The Environment for Digital Financial Services in Tanzania

Policy and regulatory environment

In late 2013, the government of Tanzania released its National Financial Inclusion Framework (NFIF) as part of its commitment to the Maya Declaration,[1] which included a pledge to increase the level of Tanzanian adults with formal access to financial services to 75 percent in the next six years.[2] The framework is to be implemented from 2014 to 2016 and oversight of the implementation process will be the responsibility of the Financial Inclusion National Council, a body comprising 11 member institutions from various government ministries – including the Bank of Tanzania, Ministry of Finance and TCRA. Assisting and reporting to the National Council are the National Steering and National Technical Committees – both of which are comprised of individuals from similar if not the same organizations, but holding a lower office than those on the National Council.[3]

Within the framework itself, the government has provided its own definition of financial inclusion as: “Regular use of financial services, through payment infrastructures to manage cash flows and mitigate shocks, which are delivered by formal providers through a range of appropriate services with dignity and fairness.”[4] The framework also identified barriers to financial inclusion and four priority areas that it believes to be central to reducing these barriers. Among these barriers are strict Know Your Customer (KYC) regulations; information asymmetry[5] for both consumers and providers of financial services; insufficient access to service points/delivery channels; a lack of consumer-focused products; and the lack of interoperability among financial service providers, including banks, MFIs and mobile money providers.[6] The priorities are:[7]

  1. Enhancing existing access channels and adding new ones. This is aimed at increasing the percentage of Tanzanians living within five kilometers of a financial access point.
  2. Increasing the reliability of and reducing the cost of digital payment platforms. The improved reliability, it is expected, will reduce the risk to consumers and thus reduce apprehension about using the services. Also, with a decrease in provider costs, their disincentives to provide services in rural and sparsely populated areas should diminish.
  3. Creating proportionate KYC requirements and improving the national identification system. In particular, increasing the number of people in identification databases will, for providers, reduce the cost of determining a potential customer’s creditworthiness and laxer KYC requirements will reduce obstacles faced by providers in registering low-income persons.
  4. Reducing information asymmetry for consumers. Misconceptions about financial services and a low level of financial literacy have meant that consumers are reluctant to adopt unfamiliar services or do not necessarily understand the value in it. Furthermore, this lack of information has made consumers more vulnerable to exploitation and news of such instances will entrench distrust in financial institutions.

In addition, the framework focuses on reducing information asymmetry for providers of financial services. In the context of scarce information about consumer behaviors and needs, financial services providers tend to rely on their “gut feeling” rather than hard facts when developing new products or modifying current market offers. This approach leads to the scarcity of consumer-focused products as discussed above. Access to research data and insights can stimulate appearance of products and services which will address demand-side needs more effectively.

Since the framework came out, the government has been demonstrating its commitment to financial inclusion by i) investing in improving rural telecommunications infrastructure;[8] and ii) the central bank engaging mobile network operators (MNOs) and commercial banks to develop a strategy for mobile money interoperability[9] (from which has emerged a number of promising MNO-bank collaborations/partnerships.


Digital financial services supply side

Since the industry’s early days in 2008, the number of mobile money providers and the services they offer have expanded considerably. There are now four mobile money brands in Tanzania – Airtel Money, EzyPesa, Tigo Pesa, and Vodacom M-PESA.[10] Further adding to an already dynamic telecommunications market was the entry of a new telecommunications company – Smart Telecom – in April 2014. Whether or not Smart Telecom chooses to attempt to roll out their own mobile money service is, as of right now, unclear.[11]

The Financial Inclusion Framework was created by the government mostly to guide activities of such government institutions as the Bank of Tanzania, the National Social Security Fund, and others. However, many private financial service providers have been considering the framework in their own market strategies. For example, the MNOs have been working to improve and expand their customer service offerings. Airtel upgraded its mobile money platform in early 2014; Vodacom has improved its ability to conduct risk-scoring for low-income customers (including through its M-Pawa product, offered in a partnership with CBA); and Tigo has introduced cross-border transfer services.[12],[13],[14] Now, along with making P2P transfers and purchasing airtime, customers of Airtel, Tigo and Vodacom’s services are able to make bill payments and bulk payments, while Tigo Pesa and Vodacom M-PESA users are able to make international transfers.[15] Both Tigo and Vodafone are also now offering merchant payment products to their consumers.

The market has, thus far, moved quickly through the introduction and adoption of mobile money services. Over the coming two years, as the first stage of the National Financial Inclusion Framework comes to an end, we should expect to see more positive developments toward furthering mobile money adoption as well as improvements in interoperability among mobile money providers.

Some of the country’s banks are also working to increase access to and the quality of the financial services being offered to customers. One of the country’s major banks – CRDB – plans to open new branches across the country in early 2014, and has expanded its network of businesses using the “Tembo Card KCMC” (a Visa or MasterCard digital payment card).[16],[17] In another example, Bank of Africa Tanzania (BOA) introduced a mobile banking service (B-Mobile) in March 2014, further increasing options for accessing financial services available to Tanzanians.[18] Equity Bank Tanzania also rolled out Agents in Tanzania. Equity Tanzania is affiliated to Equity Kenya, the largest bank by customer base as well as by agent-base.

Understanding the regulatory and supply-side issues that support the development of DFS sets the necessary context for presenting FII’s demand-side findings and analysis.

[1] The Maya Declaration is the first global and measurable set of commitments by developing and emerging country governments to unlock the economic and social potential of the 2.5 billion ‘unbanked’ people through greater financial inclusion. More than 90 such countries – representing more than 75 percent of the world’s unbanked population – have supported the Declaration. Each country makes measurable commitments in four broad areas that have been proven to increase financial inclusion (
[3] NatFIn Framework pages 19-21
[4] NatFIn Framework page 13
[5] A situation in which one party in a transaction has more or superior information compared to another. This often happens in transactions where the seller knows more than the buyer, although the reverse can happen as well. Potentially, this could be a harmful situation because one party can take advantage of the other party’s lack of knowledge (
[6] Ibid 11-12
[7] Ibid 16-17