Over the past decade, Tanzania has witnessed a rapid growth in digital financial services that is transforming its economy. From mobile money services to digital lending apps and online investment platforms, Tanzanians now have access to a wide range of financial products that were previously out of reach for many.

This digital revolution in finance is driving financial inclusion, boosting entrepreneurship and supporting economic growth in what is still a largely cash-based economy.

The Mobile Money Revolution

The biggest driver of digital financial services in Tanzania has been mobile money. Services like Vodacom’s M-Pesa, Tigo Pesa and Airtel Money have signed up millions of Tanzanians, allowing them to store and transfer money using their mobile phones. According to the World Bank, as of 2017, 65 percent of Tanzanian adults already had a mobile money account compared to just 11 percent who had either a bank account or non-bank formal account.

Mobile money has helped overcome several barriers to mainstream banking in Tanzania related to costs, proximity to a bank branch and paperwork requirements. A basic mobile phone and a few hundred shillings are all that is required to sign up. Agents located even in remote rural areas help cash-in and cash-out transactions. The ease of use offered has made mobile financial services the first entry point into the formal financial system for lower income Tanzanians.

Driving Financial Inclusion

This surge in mobile money uptake has significantly expanded financial inclusion in Tanzania. The World Bank estimates those excluded from financial services dropped from 55 percent in 2009 to 26 percent in 2017. Rural communities where people previously relied solely on informal services now increasingly use mobile money for convenience in sending and receiving money as well as paying bills.

The widespread mobile money agent networks, even in remote areas have ensured proximity and reliability of access. This is gradually helping rural households move towards the digital financial system by building familiarity and trust. Government adoption of mobile payments for salaries and utility bills has also accelerated usage.

Boost for Entrepreneurship

Digital financial services are making life easier not just for households but also for Tanzania’s micro, small and medium enterprises (MSMEs) that account for a majority of business activity. Mobile money platforms allow safe, convenient business-to-business transfers that reduce cash dependency. Bulk payments services let enterprises easily pay employees and make supplier payments.

Increased financial inclusion is providing MSMEs with better access to affordable working capital through microloans on mobile lending apps like Nivushe, Letshego’s Timiza and Halopesa. These expanding digital financial capabilities are allowing enterprises across Tanzania to seize more business opportunities and fueling entrepreneurship.

Driving Consumer Spending

The fast penetration of mobile financial services across income segments is also driving consumer spending and domestic consumption. Previously unbanked families can now conveniently receive remittances, pay bills online and manage daily expenditures even with modest incomes.

Mobile payment interoperability across major telecom company platforms introduced by the government in 2015 has also enabled participation in the digital financial ecosystem regardless of which mobile operator a user is on. Combined with other innovations like savings groups on phone, consumer tools to better manage money and targeted micro-insurance products, marginal populations have more capacity to consume, save and invest.

Gateway to Formal Economy

While initially focused on payments and transfers, mobile money accounts are also becoming gateways to the formal digital financial system for many Tanzanians as providers offer additional services. Mobile operators now provide micro savings and microloans on phones, expanding access to funds needed by small business owners and households. Third party financial applications are also integrating mobile money accounts for affordable insurance, savings or lending services.

MVNOs like Equitel are bundling mobile money accounts with interest earning bank accounts, electronic cards for ATM access and acquiring services for accepting card payments. This convergence of mobile money and conventional banking is drawing more Tanzanians into the formal financial system.

Supporting Economic Growth

This digital financial services revolution has widened financial inclusion, benefitted consumers and entrepreneurs, and is now also contributing to Tanzania’s macroeconomic growth. Research by the Bank of Tanzania found growth in digital financial services explained 0.1 percentage points of the country’s 7 percent GDP growth rate during 2013-2016.

Mobile money platforms and services are enabling activity in critical sectors like agriculture. By allowing reliable business-to-business payments, they help farmers access vital inputs which has raised productivity. Expanding microloan access is funding smallholder farmers to scale operations. Digital channels also facilitate quicker, safer payments to farmers from buyers. This is increasing commercialization in sectors like agriculture.

The path ahead

While Tanzania has made big strides in expanding digital financial services, there is potential for far greater adoption and usage. The next wave of growth is likely to focus on smartphone applications that can bundle different financial products to motivate consumer activity beyond basic transactions and transfers.

Tanzania will also need better ICT infrastructure in rural areas including improvements in mobile and internet connectivity to enable digital financial services growth across communities. The banking sector regulations will have to evolve further to enable greater innovation of services by non-bank technology companies. American technology giant Amazon has considered launching its digital wallet Amazon Pay to accelerate Tanzania’s transition into a cashless economy.

As it leverages these digital trends sweeping Africa, Tanzania can build on the fintech revolution to transform into a digitized, middle income economy over the next decade. The strides made so far in expanding digital financial inclusion lay the foundations for this economic growth oriented digital transformation of banking and commerce.