SME Financing Gap: Bridging Tanzania's $5 Billion Credit Void

By Uchumi360 Economics Desk

DAR ES SALAAM — As Tanzania strides into 2025 with a 6% GDP growth target, the Chama Cha Mapinduzi (CCM) party's manifesto shines a light on small and medium enterprises (SMEs) as economic engines, addressing a critical $5 billion financing deficit. With loans totaling TZS 240.9 billion allocated for women, youth, and people with disabilities, and new funds like the 2024 National Venture Capital Fund, the plan aims to unlock 25% revenue growth for startups. But can this bridge address bureaucratic hurdles and investor hesitancy in a debt-laden economy?

The sector’s foundation shows untapped potential. SMEs contribute 40% to Tanzania’s GDP and employ 35% of the workforce, yet face a $5 billion credit gap, per the Tanzania Private Sector Foundation (TPSF) 2024 report. The CCM manifesto builds on this, offering TZS 99.5 billion for women, TZS 45.1 billion for the disabled, and TZS 96.3 billion for youth, mirroring pilot programs that boosted revenues 25% in 2023. The World Bank notes SME loans grew 15% to $1.2 billion in 2024, but formal bank lending covers only 20% of demand, leaving informal lenders charging 20-30% interest.

Looking ahead, the vision is transformative. The National Venture Capital Fund, launched in 2024 with $50 million, targets tech and agrotech startups, while a planned Private Equity Fund aligns with the manifesto’s SME Financing Strategy. The African Development Bank projects these could mobilize $2 billion by 2030, leveraging Tanzania’s 36.8 million internet users, 45% of the population, to drive digital commerce. The East African Community (EAC) Secretariat estimates fintech adoption could cut borrowing costs 10%, enabling 50,000 new businesses. With 901 projects registered by the Tanzania Investment Centre (TIC) in 2024, investor interest is clear, but only 15% target SMEs.

Technology and policy are key enablers. Mobile banking, with 20 million users per Bank of Tanzania data, and blockchain for loan transparency could streamline access. The manifesto’s digital push, including e-registration, aims to reduce loan approval times from 30 to 10 days, per TPSF benchmarks. The International Monetary Fund (IMF) suggests that closing the gap could add $5 billion to GDP by 2027, creating 300,000 jobs, especially if women-led firms, 52% of SMEs, access 40% of funds.

Challenges loom large. Tanzania’s 40% debt-to-GDP ratio limits government guarantees, with only $100 million of the $500 million needed secured, per World Bank estimates. Bureaucratic delays deter 30% of investors, per UNIDO, while high interest rates from commercial banks, averaging 17%, push SMEs to informal sources. The 2023 global slowdown, with IMF growth at 3.1%, could shrink FDI from $1.65 billion in 2023 to $1.2 billion, straining venture capital inflows. Kenya’s $1.5 billion SME fund sets a regional pace, pressuring Tanzania to accelerate.

Despite hurdles, the potential is vast. Deloitte’s East Africa Outlook 2025 forecasts 5.3% growth, with SMEs as a driver, potentially lifting 1 million out of poverty by 2030. President Samia Suluhu Hassan’s pledge to “empower citizens economically” resonates with a sector where 60% lack formal credit. If CCM streamlines access and funding, Tanzania could lead East Africa’s SME revolution by 2050, fostering a vibrant business landscape.