THE INSTITUTE OF FINANCE MANAGEMENT
FACULTY: ECONOMICS AND SCIENCE MANAGEMENT
PROGRAM: BACHELOR OF ECONOMICS AND FINANCE
(BEF)
THIRD YEAR, SEMISTER 1
FINANICIAL MARKETS AND INSTITUTIONS (BFU 08503)
INDIVIDUAL ASSIGMENT
STREAM: B
NAME:
COLMAN A. TARIMO REG. NO: IMC/BEF/1910971
REQUIRED;
 Identify broad categories of financial system in Tanzania.
 Under each category describe the responsible regulatory authority
 Describe institutions operating in each category.
 Explain major products or services offered these institutions.
 State benefits of products or services offered to economy
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What is financial system
A financial system is a system that allows the exchange of funds between financial market
participants such as lenders, investors, and borrowers. Financial systems operate at national and
global levels. It consists of a network of an interconnected system of market institutions, service
and product.
A modern financial system may include banks (public sector or private sector), financial
markets, financial instruments, and financial services. Financial systems allow funds to be
allocated, invested, or moved between economic sectors, and they enable individuals and
companies to share the associated risks. (Sheffrin, 2003)
There are mainly four components of the financial system:




Financial markets - refers to collection of people and firms that buy and sell securities or
currencies. Or is the place where buyers and sellers interact with each other and
participate in the trading of bonds, shares and other assets.
Financial assets / Instruments/ securities - the products which are traded in the financial
markets. Based on different requirements and credit seekers, the securities in the market
also differ from each other’s.
Financial institutions - are acting as a mediator between the investors and borrowers.
They provide financial services for members and clients. It is also termed as financial
intermediaries because they act as middlemen between the savers and borrowers. The
investor's savings are mobilized either directly or indirectly via the financial markets.
Financial services - services provided by assets management and liabilities management
companies. They help to get the required funds and also make sure that they are
efficiently invested. For example, banking services, insurance services and investment
services.
Roles of financial system in Tanzania
I.
It encourages Savings
Financial claims/instrument are issued in the money and capital markets, which promise future
income flows. The funds, in the hands of the producers, resulting in the production of better
goods and services and an increase in society's living standards. (McReid, 2016)
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II.
Liquidity Function:
Money in the form of deposits offers the least risk of all financial instruments. That is why one
always prefers to store funds in financial instruments like stocks, bonds etc. The financial
markets provide the investor with the opportunity to liquidate the investments. (McReid, 2016)
III.
To facilitate effective flow of funds.
The financial systems offer a very convenient mode of payment for goods and services. The
check system and credit card systems are the easiest methods of payment in the economy; they
also drastically reduce the cost and crime of transactions. (McReid, 2016)
IV.
It helps in minimization of Risk.
The financial markets provide protection against life, health, and income risks. These are
accomplished through the sale of life, health, and property insurance policies. they provide
opportunities for the investor to reduce the possible risk involved in various
instruments. (McReid, 2016)
V.
To promote employment opportunities. Through services and buying of bonds which
requires people to market them.
Policy Function
VI.
Most governments intervene in the financial system to influence macroeconomic variables like
interest rates or inflation. For example, the central bank does indulge in several cuts to force the
interest rates down and increase the availability of credit-at cheaper rates to the
corporates. (McReid, 2016)
The following are categories of financial system in Tanzania under the
Ministry of Finance.
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


BANKS
FINANCIAL MARKET
PENSION FUNDS
INSUARANCE.
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BANKS
Banks are financial intermediaries that lend money to borrowers to generate revenue and accept
deposits. They are typically regulated heavily, as they provide market stability and consumer
protection. OR
A bank is a financial institution that accepts deposits from the public and creates a demand
deposit while simultaneously making loans. Lending activities can be directly performed by the
bank or indirectly through capital markets.
Characteristics / Features of a Bank
i.
ii.
iii.
iv.
v.
vi.
Dealing in Money. Bank is a financial institution which deals with other people's money
i.e. money given by depositors.
Individual / Firm / Company. A bank may be a person, firm or a company. A banking
company means a company which is in the business of banking.
Acceptance of Deposit. A bank accepts money from the people in the form of deposits
which are usually repayable on demand or after a fixed period. It gives safety to the
deposits of its customers. It also acts as a custodian of funds of its customers.
Giving Advances. A bank lends out money in the form of loans to those who require it
for different purposes.
Payment and Withdrawal. A bank provides easy payment and withdrawal facility to its
customers in the form of cheques and drafts, It also brings bank money in circulation.
