad Money (M2)
2021 average: 24,773,941 million TZS
2022 average: 28,296,534 million TZS
2023 average: 32,083,035 million TZS
2024 average: 35,505,154 million TZS
Trend Analysis: M2, comprising currency in circulation and local currency deposits, also exhibited consistent growth, indicating increased liquidity in the economy.
8. Foreign Currency Deposits (FCD)
2021 average: 7,353,728 million TZS
2022 average: 7,904,890 million TZS
2023 average: 9,024,777 million TZS
2024 average: 11,585,670 million TZS
FCD in USD (2024 average): 4,355 million USD
Trend Analysis: Foreign currency deposits increased annually, both in TZS and USD terms, suggesting growing confidence in foreign currency holdings.
Key Observations:
Consistent Growth in Domestic Credit: The steady rise in domestic credit indicates an expanding lending environment, supporting economic activities.
Fluctuations in Foreign Financial Assets: The decline followed by a recovery in net foreign financial assets may reflect changes in foreign exchange reserves and international investment positions.
Robust Private Sector Credit Expansion: The private sector experienced significant credit growth, with rates reaching approximately 22% in mid-2023, surpassing initial projections. This surge is linked to supportive monetary policies and an improved business environment.
Expansion of Monetary Aggregates: The consistent growth in monetary aggregates (M0, M2, M3) indicates an increasing money supply, aligning with economic expansion.
The monetary and financial data for Tanzania from 2021 to 2024 in millions of TZS:
Indicator
2021 Average
2022 Average
2023 Average
2024 Average
Foreign Financial Assets (Net)
12,240,636
10,571,449
9,663,721
12,099,428
Domestic Credit
27,371,154
34,595,463
41,047,502
46,824,755
Government Claims (Net)
6,501,863
9,562,896
11,603,732
11,576,752
Claims on Private Sector
19,643,860
23,815,125
28,528,613
33,759,428
Reserve Money (M0)
7,913,564
9,103,874
9,922,327
11,049,539
Extended Broad Money (M3)
32,127,715
36,201,424
41,107,812
47,090,824
Broad Money (M2)
24,773,941
28,296,534
32,083,035
35,505,154
Foreign Currency Deposits (FCD)
7,353,728
7,904,890
9,024,777
11,585,670
FCD in USD (2024)
-
-
-
4,355 million USD
Tanzania's monetary and financial trends from 2021 to 2024, showing overall economic expansion with a few notable trends:
1. Domestic Credit Growth (↑)
Domestic credit has increased consistently from 27.37 trillion TZS in 2021 to 46.82 trillion TZS in 2024.
This suggests expanding economic activity, higher lending to businesses and households, and greater access to financial resources.
2. Foreign Financial Assets (Fluctuations)
Declined from 12.24 trillion TZS in 2021 to 9.66 trillion TZS in 2023, before recovering to 12.09 trillion TZS in 2024.
This suggests a temporary reduction in foreign reserves, possibly due to trade imbalances or forex interventions, followed by recovery.
3. Increased Government Borrowing (↑)
Government net claims grew from 6.50 trillion TZS in 2021 to 11.57 trillion TZS in 2024.
Indicates rising government debt and reliance on credit, which could be used for infrastructure projects or fiscal deficit financing.
4. Private Sector Credit Expansion (↑)
Increased from 19.64 trillion TZS in 2021 to 33.76 trillion TZS in 2024.
This suggests improved business confidence and investment, with private sector borrowing more to expand operations.
5. Money Supply Growth (M0, M2, M3) (↑)
Reserve Money (M0) increased from 7.91 trillion TZS in 2021 to 11.04 trillion TZS in 2024.
Broad Money (M2) grew from 24.77 trillion TZS in 2021 to 35.50 trillion TZS in 2024.
Extended Broad Money (M3) increased from 32.12 trillion TZS in 2021 to 47.09 trillion TZS in 2024.
A growing money supply indicates strong economic expansion, rising liquidity, and higher banking activities.
6. Rising Foreign Currency Deposits (FCD)
Increased from 7.35 trillion TZS in 2021 to 11.58 trillion TZS in 2024.
Foreign deposits in USD reached 4.35 billion in 2024, showing growing confidence in Tanzania’s financial sector from international investors.
Key Takeaways:
✅ Tanzania's economy is expanding, with increased money supply, credit, and financial activity. ✅ Private sector growth is strong, showing businesses are investing and borrowing more. ✅ Government borrowing has increased, which could either boost development or create fiscal risks. ✅ Foreign reserves saw fluctuations, indicating external financial pressures but a recovery in 2024. ✅ Liquidity is improving, supporting higher economic participation.
