Financial sector needs serious reforms to kickstart economy

In pursuit of this, more emphasis was put (and continues to be put) on allowing the establishment of more banks, financial institutions, and credit societies so that more adults had access to the (mere) opportunity to open bank accounts.

This has led to the current situation whereby there are a total of 56 registered banks in the country at the moment, of which only two - the Tanzania Investment Bank (TIB) and Tanzania Agricultural Development Bank (TADB) - are development banks and the rest are commercial banks largely inclined to doing trade.

There are also 1,507 registered Saccos (of which 761 are active today), over 100,000 village community banks (Vicoba), and an equally astounding number of cooperative societies, according to Bank of Tanzania (BoT) records.
The Vicoba initiative was introduced in the early 2000s to empower underprivileged local entrepreneurs.

Yet despite all these efforts, currently the percentage of Tanzanian adults who have their own bank accounts is still only between 14 and 17 per cent. Granted, the advent of digital wallets has gone a long way towards boosting the number of those who can be bracketed in the category of the financially included to about 48 per cent. But the numbers are still largely discouraging.

The above entire thread of analysis brings us to Joseph Nathan Kane’s $64,000 question as to whether a small economy like Tanzania’s (measuring only $48bn) really needs such a large number of financial institutions.

And if it does, what should these financial institutions be concentrating most of their focus on – real economic activities like agriculture, mining, and fishing; or mere speculative activities like money gaming in China’s Macao and America’s Nevada?

It should be understood that banking is essentially a business that uses money as its basic commodity, and all other activities that banks involve themselves in are in reality only side businesses.

The other question we should probably be asking ourselves is why should money – which is only one commodity - involve all these financial institutions in this neo-liberal age where information communication technology has become prevalent?
We are of the opinion that although Tanzania embraced a neo-liberal economy in the late 1980s as an alternative to the previously popular socialism, we have reached a point where this adopted force has run out of the propelling force.

In his article titled ‘The relationship between financial deepening and economic growth in Tanzania’, Nigerian agricultural studies educator Oludele A. Akinboade says:

“The relationship between financial deepening and economic growth appears to be surprisingly negative and significant overall during the period of financial liberalisation, but insignificant during financial repression.”

Indeed, perhaps the time has come for Tanzania to reexamine its entire policy on financial institutions in the way Nigeria did in the mid-2000s.

With a gross domestic product (GDP) ten times bigger than Tanzania’s (at $521.7 billion), the West African nation had 89 banks before 2000, many of which were small and weakly capitalised.

The Central Bank of Nigeria (CBN) raised the bank’s core capital requirement leading to a wave of consolidation that reduced the number of banks to 40 at first, and 22 later.

Nigeria today has a strong financial sector with a financial deepening standing at 60 per cent.
Looking at the current trend in Tanzania, it is becoming quite clear that the local banking sector as it is today can’t really liberate this country from the kind of economic problems it is facing. Serious reforms are required.