TANZANIA — THE financial sector has seen momentous growth in the last six years, emerging as the top growing sector in 2023.
According to the National Bureau of Statistics (NBS), the financial sector grew by approximately 16 per cent during 2023, remaining the fastest growing sector in the economy.
The financial sector consists of the banking industry, insurance, capital markets and social security.
The banking sub-sector accounts for approximately 70 per cent of assets within the financial sector, and experienced significant growth within the mentioned period.
Net profits in the banking sector went up more than ten times between 2018 and 2023, while total assets almost doubled.
Growth stems from the government’s efforts to improve the business environment and attract domestic and foreign investments. While growth in the banking sector receives notable coverage, little is spoken about the growth experienced in capital markets within the same timeframe.
The capital markets subsector has evolved substantially in the last six years. Multiple milestones have been accomplished during the time period in question, while domestic market depth significantly improved due to rising financial literacy.
In the last five years the market saw the value of listed bonds grow by more than five times while issuing unique features of sustainable and Islamic financing, keeping Tanzania ahead of such financing facilities.
The three largest banks issued corporate bonds in the last two years, creating a channel of alternative financing which complements dwindling deposits growth.
CRDB and NMB issued sustainable bonds in 2023, raising more than 500bn/- in shillings and US dollars, and making the banks fist issuers of such financing in East Africa.
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Similarly, the market saw the first subnational bond in Tanzania, issued by Tanga UWASA in 2023, raising more than 53bn/- for financing water distribution in the Tanga region.
Domestic participation in capital markets has substantially grown during the period, reaching more than 90 per cent of equity purchases and sales, and raising the absorption capacity that allowed foreign investors smooth outflow during the period that the US tightened the economy to combat inflation, triggering an exodus of funds from developing economies.
Evolution of capital markets has been under the supervision of the Capital Markets and Securities Authority (CMSA), which has been ahead of the curve in setting relevant regulations and nurturing innovative behavior within the market.
During the mentioned period, the CMSA enacted and published a number of regulations that allowed issuance of fresh capital markets products.
During the last two years alone, CMSA published three sets of regulations encompassing subnational bonds, Islamic financing and crowdfunding. Regulations surrounding subnational bonds led to the issuance of the Tanga UWASA bond which offers 13.5 per cent coupon rate for a ten years tenure. Islamic financing regulations is ahead of the Zanzibar government plans to issue subnational sukuks, and facilitated the issuance of the Fursa Sukuk by KCB Bank (T) which was listed in the end of 2022.
Notable growth in capital markets has been in the collective investment schemes area where assets under management grew from less than 500bn/- in 2019 to more than 2.0tri/- in the end of 2023. Moreover, the market saw two new public collective investment schemes established, ending the monopolistic dominance of the Unit Trust of Tanzania (UTT) which reigned since its inception in 2003.
UTT has achieved commendable strides in promoting saving and investment habits among the masses. Since its inception, UTT has established six open-ended schemes that cater for different needs for different individuals.
The two largest and most famous schemes are Liquid Fund and Bond Fund, which focus exclusively on Treasury bonds and use straight amortization as a valuation method, thus limiting capital loss risk for investors.
That, and the withdrawal period have made the two schemes, which are also UTT’s latest schemes, the most popular due to convenience among investors.
In the beginning of 2023, CMSA approved Faida Fund, which is an openended scheme established by Watumishi Housing as a Fund Manager, and exclusively focuses on Treasury bonds while maintaining straight amortization as the valuation method.
This added diversification options for investors interested in collective investment schemes but do not want all eggs in one basket. On another capital markets milestone, CMSA approved another collective investment scheme on 16th April 2024.
The scheme was launched on 27th May 2024, dubbed Timiza Fund and managed by Zan Securities, adding investment options for investors eyeing collective investment schemes. Zan Securities is an experienced stock broker, investment advisor and fund manager, licensed by the CMSA more than 14 years ago, and remains among the largest and most influential stock brokerage firms in Tanzania.
According to the fund’s Offer Document, Timiza Fund shall be a hybrid fund, investing in listed equities and bonds. The approved investment policy dictates up to 50 per cent allocation in listed equities and up to 100 per cent allocation in listed bonds.
While the equities component carries some volatility risk, it is the part that is expected to bring in higher returns compared to fixed income securities, leveraging the fund managers more than a decade of experience.
The fund’s target return is 15 per cent. The Fund’s custodian is Mwanga Hakika Bank which has seen substantial growth in the last few years. As of December 2023, the bank’s return on equity (ROE) was 34 per cent while the cost to income ratio stood at 35 per cent and non-performing loans were 1.7 per cent of the total loan book.
The bank’s total loan book was 131.9bn/- while total assets amounted to 209.3bn/-.
Timiza Fund becomes the first collective investment scheme initiated from the private sector since UTT and Watumishi Housing are both state owned enterprises. Minimum investment in the fund is 10,000/-, with an annual income distribution for investors of more than 1.0m/-.
The scheme is open to all domestic and foreign investors worldwide, and shall maintain free entry and exit.
The scheme’s initial sale shall be between 27th May and 26th June 2024, while subsequent sales shall commence on 15th July 2024. Purchase of units from the scheme is open from all licensed stock brokers.
