Credit Access in Tanzania
Tanzania is a highly populous East African country with a rapidly growing economy. The country’s average GDP growth of an estimated six percent has indicated significant economic growth and opportunity in the past decade, but credit access in Tanzania remains a challenge for many of the nation’s 56 million people.

Credit Access in Tanzania

In fact, Tanzania scored 13th out of 15 countries in Sub Saharan Africa for credit accessibility. Credit access in Tanzania is vital for the financial success of the country, which has both an annually growing population in the workforce and a high rate of poverty.

As an emerging market, many enterprises in Tanzania have struggled with restricted credit access, and 70 percent of all Tanzanian Small and Medium Enterprises, or SMEs, have no formal credit access at all. In fact, only 15 percent of the population has formal access to credit through banks. This lack of credit does not mean that Tanzanians are not borrowing money, as over half of those in the labor market have taken loans at some point.

Small and Medium Enterprises Loans

Rather than access credit formally, however, approximately 63 percent of Tanzanians use friends and family to access loans. Conversely, formal bank loans only accounted for three percent of all bank deposits in Tanzania.

Credit access in Tanzania is particularly important for Small and Medium Enterprises. According to a 2017 study conducted by the University of Dodoma in the Tanzanian capital, banks and microfinance corporations have enough liquidity to offer Small and Medium Enterprises loans.

Owners of SMEs, however, perceive these formal loans to be high risk due to the high-interest rates, strict loan conditions and numerous collaterals placed on these loans. This study determined that the Tanzanian government should intervene in the nation’s market “to regulate the conditions and requirements for loans” financing SMEs. This could be done by establishing credit bureaus in large cities to increase credit access in Tanzania for SMEs.

Tanzania’s New Credit Plan

Due to the difficulty for many Tanzanians to formally obtain a loan, as well as the mistrust of the population in formal bank loans, the federal government has proposed a new solution for credit access in Tanzania. As of April 2018, the Tanzanian government has enacted a new credit plan to improve private lending and reduce the frequency of bad loans.

This regulation of interest rates in banks, however, is not intended to be a direct rate cap, and should not hinder banking sector growth. This plan had been presented before in 2011, but was rejected by the government for fears of restricting the free market. While this move may be beneficial for SMEs in Tanzania, some banks with capital ratio issues may be hurt by the policy, further negatively affecting the economy.

High-Interest, Low Loans

Limited credit access in Tanzania, much like other developing countries, constricts the country’s economy and scope of financial operations. While Tanzanians often seek loans from sources other than banks, SMEs and other aspects of the country’s private sector have suffered the negative consequences of high-interest rates and low loan offers from banks.

Although capital ratio issue in some banks complicates the possible credit solution, the government of Tanzania seeks to resolve these problems through its new credit plan in order to continue to augment the nation’s economic growth.

– Matthew Cline

Photo: Flickr