FintechFintech Regulation Landscape in Tanzania

Kennnedy MuturiOctober 16, 20216011 min
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Tanzania’s fintech ecosystem has grown dramatically during the previous decade. Ecosystem facilitators, such as incubators, accelerators, and hubs, are forging a tight-knit fintech community in which ideas are developed, tested, and refined before becoming start-ups. As a result, many fintech start-ups have joined the market, providing a broader range of services to banking institutions, individuals, and other corporate customers. While many start-ups struggle to scale, and some pivot into different businesses, more are joining the market.

Initially, fintech services were confined to purchasing airtime, transferring money, and depositing and withdrawing cash. Currently, Tanzanian fintech businesses offer a wide range of services that leverage data and financial innovations, including remittances, digitized savings, digitized lending, and microinsurance.

The evolution of the fintech start-up scene in Tanzania is favorably tied to regulatory reforms in the payment sector and the implementation of national policies and initiatives centered on information and communication technologies (ICT). For example, the government formed the Information and Communications Technologies Commission (ICT Commission) in 2015, which is tasked with regulating and facilitating national ICT programs.

Ecosystem facilitator FSDT will provide financial and technical support to the financial sector after signing an agreement with the government. The government will provide legislative and regulatory frameworks.

The government also signed a memorandum of understanding with ecosystem facilitator Financial Sector Deepening Trust (FSDT), under which FSDT will provide financial and technical support to the financial sector. In contrast, the government would provide legislative and regulatory frameworks.

Regulatory bodies:

Bank of Tanzania-The Bank of Tanzania (BOT) is responsible for licensing, regulating, and supervising all banks and nonbank financial institutions (such as microfinance institutions) in Tanzania. 10 Its primary goal is to formulate, define, and incorporate monetary policy to achieve the economic goal of maintaining domestic economic stability conducive to the national economy’s strength and sustainability.

Tanzania Insurance Regulatory Authority- The Tanzania Insurance Regulatory Authority oversees the insurance industry.

Social Security Regulatory Authority- the SSRA oversees the social security funds and pensions plans.

Capital Market and Security Authority-the CMSS promotes, develops, and regulates capital markets and securities.

Tanzania Communication Regulatory Authority-TCRA is a Tanzanian law that governs telecommunications, transmitting, and postal services and the allocation and management of frequency bands for electronic and other information and communication technology (ICT) applications.

Information on Tanzanian fintech start-ups is scattered, making it difficult for market dynamics to make relevant and informed decisions about the industry. In May 2020, a UNCDF team decided to undertake a fintech landscape research study in collaboration with the start-up accelerator Sahara Ventures and the ICT Commission to understand better the challenges facing fintech scale-up and create a centralized repository of information about fintech start-ups operating in Tanzania.

The objective of the  research study on Fintech start-ups in Tanzania is to provide information concerning the following issues:

  • The number and the current level of the start-up.
  • The solutions offered.
  • Challenges and needs of the Fintech start-ups.
  • The level of engagement of the Fintech start-ups with the regulatory bodies in Tanzania.
They came up with the following conclusions:

Universities should slightly upgrade their curricula to align with global technology trends, as we have a proportion of students who are ill-equipped to meet industry standards. Additionally, where possible, innovation hubs should be placed within their confines, allowing students to learn more and acquire skills.

The fintech solution market is very competitive in Tanzania, despite the fact that regulatory and policy pauses slow innovation in the field. It was also highly specified the type of support that should be availed to pre-startup and early-stage fintech to enable them to achieve product-market fit and scale to boost these innovations.

Stakeholders stressed the significance of assisting fintech in developing products based on customer/market research. This could address a lack of diversity among fintech solutions and support providers to collect more proof of sound business cases.

Tanzanian fintech start-ups are less likely than their regional competitors to receive finance, and when they do, the quantities are often lower. As a result, the most typical source of finance is bootstrapping. Fintech start-ups with poor fundraising skills and no connections with overseas investors have had difficulty raising funds. International investors also lack a comprehension of the Tanzanian market, and this information is difficult to come by, making it difficult for them to make rational investment decisions.

While Tanzanian regulators have made some steps to foster innovation, there are problems relating to the limited chances for direct engagement between fintech and regulators and a lack of coordination across the various financial services regulators. Stakeholders suggested the following to address the policy and regulatory challenges raised:

  • To catalyze innovation, regulators should work together more closely.
  • Assist regulators and fintech start-ups in their discussions.

Tanzania’s finance start-up scene is changing. There has recently been a considerable growth in the number of fintech start-ups that have developed products to address the requirements of consumers and businesses in a variety of industries, ranging from payments and remittances to lending and financing to savings and insurance. However, the rest of the fintech start-ups in Tanzania fail to make it through the early phases for various reasons, ranging from a lack of market traction to a lack of finance to keep their operations going.

In general, fintech pioneers and other relevant stakeholders in the fintech ecosystem are optimistic about the future of fintech innovation in Tanzania, citing a growing pool of investors willing to provide seed and early-stage funding to fintech start-ups, as well as an evolution in policy related to innovation, indicating policymakers and regulators’ widening commitment to put up with the industry.

More Insights:

The Fintech Landscape in Rwanda

Fintech in Africa

Kennnedy Muturi

Ken is a Quantitative Trader with experience in investments, quantitative finance, financial modelling and algorithmic trading in Global Investable Markets (GIM). He enjoys using Bayesian Statistics, Time Series and Machine Learning in developing Robust consistent Alphas in Equities Market, FX, ETPs and Derivatives instruments. He enjoys deep dives in understanding High Frequency Trading infrastructures and improving how the African financial markets work. He holds a Bachelor's in Actuarial Science from Strathmore Institute of Mathematical Sciences : An Executive Program in Algorithmic Trading (EPAT) certificate in Algo Trading from QuantInsti : A current MSc student in Financial Engineering at World Quant University.

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