THE GOVERNMENT OF REPUBLIC OF TANZANIA MINISTRY OF FINANCE P.O BOX 9111, DAR ES SALAAM, TANZANIA

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1 THE GOVERNMENT OF REPUBLIC OF TANZANIA MINISTRY OF FINANCE P.O BOX 9111, DAR ES SALAAM, TANZANIA

2 MAP OF TANZANIA

3 Outline Map of Tanzania; Macroeconomic Performance; Inflation; Impact of Global Financial Crisis on the Tanzanian Economy; Financial Sector Reforms; The Strength Financial Sector in Tanzania; Weaknesses related to banking and finance; Possible Opportunities related to banking and finance and Areas of reform in the financial sector.

4 MACROECONOMIC PERFORMANCE Economic growth during 2010 is expected at 7.0 percent from the real growth of 6.0 percent attained in Preliminary national account statistics indicates that Gross Domestic Product at market prices in real terms is estimated to have grown at 7.0, 7.1 and 6.2 percent in the first, second and third quarters of 2010, respectively compared to 5.3, 3.4 and 5.7 percent attained during the same period in This growth was attributed to increase in agricultural activities. Other economic activities which recorded notable growth in the second quarter of 2010 include: fishing; mining and quarrying; manufacturing; wholesale and retail trade; electricity and gas; and real estate and business services.

5 Inflation The economy experienced inflationary pressures in 2009, primarily due to food supply shortages in some parts of the country due to uneven distribution and a rebound in world oil prices; However, due to favorable weather conditions in the 2009/10 crop season, food supply improved, leading to a downward trend in inflation from 12.7 percent in October 2009 to 4.2 percent in October 2010; In December 2010, inflation rate rose to 5.6 percent and picked up to 6.4 percent in January 2011 owing to the increase in electricity tariffs and gas; and The inflation target in the medium term is to maintain single digit inflation in conformity with our major trading partner.

6 Impact of Global Financial Crisis on the Tanzanian Economy Like most African countries, Tanzania was not affected by the first round impact of the Global Financial Crisis (GFC). This was mainly due to low level of integration of the domestic financial markets with the international capital and financial markets. The capital account restrictions cushioned Tanzania from the first round effect to GFC as they reduced exposure of its financial system to the risky financial assets. The only immediate impact of the GFC to Tanzania was a panic by domestic commercial banks that led to a depreciation of the shilling against US dollar especially during the second half of The second round impact of the GFC affected the economy through trade following a sharp decline in world markets prices of commodities. The performance of key export sectors in Tanzania, especially traditional and nontraditional exports and tourism significantly weakened as economic conditions in the Tanzania s main trading partners (USA and the Euro Area) deteriorated and major source of tourists took a downturn.

7 Financial Sector Reforms The reform in the financial sector included liberalization o interest rates; elimination of administrative credit allocation strengthening the Bank of Tanzania role in regulating and supervising financial institutions; restructuring of state-owned financial institutions and allowing the entry of local and foreign private banks into the market. Financial sector reforms in the country have led into an increase in the number and range of banks and other financia institutions which have availed new and more efficient financia services in the financial market. However, these positive developments in the financial secto have not brought about a corresponding increase in access to financial services by majority of Tanzanians who are mainly low income and poor in the rural areas.

8 FINANCIAL SECTOR REFORMS For the past two decades the Government has been implementing a range of economic reforms, including the First and Second Generation Financial Sector Reforms to accelerate economic growth and poverty reduction. The reform in the financial sector led to among others, liberalization of interest rate; restructuring of the state owned commercial banks; entry of foreign private banks and the availability of a range of financial service. Financial sector reforms in the country have led into an increase in the number and range of banks and other financial institutions which have availed new and more efficient financial services in the financial market.

9 Tanzania The financial landscape in Tanzania is comprised of mainly banks, pension funds, insurance companies, financial markets and other financial intermediaries. However, the sector is dominated by banking institutions which account for about 75 percent of the total assets of the financial system, followed by pension funds whose assets account for about 21 percent and the insurance sector with 2.0 percent of the total assets, while the remaining financial intermediaries hold about 2 percent.

10 CONTINUE. With financial stability mandate in mind, the Bank of Tanzania is supervising banks on a consolidated basis, reflecting the way banking institutions themselves manage risks and, in particular, recognizing the possibility of contagion risk within a banking group. By end of June 2010, the banking sector was made up of 41 banking institutions, out of which 19 were foreign owned. The banking system showed a high concentration of total assets - 57 percent - being held by four big banks, while 43 percent were accounted for by the remaining 37 banks. Pension funds and insurance companies are among the large investors in financial markets. Given the long term investment horizons of pension funds and insurance companies, they provide a source of stability for the financial markets. Together, pension funds and insurance companies hold between 30 percent and 20 percent of the total amount of outstanding government debt securities.

11 Weaknesses related to banking and finance (i) The positive developments in the financial sector have not brought about a corresponding increase in access to financial services by majority of Tanzanians who are mainly low income and poor in the rural areas; (ii) The banking system has a very limited level of penetration in the rural areas of Mainland Tanzania, primarily attributed to the tendency for banks to be located in areas with high population densities and high economic activities:

12 continue... (a) 12.4 percent is served by formal financial institutions; (b) 4.3 percent is served by semi-formal institutions such as SACCOS and financial NGOs, as well as M-Pesa and some government loan schemes; (c) 27.3 percent is served by informal institutions e.g. VICOBAs and other community based savings and credit groups, as well as family and friends; and (d) 56 per cent are still excluded from any form of access to financial servises.

13 Continue. (iii) Tanzania does not have a comprehensive financial consumer protection legal system. The existing gaps in the banking sector s consumer protection framework need to be address at two levels. The first level is amendments in the banking law and regulations to address the two elements of consumer protection, market conduct and dispute resolution. The second level will require the amendment of the Fair competition Act,2003 to introduce a component of financial protection; (iv) Inadequacy of financial literacy; and (v) Absence of a legal and regulatory framework for credit only institutions.

14 Possible Opportunities related to banking and finance (i) The sustained macroeconomic and financial sector stability; (ii) The existence of Banking and financial Institution Act,2006; and (iii) Peace and harmony.

15 Areas of reform in the financial sector (i) Reforming micro and rural finance. This include: Developing of financial education framework;rural and Financial Service strategy and reviewing of National Microfinance Policy,2000; (ii) Reforming of Pension sector among others include: Facilitating the entry of private pension funds to the financial system; establishing an effective supervisory and regulatory framework for private pension funds; and formulation of investment guidelines;

16 continue... (iii) Reforming of insurance sector among others include: developing a legal and regulatory framework for Bancassurance; development of National Policy on Insurance; (iv) Reforming of Financial Markets among others include: establishing Municipal Bonds Market in Tanzania; reviewing of the capital markets legal and regulation framework and demutualization of the Dar es salaam Stock Exchange; and (v) Reforming the banking sectors which include: Developing of Credit Reference Bureau and Credit Reference Data Bank; and developing regulation framework to govern deposit insurance system in Tanzania.

17 END THANK YOU KARIBU SANA!!!!!!!!!!!!!!!!!!!!! Presented by Dionisia P. Mjema Senior Economist Financial sector Development section

Microfinance Expert, CEO of YOSEFO Finance Chairman of the Board of Directors of Mbinga Community Bank

A CLKnet FORUM PRESENTATION BY ALTEMIUS MILLINGA Microfinance Expert, CEO of YOSEFO Finance Chairman of the Board of Directors of Mbinga Community Bank 11 th April, 2012 1 Tanzania s Financial Sector Landscape