Tanzania’s financial markets showed strong investor interest in government securities, stable foreign exchange rates, but rising interbank lending rates in January 2025. The 25-year Treasury bond was oversubscribed with TZS 502.7 billion in bids, while the 10-year bond faced weak demand, attracting only TZS 88 billion. Interbank cash market transactions rose to TZS 2,245.8 billion, but the 7-day interest rate increased to 7.80%, signaling tighter liquidity. Meanwhile, foreign exchange market activity declined, with only USD 16.3 million traded, and the Shilling depreciated slightly to TZS 2,454.04 per USD from TZS 2,420.84 in December 2024.
1. Government Securities Market
Government securities include Treasury bills (short-term) and Treasury bonds (long-term), used to finance government operations.
Treasury Bills (Short-Term Securities)
In January 2025, the Bank of Tanzania conducted two Treasury bill auctions with a total tender size of TZS 218 billion.
The auctions were oversubscribed, attracting bids worth TZS 400.8 billion, but only TZS 281.4 billion was accepted.
Weighted average yield (WAY) decreased to 12.51%, from 12.86% in December 2024, showing strong investor demand.
Treasury Bonds (Long-Term Securities)
The government issued 10-year and 25-year Treasury bonds in January 2025:
10-year bond: Tender size TZS 167.32 billion, but only TZS 88 billion in bids were received, of which TZS 33.0 billion was accepted (indicating undersubscription).
25-year bond: Oversubscribed, attracting TZS 502.7 billion, but only TZS 362.0 billion was accepted.
Yields on bonds:
10-year bond yield increased to 14.08% (suggesting higher borrowing costs for the government).
25-year bond yield slightly decreased to 15.84% (indicating investors’ long-term confidence).
2. Interbank Cash Market (IBCM)
The Interbank Cash Market allows banks to lend and borrow short-term funds among themselves.
In January 2025, total transactions in the interbank market increased to TZS 2,245.8 billion, from TZS 1,616.8 billion in December 2024.
7-day transactions accounted for 42.9% of total market turnover, while overnight transactions made up 18%, indicating improved liquidity conditions in the banking sector.
Overall interbank cash market interest rate rose to 7.80%, compared to 7.41% in December 2024, reflecting tightened liquidity conditions.
3. Interbank Foreign Exchange Market (IFEM)
The Interbank Foreign Exchange Market (IFEM) facilitates trading of foreign currencies among banks.
Market activity declined compared to December 2024, but participation remained stronger than January 2024.
Total transactions in January 2025 stood at USD 16.3 million, much lower than USD 95.7 million in December 2024, but significantly higher than USD 3.8 million in January 2024.
The Bank of Tanzania intervened by selling USD 7 million to stabilize the market.
Exchange rate movements: The Tanzanian Shilling traded at an average of TZS 2,454.04 per USD, compared to TZS 2,420.84 per USD in December 2024.
On an annual basis, the Shilling appreciated by 2.6%, lower than 3.8% appreciation in December 2024, showing gradual stability in the foreign exchange market.
Summary of Key Trends
Market
January 2025 Key Figures
Comparison with December 2024
Treasury Bills
TZS 400.8 billion in bids, WAY at 12.51%
Higher demand, lower yields (12.86% in Dec 2024)
Treasury Bonds (10-yr)
TZS 88 billion in bids, WAY at 14.08%
Undersubscribed, higher yield
Treasury Bonds (25-yr)
TZS 502.7 billion in bids, WAY at 15.84%
Oversubscribed, lower yield
Interbank Cash Market
TZS 2,245.8 billion total transactions
Higher than TZS 1,616.8 billion in Dec 2024
Interbank Interest Rate
7.80%
Increased from 7.41% in Dec 2024
Foreign Exchange Market
USD 16.3 million traded
Lower than USD 95.7 million in Dec 2024
TZS/USD Exchange Rate
2,454.04
Slight depreciation from 2,420.84 in Dec 2024
Implications for Tanzania’s Economy
Stronger investor demand for government securities (except for the 10-year bond) shows confidence in Tanzania’s financial stability.
Higher interbank rates (7.80%) suggest tighter liquidity, meaning banks are charging more for short-term loans.
Weaker foreign exchange market activity may indicate reduced trade or investor participation.
The Tanzanian Shilling remains stable, with only slight depreciation against the USD.
