In 1991, the Tanzanian Government launched ambitious financial sector reforms aimed at liberalizing the country’s economy. While this agenda has achieved significant success in some areas of the banking sector, the country’s microfinance industry has grown more slowly, limited by challenges including financial constraints, governance and leadership issues, and excessive dependency on donors.

Recognizing the importance of the microfinance industry to underserved populations (such as women and youth), in 1998 the government introduced policy tools and, later, a regulatory framework aimed at reforming the microfinance subsector. Over the last decade, the government has also focused on developing the country’s digital infrastructure through initiatives such as the Tanzania National Fibre Broadband Backbone and the Tanzania Instant Payment System (TIPS), which is expected to be launched in 2022. However, Tanzania’s microfinance industry has not yet been able to fully benefit from the opportunities created by these initiatives.

In line with its inclusive digital economy strategy aimed at “Leaving No One Behind in The Digital Era", UNCDF can support the digital transformation of MFIs to align with the government's work to digitally transition the economy. By digitizing their operations and systems, integrating with the national payment system, and fully utilizing the digital financial infrastructure, microfinance institutions (MFIs) can become more efficient and develop innovative products to better serve their clients.

This case study provides a snapshot of the state of the MFI industry in Tanzania and highlights options that key stakeholders can exploit to accelerate MFI participation in Tanzania’s wider inclusive digital economy.