Towards prudential banking regulation and supervision : the case of Tanzania.
This thesis examines the evolution, quality and measures of improvement of Tanzania's
commercial banking regulation and supervision. It is based on the belief that regulation
and supervision play an essential role in maintaining a sound and stable banking industry.
Although the subject of banking regulation and supervision has been widely discussed in
European Union countries and in the United States, it is only now that the subject is
becoming of growing importance to Tanzania. The move is necessitated by the need to
conform to the political, social and economic transformation that has been taking place in
the country since 1986 under the structural adjustment programs (SAPs).
The study divides the country's banking and its regulation and supervision into three
periods: the pre and colonial (1880-1960), the post-colonial (1961-1989) and finally, the
contemporary (1991-2000). Each of these periods is examined separately, and then
comparedt o eacho ther. The researcherb elieves that, in reviewing the past, we are able to
determine future developments.
The findings of the study indicate that the main features of Tanzania's commercial
banking sector and its legal framework during the colonial and post-colonial era have
been largely determined by the experiences of colonialism. Despite the Arusha
Declaration policies established six years after independence, the banking industry and its
legal framework of regulation and supervision remained overshadowed by government
directives and Bank of Tanzania sector guidelines. The year 1991 saw major reforms of
the industry by government, partly in response to the International Monetary Fund and the
International Bank for Reconstruction and Development initiatives, (SAPs). However, in
an attempt to establish a contemporary banking legal framework, the government relied
on models that ignored the growing difference between developed economies and
developing economies. Consequently, the current framework though satisfactory, has
some loopholes and is in certain cases unable to take into account the realities of the local
environment. Furthermore, the empirical findings of the study have illustrated that the
practical aspects of the regulation and supervision of commercial banks have significant
shortcomings. These problems are particularly acute because the banking industry is still
vulnerable to major structural change through economic frailty, mergers, bankruptcy and
failures. After identifying these weaknesses, the study makes recommendations designed
to help policy-makers strengthen the law, regulatory and supervisory structure, by taking
into account the local banking industry environment.
Finally, the study is concluded with a summary assessment of the period under review. It
is argued that the 1990's changes were indeed a step towards prudential banking
regulation and supervision in Tanzania. Nevertheless, in the light of the shortcomings
mentioned above and as part of the emphasis on an effective and efficient framework, the
need constantly to review the system and adapt changes that are designed to improve the
banking industry and its regulation and supervision remain essential in achieving