Why financial inclusion in Tanzania remains a big challenge

Less than 40% of adult population in Tanzania has bank accounts.
Central Bank aims to increase integrated financial services access to 80% by 2028.
Lack of collateral affecting disadvantaged populations from accessing bank credit.

Financial inclusion in Tanzania has increased considerably but with less than 40 per cent of the adult population having an account at financial institution, a pointer that policymakers in the country have a lot of work to do. To this end, the government, through the Bank of Tanzania (BoT), has announced plans to increase integrated financial services access to 80 per cent of the population by 2028.

BoT Deputy Governor, Ms. Sauda Kassim Msemo recently told media that financial services inclusion is crucial for sustainable economic growth of the East African nation. “The government continues to create a conducive investment environment, but we need to grow financial inclusion, especially access to banking,” she said.

She pointed out that while financial services have reached an estimated 76 per cent of the country, banking services cover a mere 22 per cent of the entire population.

According to the BoT head, as of January of this year, only 23.3 per cent of people aged 15 and older had an account at a financial institution. She said, the highest penetration rate for bank accounts was reported at 46.8 per cent in 2021.

In an effort to broaden financial inclusion and access to banking services, she said the BoT has eased the conditions for financial service agents to be registered to help enhance access.

Sharing similar sentiments, Tanzania’s Deputy Minister of Information, Communications, and Information Technology, Eng. Maryprisca Mahundi, said increasing financial inclusion will help grow the economy. “We have made the regulations and requirements easier for more banks to be opened so that we can increase financial inclusion, we want more of our people to access these necessary services.”

Mobile financial services increasing inclusion

While there is a considerable increase in the number of banks in Tanzania and an increase in the banked population, it is mobile money services that have made the bigger leap in increasing financial inclusion in the country. FinScope Tanzania specifies that, the number of adults excluded financially is 6.4 million as of 2023 thanks to a rise in mobile money services.

“Overall observation indicate that mobile phones provide a convenient way through which basic banking services can be distributed quickly and relatively cheap,” FinScope reports.

According to the report, Tanzania’s increase in financial inclusion is mostly driven by the telecommunication companies and the increased penetration of mobile money transfer services such as M-PESA, Tigo Pesa, Airtel Money and Z-Pesa.”

Despite this development, cash is still the king in Tanzania; “Considerable progress is still needed to get Tanzanians to formally transact and use financial services for development,” FinScope notes.

It says there is still a big gap converting ‘trials’ into ‘regular’ use of digital payments mechanism for purchasing goods. “Although Tanzanians have tried to use lipa number services, their usage is yet to become regular. These payments are the next frontier to achieve increased benefits from the use of formal financial services, establish reliable transaction histories, and to increase overall financial sector security,” the report says.

However; “If we exclude this category of financial services we see that banks have done little to increase financial inclusion in the country,” reads the report.

It cautions that as of January 2024, only 23.3 per cent of the population aged 15 years and older had an account at a financial institution in Tanzania, which was the same rate as the preceding year.

It also alludes to the fact that while there is an increase in mobile phone ownership but the younger population of Tanzanians and women still lag behind when it comes to mobile phone ownership, says the report.

How to finance a disadvantaged population

When it comes to limitations or hurdles to financial inclusion, it must be taken to account that many people do not have collateral and this is because they are simply from poor families and this fact puts them at a disadvantage.

In its study, FinScope looks at how the ‘disadvantaged population’, that is, people without the traditional requirements of financing like high value assets e.g. houses and tiled lands, can also be included into the financial system. “Well-functioning financial systems serve a vital purpose, offering savings, credit, payment, and risk management products to people with a wide range of needs,” reads the report.

FinScope is of the view that; “Inclusive financial systems allowing broad access to financial services, without price or nonprime barriers to their use are especially likely to benefit poor people and other disadvantaged groups.”

Tanzania for example has embarked on what is called ‘the financial sector intermediation and deepening strategy,’ which according to FinScope has caused the increase of the number of banks in the country. With increased banks, the idea runs, then there should be an increased number of people banked.

Tanzania launched its national financial inclusion framework aimed at expanding access to more than half of the country population. The Bank of Tanzania put in place a robust system of licensing, regulating and supervising commercial banks that was meant to open up of the financial sector.

“It has also modernized the National Payment Systems (NPS) in the country with the objective of enhancing safety, soundness and efficiency in the payment and settlement systems. The Bank of Tanzania has also facilitated the development of a Microfinance Policy and regulations promoting a viable and sustainable microfinance industry with a wide outreach,” reads the report.

However, FinScope points out that seasonal or occasional income sources create a lack of financial stability for most Tanzanians. There is also the issue of wrong perceptions citing that most people still thinking that they need more money to open a bank account.

Then there is the problem of many in the country lacking National Identification Number (NIN) despite the significant increase, many younger Tanzanians, are still to receive their National Identification Number (NIN).

The lack of National IDs goes hand in hand with lack of other necessary documentations that are required to open bank accounts or mobile money accounts for that matter.

“Regulatory requirements such as know your customers rules that have been introduced to prevent money laundering can also make it difficult for poor people to open even a bank account as they may not have the necessary documentation,” FinScope writes.

Another challenge that is cited is the high cost of using financial services seen in various charges such as the interest rates and service charges on using ATMs and even mobile banking services and telecom e-wallets.

“Basically, in this, it was realized that the charges that are put on various services are in most cases destructive to the overall mood of the respondents to utilize the services of the financial institution,” FinScope points out.

It says; “In order to curb this, there is a need to harmonize the overall charges so that the users can be comfortable in paying them without any problem.”