Profit and Service Orientation. A bank is a profit seeking institution having service
oriented approach.
Bank of Tanzania (BoT)
The responsible regulatory authority of Banks
Central banks (The Bank of Tanzania- BOT) it is a government-owned and charged with quasiregulatory responsibilities, such as supervising other banks, or controlling the cash interest rate.
They generally provide liquidity to the banking system and act as the lender of last resort in event
of a crisis. Is the central bank and integrated regulator as well as the supervisor of all banks in
Tanzania. The primary objective of the Central Bank is to formulate, define and implement
monetary policy directed to the economic objective of maintaining domestic price stability
conducive to balanced and sustainable growth of the national economy.
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The institutions operating under this category as follows: Commercial Banks.
Commercial banks: refer to a bank or a division of a bank that mostly deals with deposits and loans
from corporations or large businesses. the term used for a normal bank to distinguish it from an
investment bank. Example of commercial banks in Tanzania; Maendeleo Bank, Mkombozi Bank,
National Microfinance Bank (NMB), Cooperative Rural Development Bank (CRDB), and
National Bank of Commerce (NBC).
Community development banks.
Regulated banks that provide financial services and credit to under-served markets or
populations. Example of community development banks Mwanga Community Bank.
Savings and Loan Associations and Mutual Savings Banks
Savings and Loan Associations and Mutual Savings Banks. These depository institutions, of
which they obtain funds primarily through savings deposits (often called shares) and time and
checkable deposits. These institutions were constrained in their activities and mostly made
mortgage loans for residential housing. These intermediaries have become more alike and are
now more competitive with each other. . (Eakins, 2012)
Example of Saving and Loans Association in Tanzania; Village Saving and Loans Associations,
Tanzania women’s saving and loan groups (Ott, 2020)
Credit Unions
Credit Unions. These financial institutions which are typically very small cooperative lending
institutions organized around a particular group: union members, employees of a particular firm,
and so forth. They acquire funds from deposits called shares and primarily make consumer
loans. . (Eakins, 2012)
Credit unions or co-operative banks: not-for-profit cooperatives owned by the depositors and
often offering rates more favorable than for-profit banks.
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Major products offered by banks include.





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Accepting money on various types of accounts
Provide simple savings and loan facilities to communities which don’t have easy access to
formal financial services. (Village savings and loans associations)
Cash management, treasury management
Lending money by overdraft and loans both secured and unsecured
Providing transaction accounts
Private equity financing (Commercial bank: WIKIPEDIA)
Benefits of the products offered by banks include.
They are accepting deposit in different account, under this category the bank offers convenience
and safe account, it’s an easy way to save money and a bank account can help you access credit.
Interest on loan is tax deductible which is the benefit of the bank. Under lending money by
overdraft and loans; ownership of the business remains to the borrower and helps to provide capital
needed to expand a business. This is very important to the economy as people will be expanding
the investment to different sector as they will be getting money though the bank systems. The
lower the interest rate the high the investment and the vice versa.
Financial markets.
Refers to the market in which fund are transferred from people who have excess of an available
fund to people who have shortage of funds. Or is the collection of people and firms that buy and
sell securities or currencies such as share treasury bills and bonds.
Capital Market and Securities Authority (CMSA).
In Tanzania CMSA is responsible for regulating the financial markets. The main functions of the
authority include;
 To develop and promote capital markets in Tanzania, to supervise capital markets and
market professionals and to advise the Government on matters related to the security
industry
 To license stock exchanges, market professionals including brokers, dealers and their
agents, investment adviser’s representative as well as authorizing collective investment
schemes.
 To create the necessary environment for the orderly growth and development of the
capital market. (Who we are: CMSA, 2018)
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The institutions operating under this category as follows: Unit Trust of Tanzania (UTT)
UTT AMIS history started from the Unit Trust of Tanzania (UTT). UTT was established under
the Trustee Incorporation Act, Cap 318 and was vested with the several key activities including
the development of collective investment schemes; acquiring and keeping in trust the shares of
privatized enterprises and encouraging savings culture through wide participation in the
ownership of distributed shares / units. UTT was very successful in launching unit trust schemes
since five collective investment schemes were launched attracting over 90,000 investors from all
over the country.
Based on advice of stakeholders and the Treasury Registrar and approval of the Minister of
Finance, the Unit Trust of Tanzania (UTT) was restructured into three organizations. The
objective of the restructuring was to enable each of the key businesses to focus on their activities
and services so as to contribute more to increasing of government revenue and promote
development of the country.
