Fintech is on the rise in Tanzania, with the number of fintech start-ups growing by approximately 140 percent between 2021 and 2024, from 33 to 79.
‘Fintech’ refers to the integration of technology in the finance sector to innovate and improve the delivery of financial services to consumers. The rise of Tanzanian fintech is driven by a rapid increase in mobile phone ownership, high mobile money penetration, and the ongoing expansion of mobile network infrastructure. Moreover, Tanzania’s growing population of over 65 million makes it an attractive market for introducing tech-enabled financial services.
The rapid rise of fintech in Tanzania presents a challenge for regulators as they attempt to adapt regulatory frameworks to accommodate new business models. Current regulations are primarily designed for traditional financial service providers, such as banks. This contrasts with fintech start-ups that often operate with innovative, asset-light business models that do not always align with these existing frameworks. This misalignment creates challenges for both regulators, who must oversee and assess the fintech, and for fintechs, which face difficulties in registering, complying, and formally participating in Tanzania’s financial sector.
This report focuses on the policy and regulatory enabling environment landscape in Tanzania as it relates to fintech, e-commerce, and funding. It highlights recent regulatory developments in both Tanzania and Zanzibar over the past five years that have contributed to fintech growth. It also identifies gaps in existing legal and regulatory frameworks along with opportunities for further development. The report aims to outline a pathway for Tanzania to unlock new business models and economic opportunities presented by fintechs, while ensuring robust risk management and mitigation measures are in place.
Tanzania’s fintech sub-sector can currently be divided into five sub-segments, which include: i) payments and remittance, ii) credit and lending, iii) accounts and savings, iv) investment facilitation, and v) insurance. The report also explores the performance of e-commerce companies in Tanzania, which operate closely with fintechs and are governed by similar regulations.
Lastly, this report examines the current funding landscape for fintech start-ups in Tanzania and opportunities to unlock further investment in the sector. In the first three quarters of 2024, Tanzanian startups ranked third in Africa in terms of fundraising, raising US$53 million with Nala, a Tanzania fintech, accounting for US$40 million. However, Tanzanian startups still lagged significantly in comparison to neighbouring startups in Kenya which raised US$437 million in the same period. While both international and domestic investors are increasingly active in Tanzania’s fintech start-up ecosystem, concerns remain about the lack of clarity around Tanzania’s regulatory framework for start-ups, weaknesses in intellectual property protection that expose fintechs to the risk of replication, and challenges safeguarding investor rights in court.
Though each fintech segment faces its own unique inhibitors, four key challenges cut across the fintech subsector. These include:
- A lack of policies determining the establishment and operations of start-ups in Tanzania, especially fintechs.
- High early-stage costs incurred by start-ups and fintechs to meet tax and registration requirements.
- Dollar scarcity, increasing the startup debt burden for foreign-backed startups.
- Incomplete national ID uptake limiting the consumer base fintechs are able to target due to an inability to meet e-KYC requirements.
Recognizing these challenges, the UN Capital Development Fund (UNCDF), funded by the European Union and in consultation with the Bank of Tanzania, has developed this report to assess the policy and regulatory environment for the fintech subsector in Tanzania. The report identifies: i) opportunities presented by existing policies and regulations for fintechs, ii) the policy gaps and challenges fintechs are currently facing, and iii) segment specific as well as cross-cutting recommendations that could support and promote the growth and expansion of fintech innovation in Tanzania.
