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Bank of Tanzania to Launch Credit-Guarantee Company to Energise SME Finance

  //business-finance.news-articles.net/content/202 .. t-guarantee-company-to-energise-sme-finance.html
  Published in Business and Finance on Tuesday, December 9th 2025 at 9:41 GMT by The Citizen

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Bank of Tanzania to Launch Credit‑Guarantee Company – A Strategic Move to Energise SME Finance

In a landmark announcement that could reshape the financial landscape for small‑ and medium‑enterprise (SME) owners across Tanzania, the Bank of Tanzania (BoT) has declared its intention to establish a dedicated credit‑guarantee firm. The move, revealed in a recent article on The Citizen, is part of a broader strategy to alleviate the chronic liquidity squeeze that many SMEs face and to bolster the country’s economic resilience.

Why a Credit‑Guarantee Firm?

SME owners in Tanzania routinely encounter a paradox: the very loans they need to grow are often denied because banks see them as high‑risk and lack the collateral necessary to secure credit. According to data released by the Central Bank in 2023, less than 15 % of all bank‑issued loans are directed to the SME sector, a figure that contrasts sharply with the sector’s contribution of roughly 25 % to the national GDP.

A credit‑guarantee company would act as a safety net for banks. By offering guarantees on a portion of the loan—typically ranging from 50 % to 90 %—the firm would reduce lenders’ exposure to default. This arrangement encourages banks to expand their lending portfolios to SMEs without jeopardising their own balance sheets. In essence, the guarantee firm becomes a bridge between risk‑averse financial institutions and entrepreneurial borrowers.

How the Scheme Will Work

While the article did not spell out every operational detail, it quoted BoT Deputy Governor, Moses Mbewe, who explained the core mechanics:

1. Guarantee Coverage – The guarantee firm will cover a pre‑agreed percentage of each SME loan. For instance, if an SME receives a TZS 200 million loan, the firm might guarantee up to TZS 150 million (75 % coverage).

2. Capital Backing – The guarantee company will be capitalised with a mix of domestic and international sources. BoT will contribute a seed fund, and external partners such as the World Bank’s International Finance Corporation (IFC) and the African Development Bank (AfDB) are expected to inject additional capital.

3. Risk Assessment – A specialised risk‑assessment unit within the firm will evaluate each borrower, using data analytics and, where possible, alternative credit scoring models that take into account business turnover, cash‑flow projections, and industry risk.

4. Guarantee Fee Structure – Banks will pay a modest fee for each guaranteed loan. The fee is designed to be competitive enough to offset the cost of capital for the guarantee firm, yet affordable enough that it does not dissuade banks from participating.

5. Monitoring & Recovery – In the event of default, the guarantee firm will work closely with banks to recover losses, following a clear recourse mechanism that protects the firm’s own capital base.

Strategic Partnerships and International Support

The article highlighted that the initiative is not merely a domestic venture. It will be part of a larger regional push, aligning with East African Community (EAC) policy on SME finance. BoT is expected to collaborate with counterpart institutions in Kenya, Uganda, and Rwanda, where similar guarantee schemes have already delivered notable growth in SME lending.

Furthermore, The Citizen cited an early partnership agreement signed with the World Bank’s “Enterprise Development Initiative” (EDI), which is earmarking US$ 50 million to fund the guarantee scheme’s initial capital. This external financing not only brings in capital but also brings best‑practice guidance from an organisation with extensive experience in SME credit risk mitigation.

Anticipated Economic Impact

The BoT’s own projections, as reported in the article, suggest that the guarantee firm could unlock an additional TZS 5 trillion in SME credit over the next five years. Such a boost would have a multiplier effect:

• Employment Generation – SMEs are the biggest employers in Tanzania, accounting for roughly 70 % of formal sector jobs. Access to financing could increase hiring by up to 10 % in the SME sector alone.

• Innovation & Diversification – With more capital, SMEs can invest in technology, product development, and market expansion—critical steps in moving the economy from primary‑based to value‑added manufacturing and services.

• Financial Inclusion – The guarantee firm’s presence encourages more banks, especially regional and cooperative banks, to diversify into SME lending, thereby improving access to credit for rural and peri‑urban entrepreneurs.

Challenges and Mitigation Measures

The Citizen article did not shy away from the hurdles ahead. Chief among them is the need to build trust among banks that the guarantee scheme will deliver on its promises. To address this, BoT plans to:

• Establish a transparent governance framework that includes an independent audit committee and regular reporting to the Ministry of Finance.

• Implement a phased roll‑out, starting with a pilot program in the Dar es Salaam region before scaling nationwide.

• Offer capacity‑building workshops for bank staff on SME loan underwriting, ensuring that the quality of credit remains high even as volume increases.

Another potential challenge is the risk of moral hazard, where borrowers might take on excessive risk knowing they are partially guaranteed. The article emphasised that the guarantee firm will maintain strict risk‑assessment criteria and will require SMEs to provide detailed business plans and financial projections before approving any guarantee.

What’s Next?

According to Deputy Governor Mbewe, the next critical steps include finalising the legal framework, securing the initial capital commitments, and recruiting a skilled management team for the guarantee firm. The article noted that a formal launch ceremony is tentatively scheduled for early 2026, with a flagship pilot program slated to begin by mid‑2025.

In a broader sense, this initiative fits squarely within Tanzania’s Vision 2025 strategy, which calls for inclusive growth and an upgrade of the country’s SME ecosystem. By institutionalising a safety net for bank loans, the Bank of Tanzania is effectively turning the tide in favour of the entrepreneurs who have long been the engine of Tanzania’s economic dynamism.

In Closing

The establishment of a credit‑guarantee firm by the Bank of Tanzania marks a decisive policy shift aimed at resolving one of the most stubborn bottlenecks in the country’s financial system—SME access to credit. While the journey ahead will involve careful implementation and robust oversight, the potential payoff—a thriving SME sector that drives employment, innovation, and sustainable growth—is a promise worth pursuing. As Tanzania embarks on this ambitious path, all eyes will be on how effectively the guarantee firm can translate the theoretical benefits into tangible, on‑the‑ground improvements for the country’s countless entrepreneurs.