They have different product that they offer to their customers like Watoto Fund, liquid fund,
Maisha fund and many others. (financial market institution, 2015)
Dar es salaam Stock of Exchange.
The Dar es Salaam Stock Exchange (DSE) is a company limited by guarantee. The role of the
DSE in the economy is to facilitate the mobilization of resources and directing them to the
productive sectors of the economy through provision of an efficient securities trading, settlement
and depository and registry platforms. The DSE has two market segments: The Main Investment
Market and Enterprises Growth Market. Currently have a total of 21 listed companies with the
market capitalization of about TZS 24 trillion. (Dar es salaam Storck Exchange, 2015)
Major responsibilities
(i)To coordinate preparation of the medium term corporate strategic budget.
(ii)To ensure effective application of the DSE’s financial management policies and procedures.
(iii)To prepare and review budget guidelines and other policy documents in consultation with the
Manager Finance and Research.
(iv)To prepare draft DSE budgets in consultation with the Finance and Research Manager.
(v)To undertake research activities on stock markets matters.
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(vi)To prepare DSE internal and external operational and other relevant reports.
(vii)To establish and maintain in accordance with accepted principles, all financial records and
related documents of the DSE.
(viii)To facilitate the auditing of the DSE books of accounts by both the internal and external
auditors.
(ix)To prepare of financial reports, interim reports required by management for appropriate
decision making.
(x)To review financial budgets and cash flow projections. (Dar es salaam Storck Exchange,
2015)
Major products offered by Financial markets include.
Stock market
The stock market trades share of ownership of public companies. Each share comes with a price,
and investors make money with the stocks when they perform well in the market. It is easy to
buy stocks. The real challenge is in choosing the right stocks that will earn money for the
investor.
There are various indices that investors can use to monitor how the stock market is doing, such
as the Dar es salaam Stock Exchange. When stocks are bought at a cheaper price and sold at a
higher price, the investor earns from the sale. (Financial market, 2021)
Bond market
The bond market offers opportunities for companies and the government to secure money to
finance a project or investment. In a bond market, investors buy bonds from a company, and the
company returns the amount of the bonds within an agreed period, plus interest. (Financial
market, 2021)
Commodities market
The commodities market is where traders and investors buy and sell natural resources or
commodities such as corn, oil, meat, and gold. A specific market is created for such resources
because their price is unpredictable. There is a commodities futures market wherein the price
of items that are to be delivered at a given future time is already identified and sealed today.
Example in Mwanza (Financial market, 2021)
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Benefits of the products offered by Financial Markets to economy include.
 Financial markets provide a place where participants like investors and debtors,
regardless of their size, will receive fair and proper treatment.
 They provide individuals, companies, and government organizations with access to
capital. This smoothen the whole process of capital generating from different source.
 Financial markets help lower the unemployment rate because of the many job
opportunities it offers. This opportunity they help people to improve their life and
develop, which result to the development of the economy at large as they contribute
though their tax. (Financial market, 2021)
PENSION FUNDS
Pension fund are the financial institutions that accumulates capital to be paid out as a pension for
employees who retire at the end of their careers or after they have accomplished their task or job.
Pension funds is the money that need to be invested into the capital markets, such as stock and
bond markets, to generate profit and their profit will be used to develop different project. The
pension funds manage the money until the individuals withdraw the funds from their retirement
accounts. The money that is contributed to individual retirement accounts are commonly
invested by the pension funds in stocks or bonds issued by corporations or in bonds issued by the
government. In Tanzania pension funds are regulated under SSRA (Social Security Regulatory
Authority)
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Institutions that operate under pension fund are;
 NSSF (National Social Security Fund) it was stablished under the national social
security fund Act (Cap 50 R.E 2018) to provide social security services to members from
private and informal sectors having function of collection of contributions, payment of
benefits to members and investing of the collected contributions. (NSSF, 2018)
 PSSSF (Public service social security fund) this is a social security scheme established
by public service social security Act of 2018.The main purpose is to collect contributions
and payments of terminal benefits to employees of public services. The mission of PSSSF
is to provide high quality social security services using competent, motivated staff and
appropriate technology. (psssf, 2018)
Major products offered by these institutions are;
 Survivor pension, in this widow or widower at a time death is 45 years or below 45 but
has dependents children under 15years is paid for life.
 Old Age pension, this service is specified for old age people at age of 60 years or
voluntarily any time attaining the age of 55 and it is attained at retirement age.
 Invalidity pension, this is the pension service that is obtained when a person has
terminated due to illness which is not related to work, sickness or accident, permanent
invalidity not resulted from employment, below voluntary retirement age and also has
been in service not less than 46 months of which 12 months have contributed in year
preceding.
