Digital financial services have the potential to drive financial inclusion and economic growth in Tanzania. However, there are several barriers hindering the uptake and usage of these services. This article examines the key challenges and provides potential solutions to promote digital financial services in the country.
Exploring the Challenges
Limited Infrastructure
One major barrier is the lack of supporting infrastructure necessary for digital finance such as mobile and internet connectivity, power supply, and agent networks. While mobile penetration is high in Tanzania, internet connectivity remains low especially in rural areas. Unreliable power supply also disrupts usage. Additionally, there are not enough banking agents and merchants to provide cash-in and cash-out services making it difficult for customers to use digital financial services on a day-to-day basis.
Low Levels of Financial and Digital Literacy
Many Tanzanians have low levels of financial knowledge and lack awareness of digital financial products and services. Additionally, low digital literacy hinders the effective use of technology-enabled services. Without a proper understanding of things like making mobile money transactions, using USSD codes, and data privacy management, the uptake of digital finance faces adoption barriers.
Affordability and Product Design Issues
The high costs of services and devices like smart phones present an affordability barrier for adopting digital finance products for lower income groups. Additionally, existing financial products do not always match customer needs in areas like local language interfaces, flexibility of payment options, and user-friendly designs. This reduces appeal and inhibits wider adoption across different consumer segments.
Lack of Trust
Many still prefer cash and have doubts about the security and reliability of digital payments. Issues like fraud, scamming and insufficient recourse in case of loss fuel such lack of trust. This perception of risks causes reluctance in transitioning from cash to digital payments.
Regulatory Gaps
While Tanzania has introduced various supporting regulations, some gaps persist around areas like customer data protection, competition regulation, and infrastructure sharing frameworks. Additionally, dynamic digital models do not always fit neatly within legacy regulatory regimes causing uncertainty that can hinder innovation.
Potential Solutions
Enhance Infrastructure and Connectivity
Expanding mobile and internet coverage including next generation networks like 4G and 5G along with extending the reach of power and agent networks would promote usage of digital financial services. Infrastructure sharing regulation can also help improve efficient deployment of resources.
Promote Digital and Financial Literacy
Both public and private sector players need to invest more in digital literacy programs and promote awareness of various financial products through mass media campaigns, education in schools and community engagement. FSDT told our reporter that embedding financial education in academic curriculum can also help improve understanding over the long term.
Design Inclusive Business Models
Providers should create innovative models that use technologies like offline interfaces, unstructured supplementary service data (USSD), interactive voice response (IVR) systems and feature phones to promote inclusion of lower income groups. Products also need to be tailored to meet specific needs around local languages, flexibility, affordability and user experience.
Prioritize Consumer Protection and Privacy
Robust consumer grievance redressal mechanisms and data protection regulation is important for addressing issues around cybersecurity, building trust and maintaining high service standards. The government can set up dedicated units and introduce appropriate policies in these areas.
Support Regulatory Innovation
Alongside promoting enabling regulation, regulators also need to keep pace with emerging technologies and business models. Mechanisms like regulatory sandboxes can allow controlled testing of new innovations to help calibrate regulation. Open dialogue between regulators and industry players can also help bridge regulatory gaps.
The Role of Public-Private Partnerships
Public-private partnerships (PPPs) can play a pivotal role in promoting digital financial services in Tanzania. Collaboration between government bodies, development agencies, technology partners and financial service providers allows for effective harnessing of infrastructure, funding, technical skills and distribution networks.
Specifically, the government can facilitate infrastructure expansion projects around mobile broadband, power, transport and land digitization initiatives in partnership with telecom companies, power utilities, technology firms and donors. Partly subsidizing device costs through tax incentives is another area.
Development agencies like the World Bank, African Development Bank and bilateral partners can direct funding, research and technical assistance to fill infrastructure gaps as well as support capacity building around cybersecurity, data analytics and product development tailored to Tanzanian customer needs. Global tech giants and local startups can lend their expertise to building inclusive service delivery platforms.
Banks and mobile money providers need to collaborate with agencies and FinTech players to expand cleverly designed offerings by leveraging alternative credit scoring models, offline interfaces and agent networks to reach last mile rural consumers currently operating in cash economies.
Overall, a well-coordinated PPP framework can effectively integrate capital, infrastructure, knowledge and outreach capabilities across public and private stakeholders thereby addressing adoption barriers in a financially sustainable manner.
Monitoring Implementation and Measuring Impact
A robust monitoring mechanism needs to be established to track the outcomes of various digital financial services promotion programs. The Bank of Tanzania and Ministry of Finance should institute an inter-agency taskforce consisting of regulators, policymakers, private sector and civil society representatives.
This taskforce can periodically measure indicators around card and mobile money accounts registered, number of transactions processed via digital modes, number of access points, service downtime, cyber fraud losses along with metrics around financial and digital proficiency. Comparing progress across geographic regions and demographic segments is vital for equitable development. Course correction of initiatives should happen based on empirical evidence.
Impact assessment surveys can also capture changes in income, savings, borrowing patterns and women empowerment at the grassroots. For instance, access to microcredit through digital finance can enable female micro-entrepreneurs to scale their shops thereby driving financial independence. Tracking such end-user transformation is crucial for determining true economic advancement.
Overall, robust data gathering by credible institutions and objective analysis is key to benchmarking success of the digital financial services ecosystem as Tanzania progresses towards the goal of inclusive development.
Final Words
While Tanzania faces barriers around infrastructure limitations, low awareness, lack of trust and regulatory issues, targeted initiatives across consumer education, infrastructure expansion, incentive based business models and supportive regulations can unlock the potential of digital financial services. This would significantly accelerate financial inclusion and economic prosperity across all sections of the Tanzanian society. The government, regulators and businesses need to proactively collaborate to shape interventions that can effectively address adoption challenges and fulfill future promise.
