Summary
· Access to sufficient financial resources to implement development projects has been a big challenge among developing countries, although there are unexplored options.
Dar es Salaam. While banks remain a dominant financing option, economic
experts say other alternative modes should be explored to facilitate the
implementation of development projects.
Access to sufficient financial
resources to implement development projects has been a big challenge among
developing countries, although there are unexplored options.
Some of those methods include impact
investing, diaspora bonds, crowd-funding, social or development impact bonds,
private equity, blended finance, and matching funds. Each method has its own
implementation procedure, but in Tanzania, they have not yet been
Experts say the government has not
denied such alternative financing instruments, but there have not been bold
initiatives from the institutions to take advantage of such opportunities.
Speaking to The Citizen, a finance
and banking analyst from the University of Dar es Salaam, Dr Tobias Swai, said
financing sources such as social and development bonds have been active in
Tanzania.
However, he said initiatives such as
diaspora bonds have not been developed in the market.
“There have not been bold initiatives
from the institutions to utilise such opportunities,” he said.
He added that neither the private
sector nor government parastatals have developed projects that can attract such
sophisticated funding sources. Dr Swai added that there is a need to create strong
institutions in governance and ensure accountability of the funds, having quite
good track records to protect the investors’ money.
“We’ve had several uncontrolled
crowdfunding programmes, and proponents of such schemes have faced court
charges for misappropriation of funds and failing to deliver on promises..”
According to him, the initiative to
issue social bonds through semi-government-owned financial institutions such as
banks is a good start.
According to him, projects such as
Building a Better Tomorrow, which is currently undertaken by the ministry of
Agriculture, may form an important start for initiating good projects to be
funded by such financing instruments.
Last year, NMB Bank issued the
Jasiri Bond, a type of social bond and the first gender-based financial
instrument to list on the Dar es Salaam Stock Exchange and cross-list to the
Luxembourg Stock Exchange. Commenting on that, an economist from the University
of Dodoma (Udom), Dr Lutengano Mwinuka, said there is great productivity and
opportunity for the government not only to save money but to implement small to
large development projects.
He added that another unique
opportunity is the high possibility of implementing projects, even those with a
high risk for the government.
“We really need guidelines, systems,
and a friendly environment for the implementation of these methods. Some of
these methods have been mentioned in the implementation of the current
Five-Year National Development Plan (2021/22-2025/26),” he said.
According to him, the speed of using
these methods through public-private partnerships will help implement
development projects in the country.
He cited the example of Ethiopia,
which managed to build its electric dam only by using diaspora bonds.
An economist at Mzumbe University,
Dr Daudi Ndaki, said crowdfunding is a revolutionary financial tool that has
been transforming the landscape of entrepreneurial funding worldwide, and
Tanzania is no exception.
The potential of crowdfunding in
Tanzania is tremendous, with a booming population of young, tech-savvy
individuals.
“The country is ripe for a surge in
entrepreneurial activity,” he said.
“As Tanzania continues to foster its
entrepreneurial ecosystem, crowdfunding platforms have a pivotal role to play.
By providing a democratic, transparent, and accessible avenue for funding. They
can propel a new generation of Tanzanian entrepreneurs towards success,” he
insisted.
‘Cautions needed’
The principal economist at the Bank
of Tanzania’s (BoT) Directorate of Economic Research and Policy, Dr Lusajo
Mwankemwa, stated that the Bank, as an advisor to governments on fiscal
policies and debt management, is also looking at all financing options, including
the possibility of diaspora bonds. It is the bank’s obligation to explore and
evaluate the viability and implications of all financing alternatives and to
advise the government accordingly.
“I want to assure you that BoT, as a
government advisor on economic and fiscal policies, has been critically looking
at the issue of alternative financing because we have the responsibility to
ensure that our customer, the government, is borrowing at affordable costs from
both domestic and foreign markets for effective implementation of development
projects,” he said.
Dr Mwankemwa stated that there is
still a lack of awareness about the matter, but if the government decides to
pursue the arrangement, the bank, in collaboration with other government
agencies, will have to educate the people, particularly the diaspora community,
so that all Tanzanians, including those who are outside the country, will have
the opportunity to contribute to the development of their home country.
On the other hand, a financial
analyst and assistant manager in the Directorate of Financial Markets, Mr
Fidelis Mkatte, highlighted the inevitability and benefits of alternative
financing in today’s world; however, he cautioned that it is crucial to
approach these new financial instruments with discretion.
For instance, Mr Mkatte pointed out
the potential of municipal bonds as an alternative financing method to relieve
the government’s burden of supporting local councils.
By doing so, funds can be directed
towards other projects. While acknowledging the advantages, he emphasised the
need for careful consideration, particularly in terms of managing these
instruments.
Mr Mkatte emphasised the importance
of being cautious and evaluating the specific borrowing needs and environment
before embracing alternative financing options.
He further pointed out that not
every option is suitable without thorough examination.
He recognised the value of various
alternatives like infrastructure bonds, Islamic financing, green bonds, Gender
bonds, and other Environmental, Social and Governance (ESG) options, but
stressed the significance of assessing the conditions and affordability of
these loans.
He advocated for the continued
development of the local domestic market while proceeding with caution.
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