Financial Sector Reforms and Innovations and their Implications on Monetary Policy Transmission in Tanzania


Tanzania embarked on a series of financial reforms starting 1991 as an effort to promote the development of a market-based financial sector. The reforms were implemented in two major phases: The First Generation Financial Sector Reforms which started in 1991 targeting legal reforms to create competitive environment, modernization of the National Payment Systems, strengthening of BOT’s regulatory and supervisory capacity, restructuring and privatization of state owned banks and financial institutions. The Second Generation Financial Sector Reforms followed in 2003 aiming at strengthening the banking sector, developing financial markets, facilitating the provision of long term development finance, land reforms, creation of credit registry and strengthening of micro and rural finance. Using descriptive analysis and model-based approaches, this study assesses the impact of the reforms and innovations in the financial sector on the development of the banking sector in Tanzania and evaluates the implications of the banking sector development on the effectiveness of monetary policy. On the banking sector, the findings suggest that considerable achievements have been recorded, particularly in the structural change of the sector, as well as the quantity and quality of the financial services provided. Notably, the following achievements are worth mentioning.