Key Takeaways from Tanzania’s Financial Market Trends (January 2025)
1. Government Securities Market: Strong Demand but Mixed Performance
Treasury bills and long-term bonds continue to attract strong investor interest, especially the 25-year bond, which was oversubscribed (TZS 502.7 billion in bids).
The 10-year bond was undersubscribed, meaning investors are hesitant about medium-term lending to the government.
The decline in Treasury bill yields (12.51% from 12.86%) suggests strong demand for safe assets, lowering the government’s borrowing costs.
However, higher yields on the 10-year bond (14.08%) indicate concerns about mid-term risks, such as inflation or fiscal pressures.
What it means:
Government borrowing remains strong, showing a need for financing.
Short-term interest rates are declining, meaning investors expect stable inflation and controlled monetary policy.
2. Interbank Cash Market: Rising Interest Rates Signal Tight Liquidity
Total interbank transactions increased to TZS 2,245.8 billion (from TZS 1,616.8 billion in December 2024), meaning banks are lending more to each other.
Interbank interest rates rose to 7.80% (up from 7.41%), showing banks are charging more for short-term loans due to tighter liquidity.
7-day transactions (42.9% of market share) suggest banks are preferring short-term liquidity management rather than long-term lending.
What it means:
Liquidity in the banking sector is tightening, possibly due to higher government borrowing or increased credit demand from businesses.
Banks are cautious about lending, which could mean higher borrowing costs for businesses and individuals in the short term.
A rise in short-term rates might push overall lending rates higher, making credit more expensive.
Market transactions dropped significantly to USD 16.3 million, compared to USD 95.7 million in December 2024, indicating reduced foreign exchange trading activity.
The Tanzanian Shilling traded at TZS 2,454.04 per USD, slightly weaker than TZS 2,420.84 in December 2024.
The Bank of Tanzania sold USD 7 million to stabilize the market, showing efforts to manage exchange rate fluctuations.
What it means:
Lower foreign exchange trading suggests reduced external transactions—either lower imports/exports or less investor participation in the forex market.
The Shilling remains relatively stable, with only a slight depreciation (2,454.04 from 2,420.84), showing resilience despite external pressures.
The Bank of Tanzania’s intervention (selling USD 7 million) suggests efforts to prevent excessive depreciation, ensuring exchange rate stability.
Overall Economic Implications
🔹 Positive Signs: ✅ Government securities remain attractive, especially for long-term investors. ✅ The Shilling remains stable, with only slight depreciation. ✅ Investor confidence in long-term bonds (25 years) is high, showing optimism for Tanzania’s future.
🔸 Challenges: ⚠ Interbank interest rates are rising (7.80%), signaling liquidity tightening in the banking sector. ⚠ Reduced forex market activity may indicate slower trade or lower capital inflows. ⚠ Government borrowing remains high, which could put pressure on public finances.
Liquidity Trends, Government Borrowing, and Exchange Rate Movements
In December 2024, Tanzania’s financial markets showed notable shifts in liquidity, government borrowing, and currency performance. Interbank cash market rates fell to 7.41% from 8.06%, signaling improved liquidity among banks. The government securities market saw Treasury bill yields rise to 12.86%, reflecting higher borrowing costs. Meanwhile, the Tanzanian shilling appreciated by 9.3%, trading at TZS 2,420.84 per USD, supported by strong inflows from cashew nut, tobacco, and gold exports. These developments indicate a stable financial system, easing monetary conditions, and a strengthening currency, which could have mixed effects on borrowing costs, investment, and trade
The financial market in Tanzania, as reported in the Bank of Tanzania’s Monthly Economic Review (January 2025), showed notable developments in the Government Securities Market, Interbank Cash Market, and Interbank Foreign Exchange Market during December 2024.
1. Government Securities Market
The Bank of Tanzania conducted two Treasury bill auctions in December 2024, with a combined tender size of TZS 252.8 billion to support government budgetary needs.
Total bids received amounted to TZS 239.5 billion, of which TZS 217.8 billion were successful.
The weighted average yield (WAY) on Treasury bills increased to 12.86%, up from 12.68% in November 2024, indicating rising government borrowing costs.
In the Treasury bond market:
The 10-year bond auction was canceled due to undersubscription.
The 20-year bond was in high demand, with total bids of TZS 244.9 billion, out of which TZS 211.9 billion were accepted.
The yield on the 20-year bond increased to 15.71% from 15.64%, reflecting higher investor expectations for returns.
2. Interbank Cash Market (IBCM)
The Interbank Cash Market plays a key role in distributing liquidity among banks.
