Financial Sector Reforms and The Development of Financial Intermediaries in Tanzania: 1985-1997.

In Africa financial systems have been shackled with extensive, imprudent regulations operated on inefficient grounds and dominated by few institutions, mainly state commercial banks. Common among most of these systems have been controls on interest rates; extensive government borrowing; directed lending and restriction on domestic and foreign owned private banks. The generally restrictive financial systems are known to have hindered efficient mobilization and allocation of financial resources and impeded monetary control and policy. The introduction of financial sector reforms in Tanzania, aims at, among other things, gradually establishing more open credit markets, achieving flexible and eventually, liberal interest rates and enhancing financial intermediation. This study analyses the impact of financial sector reforms on the development of financial intermediaries in Tanzania by comparing a list of selected indicators of financial intermediary development using data covering both the period of financial repression as well as after the introduction of the financial sector reforms. The paper attempts a time series analysis to evaluate the impact of the reforms. It also examines the correlation between the various collected indicators of financial intermediary development. The empirical results suggest that there have been some positive changes regarding the formal size of the financial system. The results also indicate that there have been insignificant changes regarding the banking system efficiency. African Journal of Finance and Management Vol.7(2) 1999: 128-143