Credit growth signals stronger private-sector

DAR ES SALAAM: BANKING sector expanded private-sector lending significantly in the year to July, with the stock of credit reaching nearly 54tri/-, as annual growth accelerated to nearly 31.2 per cent, signalling stronger demand for financing across the economy.

The latest Bank of Tanzania (BoT) Monthly Economic Review shows that the stock of credit extended by banks to the private sector rose steadily from about 40.97tri/- in July last year to nearly 53.77tri/- in July this year.

The increase represents continued expansion in financing available to businesses and households, as banks respond to demand for working capital, investment and other forms of credit.

Speaking with the Daily News yesterday, Economist and investment banker Dr Hildebrand Shayo said the rise signifies a significant boost in liquidity for businesses and households.

“Used effectively, this increase can support working capital, equipment purchases, inventory replenishment and business expansion, thereby boosting overall demand and productive capacity,” said Dr Shayo.

He explained that 31.2 per cent credit growth indicates an acceleration, reflecting increased economic and financing activity, noting that the move suggests that businesses are actively seeking capital for expansion and banks are more willing to lend. Nevertheless, credit growth alone does not ensure higher productivity.

Dr Shayo commented that on investment and employment, the effect can be substantial when loans are used for machinery, factories, agriculture, construction, logistics and SMEs. Such investments can boost production and generate both direct and indirect jobs.

“Priority sectors include agriculture, manufacturing, trade, construction, transport and logistics, mining, tourism and MSMEs, which should benefit most, especially valueadding activities,” he said.

However, Dr Shayo cautioned that fast lending growth may lead to higher NPLs, asset-price inflation, increased household and business debt and liquidity issues if credit standards decline, advising for main policy focus to be turning the credit expansion into a boost for productive investments rather than just promoting consumption growth.

On his part, Finance and Economics Analyst, Mr Kelvin Msangi, said economically, the increase is broadly positive, because it indicates stronger financial intermediation and potentially greater capacity for businesses to expand.

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“But the real test is whether the additional 12.8tri/- is translating into investment, production, productivity and jobs, rather than mainly financing consumption and short-term transactions,” said Mr Msangi.

Mr Msangi explained that, regional context also matters as Tanzania’s private sector credit remains relatively shallow, citing to the International Monetary Fund (IMF) which puts domestic credits to the private sector at 16.4 per cent of GDP in 2023 compared to 31.6 per cent in Kenya, 22.7 per cent in Rwanda and 33.4 per cent for sub-Saharan Africa.

He explained that Tanzania’s current acceleration can be privately viewed as financial deepening and catch-up rather than automatically as exclusive lending.

“What is striking, however, is the gap between credit and output. Tanzania’s real GDP grew 5.9 per cent in 2025 and is projected at around 6.2 per cent over the medium term, while private sector credit is growing at 31.2 per cent. That divergence is not necessarily unhealthy in a relatively under-financed economy, but it makes the destination of the credit critic” said Mr Msangi.

The BoT report states that private-sector credit growth remained around 16 per cent during the first four months of the period before gaining momentum towards the end of last year.

The pace increased to about 18 per cent in November last year before rising to nearly 24 per cent in December, according to the central bank report.

Credit growth remained around that level during the first quarter of this year before easing slightly in April and May.

However, the report shows lending growth strengthened significantly in June and July, reaching about 28 per cent and 31 per cent, respectively.

The BoT report states that the acceleration in credit growth points to stronger financing activity, which could support businesses as they expand operations, increase inventories and invest in productive capacity.

For businesses, increased access to bank financing can provide funds for equipment purchases, working capital, new projects and market development.

The central bank report further states that Small and Medium-sized Enterprises (SMEs) could benefit from increased credit availability as banks expand lending to different segments of the private sector.

The growth in private-sector credit comes as Tanzania continues to promote private investment, industrialisation and economic transformation, increasing the importance of financial institutions in directing capital towards productive activities.

According to the BoT report, stronger bank lending can support economic activity by enabling businesses to increase production, create employment and participate in domestic and regional markets.