In December 2024, total transactions in the IBCM reached TZS 1,616.8 billion, slightly lower than TZS 1,650 billion in November 2024.
The overnight segment represented 12% of total market turnover, while 7-day transactions accounted for 43.9%.
The overall IBCM interest rate decreased to 7.41%, down from 8.06% in November 2024, reflecting improved liquidity conditions in the banking sector.
3. Interbank Foreign Exchange Market (IFEM)
The foreign exchange market showed a significant improvement in liquidity, driven by increased foreign exchange inflows from exports of cashew nuts, tobacco, mining, and tourism receipts.
Total transactions in IFEM reached USD 95.7 million in December 2024, up from USD 17.1 million in December 2023, showing a more active market.
The Bank of Tanzania intervened, purchasing USD 0.5 million and selling USD 2 million.
The Tanzanian shilling appreciated significantly, reversing the depreciation trend observed in previous months:
The exchange rate strengthened to TZS 2,420.84 per USD, compared to TZS 2,659.03 per USD in November 2024, representing a monthly appreciation of 9.3%.
On an annual basis, the shilling appreciated by 3.8%, a notable improvement from the 6.3% depreciation recorded in the previous month.
Key Takeaways:
The government securities market saw increased yields, indicating rising government borrowing costs and investor demand for higher returns.
The interbank cash market experienced lower interest rates, suggesting improved liquidity and reduced short-term borrowing costs for banks.
The foreign exchange market saw strong inflows, leading to Tanzania Shilling appreciation by 9.3% in one month, supported by rising exports and monetary policy adjustments.
The developments in Tanzania's financial markets provide key insights into liquidity conditions, investor sentiment, and monetary policy effectiveness
1. Government Securities Market: Rising Yields & Demand Shift
The increase in Treasury bill yields to 12.86% (from 12.68%) and 20-year bond yields to 15.71% (from 15.64%) suggests that investors demand higher returns, possibly due to:
Perceived risk of government debt.
Tighter liquidity conditions in the market.
Expectations of inflation or monetary tightening in the future.
The 10-year bond cancellation due to low demand signals that investors prefer shorter or longer maturities, possibly due to uncertainties over medium-term economic policies.
Implication: The government may face higher borrowing costs, affecting fiscal planning and debt sustainability.
The IBCM interest rate fell to 7.41% (from 8.06%), and total transactions reached TZS 1,616.8 billion, indicating:
Improved liquidity in the banking system.
More confidence among banks to lend to each other.
The fact that 7-day transactions accounted for 43.9% of turnover shows that banks are shifting towards slightly longer borrowing periods rather than relying solely on overnight liquidity.
Implication: The banking system has adequate liquidity, reducing pressure on short-term funding costs and supporting credit expansion to businesses and individuals.
The shilling appreciated by 9.3% in one month, trading at TZS 2,420.84 per USD (from TZS 2,659.03 in November 2024).
Foreign exchange transactions increased significantly to USD 95.7 million, up from USD 17.1 million in December 2023, driven by:
Higher export earnings from cashew nuts, tobacco, and gold.
Tourism inflows and mining revenues.
Easing global interest rates, which reduced capital outflows.
Implication: A stronger shilling reduces import costs, helping to contain inflation, but could make exports less competitive if the trend continues.
Overall Takeaway:
Monetary policy is effectively stabilizing liquidity, as reflected in lower interbank rates and an active foreign exchange market.
The government is facing rising borrowing costs, which may impact fiscal planning.
The shilling is strengthening, showing strong foreign exchange inflows, but policymakers should balance this to avoid hurting exports.
These trends suggest that Tanzania’s financial markets are active and responsive to policy changes, investor sentiment, and external economic factors
Tanzania has witnessed an extraordinary rise in government expenditure over the past two decades, growing from TZS 65.4 billion in 2000 to TZS 3,788.0 billion in 2024, marking a staggering increase of 5,694%. This period reflects a transition from high volatility in spending to more stable, predictable patterns, with significant improvements in fiscal management. For instance, from 2016 to 2020, average expenditure surged to TZS 1,927.8 billion, and by 2024, it reached the highest level, showing strong and consistent growth. This upward trend underscores the government's expanding capacity to invest in development and infrastructure, signaling a maturing fiscal strategy.
Early Phase (2000-2005):
Starting Point: Total expenditure was TZS 65.4 billion in 2000.
Peak Expenditure: The highest expenditure occurred in 2003, reaching TZS 1,096.3 billion.
Average Expenditure: The average expenditure over this period was TZS 579.8 billion.
Volatility: This phase was marked by extreme volatility, with large fluctuations year-to-year.