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Benefits of products or services offered to economy are;
 It plays a great role in capital market development, Pension funds plays a vital role in
development of capital market and in economic growth by increasing savings both at
individual and national level.
 They Increasing production and workforce by investing in children since they assure
them education that can help them to perform in school and making them more effective.
This make the children to get more confidence and assured for education for their life
time.
Insurance
Insurance provides individuals and firms with insurance policies that reduce the financial burden
associated with death, illness, and damage to property. These companies charge premiums in
exchange for the insurance that they provide. They invest the funds received in the form of
premiums until the funds are needed to cover insurance claims. Insurance companies commonly
invest these funds in stocks or bonds issued by corporations or in bonds issued by the
government. In this way, they finance the needs of deficit units and thus serve as important
financial intermediaries. Their overall performance is linked to the performance of the stocks and
bonds in which they invest. Insurance institutions in Tanzania are regulated under TIRA
(Tanzania Insurance Authority) (Jephason, 2015)
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Institutions that operate under Insurance are;
NIC (National Insurance Corporation), The National Insurance Corporation (NIC) was the
first insurance company in Tanzania established on 16th October 1963; under CAP 212 of
Companies Act(herein after referred to as the Service Provider).The Corporation has a sound
asset base and good reinsurance arrangement which gives a large underwriting capacity as it is
well and adequately protected by most solid yet advanced and First-Class international
reinsurance partners through both Treaty and Facultative Reinsurances. It had a vision to be the
most trusted and sustainable insurance service provider. Also had a mission to provide assurance
to customer against uncertainties. (Jephason, 2015)
Major products offered by these institutions are;
 Fire insurance is a kind of insurance product which covers damages and losses caused by
fire. Fire insurance helps to cover the risk of loss of property caused by fire accidentally
or unintentionally. A fire insurance policy covers the loss that the insurer may suffer due
to destruction of or damage to property or goods, caused by fire, during a specified period
and up to agreed amount. The policy specifies the maximum amount, which the insured
can claim in case of loss. This amount is not the measure of the loss.
 Motor insurance is an insurance product that covers financial losses resulting from an
accident or other damages sustained by the insured vehicle. A comprehensive motor
insurance policy covers damages to third-party and third-party property along with
compensating for own losses as well.
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Benefits of products or services offered to economy are;
 Insurance products protect people from danger thus reducing financial loss. They do not
only protect but when it happens that there is an accident these companies compensate
the damages. Thus, through this it reduces misuse of funds within the family level and in
the corporations as they provide compensation.
 Insurance products increases financial stability in family level and business, Insurance
such as life insurance increases financial stability within the family since the amount a
person puts in life insurance has interest and the interest acts as profit thus increasing
financial stability within the family levels. (Jephason, 2015)
.
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References
Commercial bank: WIKIPEDIA. (n.d.). Retrieved December 10, 2021, from en.m.wikipedia.org:
https://en.m.wikipedia.org/wiki/Commercial_bank
Dar es salaam Storck Exchange. (2015, murch 10). Retrieved from www.dse.co.tz: https:www.dse.co.tz
Eakins, F. S. (2012). The Economics of Money, Banking and Financial markets. Newyork: Pearson Addison
Wesley.
Financial market. (2021, december 10). Retrieved from corparatefinanceistitute.com:
http://www.corparatefinanceistitute.com
financial market institution. (2015). Retrieved from Uttamis.co.tz: https://www.Uttamis.co.tz
Jephason, M. (2015). Financial Market and Istitutions. florida: cianage.
McReid, R. (2016, may sunday). Basic Function of financial system. Retrieved from www.indrastra.com:
https://www.indrastra.com
NSSF. (2018). Retrieved from www.nssf.co.tz: https://www.nssf.co.tz
Ott, J. (2020, June 11). Tanzania women's savings and loans groups in flux during COVID -19. Retrieved
December 11, 2021, from globalvoices.org:
https://ww.google.com/amp/s/globalvoices.org/2020/6/11/tanzanian-women-savings-loangroups-in-flux-during-covid-19/amp/
psssf. (2018). Retrieved from www.psssf.co.tz: https://www.psssf.co.tz
Sheffrin, s. M. (2003). Economics: Principles in Action. New Jersey, 551.
Village savings and loans associations. (n.d.). Retrieved December 12, 2021, from www.techxlab.org:
https://www.techxlab.org/solutions/village-savings-and-loans-loan-association
Who we are: CMSA. (2018). Retrieved December 12, 2021, from CMSA:
https://www.cmsa.go.tz/pages/who-we-are-1
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