In 1990, IDA began financing basic reform of Tanzania’s financial sector, such as liberalization, setting up a legal and regulatory framework, bank privatization, stronger banking supervision, and development of the insurance industry and capital markets. Nonetheless, only a few customers benefited and the ratio of deposits to GDP remained a low 15 percent.
The second Financial Institutions Development Project was designed to, among other things, improve access by small and micro-entrepreneurs to the formal financial system. It financed restructuring of the largest state-owned savings bank, National Microfinance Bank (NMB) to a privately managed and owned microfinance bank. It also ultimately strengthened the financial infrastructure by enhancing the capacity of the central bank to supervise banks and by improving efficiency in the national payments system.
Credit to the private sector increased by 250 percent in six years. NMB’s microfinance loans reached US$89.1 million by September 2006 with more than 165,000 borrowers since lending started in August 2000. The bank reached 750,000 depositors with its extensive rural branch network.
Highlights:
- Newly privatized state banks with improved governance led to increased competition in the financial sector. This, in turn, increased credit to the private sector: from US$405.73 million in 1999 to US$938.67 million (10 percent of GDP) in 2005.
- Share of deposits in private banks to total deposits increased from 51.5 percent in 1999 to 80 percent in September 2006.
- Total number of bank branches increased from 195 in 2001 to 240 in September 2006. NMB branches, which started with 95 in 1997 increased to 108 branches, of which 106 are now issuing micro loans (vs. 8 branches in 2000).
- Public participation in capital markets increased with market capitalization of US$2.3 billion and 97,000 shareholders in 2006, compared to US$182.07 million and 30,500 shareholders in 1999.
- US$27.5 million from 2000 to 2006.
- IDA helped government to design the privatization and restructuring of the National Microfinance Bank (NMB) and to attract equity investors to the bank to successfully support the Government’s privatization strategy.
- IDA’s technical assistance ensured that the bank was professionally managed and operated in accordance with the best practices in microfinance.
IDA is continuing its support to the government’s financial sector development strategy through an innovative multi-donor sector-wide Financial Sector Support Project which aims to promote increased household and firm access to financial services, facilitate efficient financial intermediation, and support financial stability and integrity. The new project will provide support primarily for the completion and scale up of activities begun under the project discussed here and will continue to support access to financial services for all by focusing on strengthening micro and rural finance institutions.
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