DFIs drive nation-building beyond lending

DAR ES SALAAM: WHENEVER I review the National Vision 2050 and analyse the goals set for reaching a 1.0 trillion US dollars economy and a 7,000 US dollars income by 2050, I find myself contemplating how contributions will be allocated to turn this vision into reality.

The vision states that the government will contribute 30 per cent, with 22 per cent from public organisations and 8 per cent from the federal government, while the private sector will contribute 70 per cent Although this goal is admirable, a key question remains: What form of funding will enable us to achieve it?

What financial resources are required for banks, especially development banks, to offer long-term, affordable loans to businesses across diverse sectors? Furthermore, do bank shareholders understand the importance of increasing their banks’ capital, particularly for policy banks, to secure their long-term viability and effectively support these planned projects through local content financing?

The event, where Tanzanian President Dr Samia Suluhu Hassan and Kenyan President Ruto witnessed the signing of agreements to promote business cooperation and strengthen the economies of EA countries, highlighted the significance of financial capacity within local banks.

The success of these planned regional and national projects depends largely on banks’ ability to finance and participate in them, including initiatives such as the upcoming refinery in Tanga and others discussed at JNCC business-initiated meeting.

The meeting focusing on two heads of state and the importance of boosting growth in our countries, it became clear that many developing economies, including Tanzania, face a major long-term financing shortfall.

True economic transformation, such as industrialisation, infrastructure, energy provision, agricultural value chains and SME growth, requires patient capital with longer maturities. This is where development finance institutions (DFIs), such as TIB Development Bank and other similar banks in EA, play a crucial role.

Considering the types of projects, such as those President Ruto mentioned at the JNCC, and reflecting on the one envisaged at the Dira, which is under the NPC’s watch, highlights the strategic value of long-term lending.

Long-term finance, typically defined as funding with maturities of more than one year, is crucial for fostering productive investment and economic development within the EA economic bloc. It helps companies align financing with project lifecycles, minimises refinancing risk, and enables substantial investments in infrastructure, housing, industry, energy, logistics, telecommunications and health, to mention a few.

Financing in developing countries is frequently constrained by weak financial systems, high risks and limited institutional capacity. Additionally, shareholders perhaps often lack awareness of how significantly a national DFI can influence the funding of strategic projects.

For seasoned sector professionals, a structural mismatch emerges: Economies require long-term capital, but markets often fail to supply it efficiently. Consequently, viable projects in manufacturing, agriculture and infrastructure remain underfunded or turn to alternative sources for financing. This neglects the potential that a well-capitalised, owned bank could offer.

Evidence shows that national development banks allocate a significantly larger share of their portfolios to long-term loans than commercial banks. In project lending, this maturity-lengthening role is not merely technical; it is transformational. If well thought through, it enables countries to finance roads, energy systems, industrial parks and strategic sectors that drive structural change.

In Tanzania, institutions such as TIB Development Bank and the Tanzania Agricultural Development Bank are central to advancing national development priorities. Their role aligns with broader global trends, as governments increasingly revitalise development banks to address investment gaps and accelerate growth, ultimately helping to create jobs and widen the tax base.

Although commercial banks are often seen as making extraordinary profits, as shown by their Q1 2026 accounts, their structural limitations hinder long-term development support. Despite their profitable portfolios, they depend heavily on short-term deposits, which makes issuing long-term loans risky. Long-term projects usually entail delayed returns, high initial costs and substantial uncertainty, all of which discourage private lenders.

In these settings, development banks serve as counter-cyclical and gap-filling entities. They are capable of taking on increased risks, providing concessional or blended financing, and supporting sectors with lengthy development cycles, which are fundamental to economic growth when analysed closely. Additionally, they act as catalysts by attracting private investment through guarantees, co-financing and risk-sharing mechanisms.

Worldwide, development banks play a crucial role in funding, accounting for roughly 10 per cent of global investment each year. This highlights their vital systemic role, not merely as lenders but as creators of development finance systems with far-reaching development outcomes.

For a development bank like TIB, the next logical evolution is to become a fully-fledged policy bank, an institution explicitly mandated to implement government development strategies through targeted financing. Policy banks, such as China Development Bank and Germany’s KfW, along with others with similar mandates, have demonstrated how long-term finance can be aligned with national priorities. These institutions operate with strong state backing, clear mandates, and robust capital bases, enabling them to finance large-scale, strategic projects over extended horizons.

But for their role to have an impact, there must be a critical understanding of their shareholders’ obligations regarding capital, governance and vision. The effectiveness of any development bank hinges on the commitment of its shareholders, primarily the government and institutional investors. Their obligations go beyond ownership; they are custodians of the bank’s mandate and sustainability. Why?

Capital is the lifeblood of long-term lending. Development banks must maintain strong capital buffers to absorb risks and expand lending capacity. In Tanzania, regulations require DFIs to meet minimum core capital thresholds and maintain capital adequacy ratios of at least 13 per cent for core capital and 15 per cent for total capital.

As far as lending strategically is concerned, these requirements are not merely regulatory; they are strategic. A well-capitalised bank can extend larger and longerterm loans, access international capital markets at favourable rates, maintain strong credit ratings and withstand economic shocks.

Global experience supports this point, showing that robust capital buffers allow African development banks like DBSA to grow lending and unlock hundreds of billions in extra financing. For TIB, shareholders should focus on regular capital infusions, reinvesting profits and exploring innovative fundraising options like bonds and blended finance instruments.

Unlike commercial investors focused on short-term gains, development bank shareholders need to think long-term. This involves accepting lower short-term profits to achieve broader economic benefits. Stable funding, especially in regions like EA, enables DFIs to align with the long-term duration of their assets. Additionally, it lessens dependence on volatile, short-term funding sources that could compromise the bank’s mission, i.e., development impact.

A development bank’s credibility relies on robust governance, so shareholders should ensure that its boards and management consist of skilled, independent professionals with expertise in finance, risk management, and development economics. While aligning with national policies is important, operational choices must not only be commercially viable but also technically appropriate. Together with fit and proper criteria for directors and robust risk management systems, the benefits of having strong, financially sound DFIs are enormous.

Given the wider economic benefits, policymakers must recognise that development banks’ role in longterm lending goes beyond finance; it is a vital economic strategy. By providing patient capital, these institutions drive structural change, create jobs, broaden the tax base and enhance resilience.

Development banks like TIB play a vital role in transforming and growing the economy. These banks support industrialisation, infrastructure development, agricultural productivity, food security and SME financing. As major projects such as LNG, oil refining, energy and transportation arise, the need for long-term funding becomes critical.

ALSO READ: LNG deal draws closer

Effective development finance institutions can connect public policy with private investment, aligning capital with national goals. Their success relies on committed shareholders providing sufficient funding, strong governance and a clear mandate.