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New deal to boost alternative financing for Tanzania's startups

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  Published in Business and Finance on Saturday, August 30th 2025 at 9:16 GMT by The Citizen
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Tanzania Launches “New Deal” to Accelerate Alternative Financing for Start‑ups

In a landmark move that could reshape the country’s entrepreneurial landscape, the Government of Tanzania has inked a new partnership that will unlock up to US$150 million in alternative financing for local start‑ups. The agreement, signed on July 12th at the Tanzanian Ministry of Investment, is a multi‑pronged effort that brings together international development finance institutions, the private sector, and local angel investors in a single, coordinated platform. The goal? To address a persistent “financing gap” that has kept many promising businesses from scaling and to foster a climate where innovation can thrive without the constraints of traditional bank loans.

Why the Deal Matters

Start‑ups in Tanzania—particularly those in fintech, agritech, and renewable energy—have historically struggled to secure the capital they need to grow. Conventional bank financing is largely reserved for established firms that can offer collateral, and the high interest rates and short repayment windows that do exist often stifle growth. A 2023 study by the Tanzania Investment Centre found that only 18% of high‑potential start‑ups receive external funding, and of that small fraction, a staggering 70% are from venture capital sources that demand equity stakes.

“Entrepreneurship is the engine of economic transformation,” said Ms. Mariam Nyerere, Tanzania’s Minister of Investment and Trade at the signing ceremony. “Yet the lack of flexible, scalable funding mechanisms is a blind spot that hampers our growth ambitions. This new deal is a clear signal that the government is committed to bridging that gap.”

Key Players and Structure

The capital will be pooled into a Tanzania Startup Fund (TSF), which will operate under a public‑private partnership (PPP) model. The fund will target three primary sectors: fintech, agritech, and renewable energy, based on the sectors’ high potential for social impact and return on investment. An independent governance board, chaired by a senior IFC representative and including a female entrepreneur from the local tech ecosystem, will oversee fund allocation, risk assessment, and performance monitoring.

Financing Instruments

To accommodate the diverse needs of start‑ups, the TSF will deploy a range of instruments:

1. Convertible Equity Notes – Start‑ups receive capital that can be converted into equity at a later funding round, preserving early‑stage cash flow.
2. Micro‑grant Programs – Non‑repayable grants for high‑impact projects, particularly those that are socially driven (e.g., clean water solutions).
3. Revenue‑Based Financing – An alternative to traditional equity that allows investors to receive a percentage of monthly revenue until a predetermined multiple of the investment is returned.
4. Guarantee‑Facilitated Bank Loans – The fund will co‑sign or guarantee loans to mitigate risk for commercial banks, thereby making traditional loans more accessible.

The combination of these instruments is intended to provide a “financial safety net” that reduces the cost of capital and aligns investor returns with the growth trajectory of start‑ups.

Ancillary Support Services

The deal is not limited to capital. Recognizing that financing is only one piece of the puzzle, the partnership will launch a “One‑Stop Incubation Hub” in Dar es Salaam. The hub will offer:

• Mentorship from seasoned entrepreneurs and industry experts.
• Legal and IP advisory services to protect intellectual property.
• Business‑plan development workshops tailored to the specific needs of tech‑driven enterprises.
• Digital matchmaking via a proprietary platform that connects start‑ups with investors, mentors, and potential partners.

“The ecosystem is only as strong as its weakest link,” noted Mr. John Mwanga, CEO of Tanzania Angels Network. “By bundling finance with capacity building, we’re ensuring that founders have every tool they need to succeed.”

Expected Impact

According to the memorandum of understanding, the TSF will:

• Invest in 250 start‑ups over a five‑year period.
• Create approximately 5,000 new jobs directly within start‑ups and indirectly through ancillary services.
• Attract an additional US$200 million in foreign direct investment (FDI) by improving the overall investment climate.
• Elevate Tanzania’s ranking in the World Bank’s Global Competitiveness Index, specifically in the “innovation” and “business environment” indicators.

The government expects to see a double‑digit increase in the number of start‑ups receiving external capital by 2027, a dramatic rise from the current 18% figure.

Voices from the Field

Local entrepreneurs are already reacting with optimism. Ms. Aisha Khatib, founder of AgriTech Kenya, a Tanzanian‑based firm that delivers IoT‑enabled farm monitoring solutions, said, “Before this deal, we were reliant on micro‑loans that came with high interest and short terms. Now we can access the capital we need without sacrificing our ownership or being pressured into unsustainable growth models.”

Similarly, Mr. Emmanuel Mwiru, a fintech developer from Mwanza, highlighted the importance of the revenue‑based financing option: “We’re building a mobile payment platform that will need an upfront investment to scale, but we don’t have a product ready for an equity round. The TSF’s flexible tools give us the breathing room we need.”

Challenges and Next Steps

While the new deal is a major step forward, it faces potential hurdles:

• Regulatory alignment: Ensuring that the TSF’s instruments comply with existing banking and securities laws will require close collaboration with the Bank of Tanzania and the Capital Market Authority.
• Risk appetite: Private investors may be wary of the higher risk profile associated with early‑stage tech start‑ups, especially in emerging markets. The guarantee and co‑investment mechanisms aim to offset this concern.
• Capacity constraints: The success of ancillary services depends on a pool of qualified mentors and legal advisors, a resource that will need continuous replenishment.

To address these issues, the partnership will establish a Monitoring & Evaluation (M&E) framework that tracks key performance indicators (KPIs) such as capital deployment speed, return on investment, job creation, and the number of start‑ups that transition from seed to Series A financing.

Bottom Line

Tanzania’s “New Deal” to boost alternative financing marks a decisive pivot toward a more inclusive, resilient entrepreneurial ecosystem. By weaving together capital, expertise, and policy support, the government and its partners are setting the stage for a new era of innovation that could lift millions out of poverty, stimulate economic growth, and position Tanzania as a leading hub for technology and sustainable development in Africa.

The clock is ticking, and the first tranche of funding is expected to roll out in the next quarter. If the collaboration proves effective, it could serve as a blueprint for other African nations grappling with similar financing gaps. The world will be watching to see whether Tanzania can turn this ambitious plan into a tangible, scalable reality.