Part 1: Tanzania’s Banks Are Highly Profitable — But Who Are They Really Lending To?

The profitability picture

Tanzania's banking sector had a strong first half of 2026.

The country's fifteen largest commercial banks reported a combined net profit of TZS 1.33 trillion, an increase of 14.8 percent compared with the same period a year earlier. Interest income grew by 23.1 percent, while income from fees and commissions also increased. Two institutions CRDB Bank and NMB Bank generated roughly 62 percent of the sector's total profit.

Those figures point to a profitable and well-capitalized banking industry.

But profitability alone does not tell the full story.

Looking beneath the headline numbers reveals a structural question that matters far more for Tanzania's long term economic growth: where is bank capital actually going?

Where the money actually goes

Commercial banks are among the largest financiers of the Tanzanian government.

By the end of May 2026, banks held approximately TZS 11.15 trillion in domestic government securities, representing about 28.4 percent of the country's total domestic debt. Pension funds accounted for another 26.6 percent, meaning that together these two groups financed more than half of the government's domestic borrowing.

Most of that borrowing takes the form of government bonds.

From a bank's perspective, the attraction is obvious. Government securities are liquid, carry relatively low credit risk, satisfy regulatory liquidity requirements, and can be pledged as collateral with the Bank of Tanzania whenever additional liquidity is needed.

There is nothing unusual about banks holding government bonds. Every banking system does.

The question is one of balance.

When a growing share of bank assets is invested in government securities, less capital remains available for businesses that expand productive capacity manufacturers buying new machinery, farmers investing in irrigation, transport companies adding vehicles, or technology firms developing new products.

Economists describe this as the crowding out effect.

As governments borrow more from domestic financial markets, private businesses often find it harder or more expensive to obtain financing. The consequences extend beyond individual borrowers.

Credit becomes scarcer for entrepreneurs, slowing investment and business expansion. At the same time, if government spending grows faster than the economy's ability to produce goods and services, additional money circulating through the economy can contribute to inflation without increasing output. That combination creates the conditions for stagflationary pressure.

Tanzania's banking structure reinforces this dynamic.

The country has around 35 commercial banks, alongside a smaller number of development, microfinance, and community banks. Yet a significant share of banking assets and profits is concentrated in just two institutions.

That concentration makes the system efficient for financing large projects and government borrowing. It is less effective when thousands of smaller businesses across the country need access to credit.

What history teaches about successful banking systems

Many of today's industrial economies developed under banking systems that looked very different from the highly concentrated models seen in many developing countries.

Germany: local banks, local industries

During the nineteenth century, Prussia encouraged the growth of a dense network of local savings banks known as Sparkassen.

These institutions were deeply rooted in their communities. They collected local savings and reinvested those funds back into local businesses, farms, and industries. By 1900, Prussia alone had around 1,500 independent savings banks.

This decentralized system helped finance the growth of Germany's Mittelstand the thousands of medium sized manufacturing firms that later became internationally recognized as the country's "hidden champions."

Their success did not happen by accident.

They had access to banks that understood local industries, maintained long-term relationships with business owners, and were willing to provide patient capital instead of focusing only on short-term returns.

The United States: thousands of community banks

At its peak in 1921, the United States had more than 30,000 banks.

Most were community or regional institutions serving specific towns and counties rather than operating nationwide. They financed farms, workshops, merchants, and manufacturers across the country, helping transform local businesses into larger industrial enterprises.

Although consolidation and the banking crises of the 1930's dramatically reduced that number, the earlier network had already played a significant role in building America's industrial base.

Japan: banking alongside industry

After the Second World War, Japan adopted another model.

Regional banks and large "main banks" worked closely with industrial companies, providing long-term financing as businesses expanded production and entered export markets.

Rather than directing most capital toward government borrowing or financial speculation, banks became partners in industrial development.

That relationship helped support Japan's rapid economic transformation during the second half of the twentieth century.

Despite their differences, these banking systems shared several characteristics.

They had many competing banks instead of only a handful of dominant institutions. Most maintained strong regional roots and close relationships with local businesses. More importantly, lending focused on firms that produced goods, invested in new capacity, created jobs, and competed in domestic and international markets.

Why Tanzania needs more and different banks

A modern economy does not grow through government projects alone.

It grows when thousands of businesses can access capital to expand their operations.

A furniture manufacturer purchases new machinery. A farmer installs irrigation systems. A logistics company adds trucks to its fleet. A food processor builds another production line. A software company hires engineers to develop new products.

These investments increase productivity, create employment, and expand the country's productive capacity.

When access to bank credit remains limited, many of those investments are delayed or never happen.

The evidence is already visible.

Private sector credit remains relatively low as a share of GDP compared with many peer economies. Most micro, small, and medium sized enterprises still depend on personal savings, family financing, or informal lenders because bank credit remains difficult to obtain.

Manufacturers frequently report greater challenges accessing financing than businesses engaged in trade or consumer lending.

This is not an argument against Tanzania's largest banks.

Institutions such as CRDB and NMB perform essential roles within the financial system, and their profitability reflects strong management and sound operations.

The issue lies in the overall structure of the banking sector.

Tanzania needs a broader mix of institutions smaller regional banks, sector focused lenders, and specialized financial institutions whose primary business is evaluating and financing productive investment at the local level.

A more diverse banking system would not replace the country's largest banks.

It would complement them.

Large banks are well suited to financing major infrastructure projects, corporate clients, and government borrowing. Smaller institutions often have advantages in understanding local markets, assessing small businesses, and building long-term relationships with entrepreneurs who may otherwise remain outside the formal credit system.

Both have important roles to play.

Looking ahead

Strong bank profits should be welcomed. A profitable banking sector is generally a sign of financial stability.

The more important question is how those profits and the deposits that support them are being deployed.

If an increasing share of bank assets continues flowing into government securities while productive businesses struggle to obtain financing, Tanzania risks limiting the private investment needed to sustain long-term economic growth.

History offers a different path.

Countries that built strong manufacturing sectors, competitive exporters, and resilient industrial economies typically developed banking systems that reached far beyond a few dominant institutions. Local banks understood local businesses. Credit flowed toward production, innovation, and expansion rather than concentrating primarily in government debt.

Tanzania's banking sector has the strength to support that kind of transformation.

The challenge now is building a financial system that channels more capital into the businesses creating tomorrow's factories, farms, technologies, and exports.

Part 2 will explore the obstacles that make it difficult for new and smaller banks to emerge, including capital requirements, collateral rules, information asymmetry, risk perception, and regulatory design.

Part 3 will focus on practical reforms that could encourage a more diverse banking sector—one that finances productive investment while preserving financial stability.

A country that wants more factories, stronger agricultural value chains, competitive exporters, and higher-quality jobs ultimately needs a banking system that finances those ambitions. Government borrowing will always remain part of banking, but it should not become its defining purpose.