Growth: Despite high growth rates, the fluctuations in spending highlight the absence of structured fiscal planning.
Growth Phase (2006-2010):
Average Expenditure: The average expenditure during this phase was TZS 785.8 billion.
Expenditure Range: Expenditures fluctuated between TZS 238.2 billion and TZS 1,096.3 billion.
Trends: While there were significant year-to-year variations, there was a shift toward more structured and systematic spending, signaling the beginning of better expenditure planning.
Growth Patterns: The pattern of spending became more predictable compared to the earlier phase.
Expansion Phase (2011-2015):
Average Expenditure: The average expenditure during this period was TZS 881.1 billion.
Stability: This phase saw more consistent and stable growth, with lower volatility compared to the previous periods.
Upward Trend: Spending showed a clear upward trajectory, indicating improvements in government expenditure management.
Improved Management: There was better expenditure management and fiscal planning during this time.
Acceleration Period (2016-2020):
Average Expenditure: The average expenditure soared to TZS 1,927.8 billion.
Expenditure Growth: This period saw strong year-over-year growth, with a significant increase in government programs and services.
Predictable Growth: Government spending became more predictable with clearer allocation to development projects.
Expenditure Expansion: The acceleration in spending was linked to the implementation of large-scale government programs.
Recent Period (2021-2024):
Highest Expenditure: The expenditure peaked at TZS 3,788.0 billion in 2024, marking the highest level of spending in Tanzania’s history.
Average Expenditure: The average expenditure during this period was TZS 3,310.4 billion.
Stable Growth: Spending during this period is characterized by stable growth, with average annual growth at 8.4%.
Mature Spending: This period reflects a mature expenditure management phase, where government spending follows a well-structured and predictable pattern.
Key Statistics and Growth Characteristics:
Total Growth: From TZS 65.4 billion in 2000, expenditure grew by a remarkable 5,694%, reaching TZS 3,788.0 billion in 2024.
Compound Annual Growth Rate (CAGR): The CAGR over the entire period from 2000 to 2024 is 18.3%.
Highest Growth Rate: The highest annual growth rate occurred in 2003, with 794.5% growth.
Stability: The period from 2020-2024 has been the most stable with lower volatility and more predictable growth patterns.
Recent Growth: In the recent years (2020-2024), growth has averaged 8.2% annually, showing a gradual and stable increase in government spending.
Observations:
Improved Expenditure Management: Over the years, Tanzania has demonstrated improved fiscal management, with better resource allocation, more efficient expenditure execution, and improved predictability in government spending.
Sustained Expansion: The government’s capacity for spending has expanded significantly, reflecting the country’s growing fiscal capacity.
Increased Spending Capacity: The country has enhanced its ability to absorb larger amounts of government spending, as seen by the more efficient budget execution and improved fiscal planning in recent years.
This analysis highlights a period of dramatic growth in Tanzania’s total expenditure and net lending, with particularly strong growth in recent years, reflecting a growing economy and better fiscal management. The consistency of spending, particularly from 2020 onwards, indicates a more mature and efficient approach to public finance.
The analysis of Tanzania's total expenditure and net lending trends from 2000 to 2024 reveals the following key insights:
Dramatic Growth: Over the past two decades, Tanzania has experienced significant growth in government spending, from TZS 65.4 billion in 2000 to TZS 3,788.0 billion in 2024—a remarkable increase of 5,694%. This indicates the expansion of government programs and projects to support economic growth and development.
Volatility to Stability: The initial phase (2000-2005) was characterized by high volatility and inconsistent expenditure. However, from 2006 onwards, the government began to stabilize spending, with more structured budgeting and planning, especially from 2011 to 2024, where the spending patterns became more predictable.
Increased Efficiency: There has been a notable improvement in expenditure management over time, particularly from 2016 onward. The government is now better at planning and executing its budget, as evidenced by the lower volatility in recent years and more stable growth in the latest period (2020-2024).
Sustained Expansion: The average annual growth rate has remained robust, especially from 2016 onward, and the government’s spending capacity has significantly increased. This suggests that Tanzania is in a mature fiscal phase, with more efficient resource allocation and a greater ability to handle higher levels of expenditure.
Fiscal Maturity: The spending levels seen in the most recent period (2020-2024) reflect a mature fiscal approach, where spending is well-planned, predictable, and supports long-term development goals.
Overall, the data indicates that Tanzania’s government has significantly improved its expenditure management capacity, resulting in more stable and predictable spending patterns, which have supported the country’s ongoing development projects.
