Banking on Growth: Tanzania’s Banking Sector Leaps Ahead with Technological Advances

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The banking sector has grown fast in the last three years thanks to a strong economic environment and falling inflation in the country. The sector has grown by 16 per cent, overtaking the remaining sectors by far. The second growing sector was mining and quarrying, which grew by 10.2 per cent.

According to the 2022 financial sector Supervision Annual report of the Bank of Tanzania (BoT), The Tanzania banking growth sector recorded in 2022 and 2023 with profits before tax reaching TZS 1.4 Trillion, a 38% increase from TZS 1 Trillion in 2021.

Also, the country’s financial inclusion rate increased by 76 percent last year from 65 percent in 2017. Minister of Planning and Investment Prof. Kitila Mkumbo said the financial sector grew faster than any other sector. Other sectors are electricity (10%), arts and entertainment (10%), accommodation and food (8.9%), and information and communication (7.9%).

The bank’s stellar performance resulted from the government initiative to create a conducive business environment, especially after the COVID-19 pandemic that shocked the world between 2019 and 2021.

Also, read Tanzania’s Quest: Making Money Accessible for Everyone.

Tanzania embarked on a series of financial reforms in the 1990s to support the development of a market-based financial sector (BoT, 2011).  That was the starting point toward the growth of the banking sector and its role in the domestic market economy. It continued to grow with advanced technology and kept providing banking services to the citizens, some business owners, and big investors from within the country.

How is the Government Committed to Improving Loan Access for Small Businesses (SMEs)?

Firstly, The Government and its other stakeholders had engaged in a partnership to provide loans with low interest by starting a special fund, for example, ‘Mfuko wa Utamaduni na Sanaa’, which provides loans to people who are working in this industry, including artists, musician, directors and producers, etc.

Also, the government, through the Bank of Tanzania, launched a new payments system that replaced the Interbank Settlement System (TISS), a project to build an interoperability payments system known as Tanzania Instants Payments Systems (TIPS) and its aims to facilitate faster, cheaper and more secure transaction between different digital financial services providers both banks and non-banks include mobile operators airtel money, M-Pesa, Halo Pesa, Ezy Pesa and T-Pesa.

BoT expects TIPS to benefit the Tanzanian economy and society by reducing transaction costs and risks and enhancing customer convenience and trust.

With services like ‘Benki Kiganjani Kwako’ from NMB and SimBanking from CRDB, access to bank services, such as loans and fixed deposits, can be enhanced, strengthening our banking sector.

Although the Tanzania banking sector records improvements compared to other sectors, it faces many challenges. One is that people are still illiterate about how to use some advanced technology, like ATMs, and some don’t believe in depositing their cash in the bank.

Another challenge is the technology barriers to interacting with each other despite the incoming of new systems, which enhances interoperability between organizations and customers.

Lastly, fraudulent activities are increasing, especially with the use of technology. TCRA and police forces have recorded cases, and customer fraud has increased.

Also, changes in regulations over time for banking operations and accounting regulations make it difficult to adapt and comply with, for example, radius compliance rules, which require banks’ agents to be within distance of each other. This rule reduces the chances of banking agents competing with mobile operator agents in terms of fighting for customers, as banking agents are required to have distance from one another. In contrast, this rule does not apply to mobile operator agents.

What Can Be Done to Improve the Banking Sector in Tanzania?

Firstly, we need to adopt and promote the use of credit cards and debit cards, especially when paying bills, including electricity bills, various fees, and taxes. This will encourage many people, especially (SMEs) to deposit their cash in the bank, increasing bank deposits.

Also, read Digital Banking Era: Evolving Landscape.

Promotion and advertisement through media campaigns to convince people to store their cash in the banks, that deposits will increase in the banks, and especially small entrepreneurs to have their payroll accounts to pay salaries for their workers.

Improving the banking sector in Tanzania necessitates a multifaceted approach that intertwines regulatory reforms, technological adoption, initiatives for financial inclusion, and customer-centric service enhancements. These strategies are vital in fostering a robust, inclusive, and technologically advanced banking landscape that can significantly contribute to the nation’s economic growth.

Regulatory Enhancement is crucial. Strengthening the regulatory frameworks will ensure the stability and reliability of the banking system. Adopting international banking standards such as Basel III and enhancing the oversight of banking operations can help build trust. Transparency and accountability need to be at the forefront to mitigate issues of corruption and mismanagement that have historically plagued financial institutions.

Technological Adoption in the banking sector is another critical area. With the global shift towards digitalization, Tanzanian banks must embrace digital banking solutions that offer convenience and accessibility. This includes expanding services like mobile banking, online transactions, and fintech innovations. Moreover, as banks become more digital, investing in robust cybersecurity measures is essential to safeguard against potential cyber threats and protect customers’ financial information.

Financial Inclusion strategies are necessary to broaden the reach of banking services, especially to underserved and rural populations. Innovative solutions like mobile banking vans, agent banking, and collaborations with mobile network operators can help bridge the gap. Additionally, offering microfinance products tailored to the needs of small businesses and individual entrepreneurs can stimulate local economies and help alleviate poverty.

Improving the Banking Infrastructure is also pivotal. This includes enhancing the physical infrastructure of banks to boost service delivery across the country and investing in the training and development of bank staff. Well-trained personnel can significantly improve service quality and provide better financial advisory services, enhancing customer satisfaction and trust in the banking system.

To foster a positive banking experience, customer-centric services need to be prioritized. This involves everything from reducing service downtime to improving call centre services and ensuring transparent communication about fees and banking procedures. Banks should also consider developing financial products that cater to the specific needs of diverse customer segments, such as tailored solutions for farmers, entrepreneurs, and the youth.

Lastly, Strengthening Financial Literacy through national programs can play a transformative role. By educating the population about financial management, the importance of savings, and the benefits of credit and investments, more individuals can be encouraged to engage with banking services, thereby deepening financial inclusion.

Encouraging Competitive Practices within the sector can drive innovation and efficiency. Policies that promote competition, such as encouraging foreign investment and reducing barriers for new entrants, can lead to better service offerings. Furthermore, regulating interest rates and fees can prevent exploitative lending practices, ensuring fair banking for all Tanzanians.

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Ambindwile Kabuka
Ambindwile Kabuka
24 days ago

Nice Article with clear facts for the Banks to excel in the market. Banks have key role to play on this but also BOT/Government as regulator needs to esnure existing policies supports Bank’s strartegies. Banking services/what bank can offer to the society should be taught in schools (should be part of schools’ Curriculum) from primary education foristance how Bank accounts operates/How to use ATM/How Bank’s digital platforms operates etc, This will build up a society which have positive perception on bank services, even if they will not manage to reach high levels of education but still they will need bank services to support them.

Last edited 24 days ago by Ambindwile Kabuka
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