Winners and losers as new data shows slowing bank lending

At the forefront of the slowdown is the manufacturing sector, which has seen lending nearly stall after a strong run last year. Agriculture, long the champion of private sector credit, is also showing fatigue, though it continues to attract large flows.

In contrast, mining, construction, and tourism are witnessing renewed optimism, with banks channelling funds into these activities at an accelerating pace.

Analysts say this uneven pattern of lending growth exposes structural weaknesses in the credit market, where government borrowing is crowding out private enterprise, and where systemic risks in agriculture limit banks’ appetite for lending.

In May 2024, lending to manufacturers was expanding by nearly 30 percent annually, and in June 2024 it stood at 22.6 percent. One year later, growth collapsed to just 7.3 percent in May 2025 and a meagre 2.5 percent in June.

Agriculture, which employs the majority of Tanzanians, continues to attract strong lending, but even here momentum is slowing. Credit growth fell from a record 53.1 percent in June 2024 to 30.2 percent in June 2025.

While still far ahead of most sectors, the moderation reflects the persistent risks banks perceive in lending to farmers. Unpredictable weather, fluctuating commodity prices, and pests make agriculture a risky bet without the cushion of insurance.

Agricultural Trade Economist, University of Dodoma (UDOM) Dr Mwinuka Lutengano believes the absence of reliable agricultural insurance is a fundamental bottleneck.

“If we want to unlock credit for farmers, insurance is non-negotiable. Without it, banks see agriculture as a gamble. With it, they see agriculture as a business worth financing,” he said.

Dr Mwinuka argues that the way forward lies in modernising agriculture. Mechanisation, irrigation, improved seeds, and digital technologies all require capital, but they also transform farming into a more commercial and bankable enterprise.

“Modernisation of agriculture is not just about technology. It is about making farmers creditworthy. Once farmers operate commercially with higher productivity, banks no longer see them as risky borrowers but as viable clients,” he said.

While manufacturing and agriculture show signs of fatigue, other sectors are enjoying a surge. Mining and quarrying, which contracted by 3.1 percent in June 2024, rebounded to post a 21.3 percent increase in June 2025.

The turnaround reflects booming demand for gold and other minerals on the global market, coupled with government policies encouraging beneficiation and value addition.

Procurement and Supply Chain professional Mr Humphrey Simba, told The Citizen that the improvement in mining is because there have been a growing conversation between Mining sector and Banking that bring in common understanding.

Mr Simba who is also a seasoned mining consultant said in the past the understanding between the two parties was bare minimum.

“Recently government have been advocating for financial sector to see to how lend to the growing small and medium scale mining subsector,” he said.

Mr Simba said government intervention through regulations and advocacy has also helped as he cited the committee formed by then mining Minister Anthony Mavunde to see to the issues around Financing Small and Medium Scale Mining Companies.

Building and construction, supported by major infrastructure projects and housing demand, has also accelerated. Lending growth jumped from 16.2 percent in June 2024 to 25.7 percent in June 2025, showing the appetite for financing in this sector remains strong.

Hotels and restaurants, which were badly hit during the pandemic years and saw deep contractions in credit, are now on a recovery path.

Loans to the sector grew by 20.8 percent in June 2025, compared to a steep decline of over 30 percent the previous year. The rebound in tourism arrivals has boosted confidence and spurred banks to lend more aggressively to hospitality businesses.

The price of money is rising

 Yet the broader context is one of tightening liquidity. Lending rates remain high, averaging over 15 percent, and deposit rates are rising too.

This reflects a financial market in which government borrowing is absorbing much of the available liquidity, leaving less room for banks to extend loans to businesses and households.

Speaking to The Citizen in June, Advisory and Research Manager at Zan Securities Limited, Mr Isaac Lubeja shared that as borrowing becomes more expensive, businesses may delay expansion plans, and consumers may shy away from big-ticket spending that relies on credit.

“This tightening in liquidity can slow down economic activity, slowing down job creation and private sector growth all while the government continues to absorb liquidity at premium rates,” he said.

According to the MER report By June 2025, Tanzania’s Treasury bond market was performing strongly, with auctions for the twenty-year and twenty-five-year bonds attracting overwhelming investor interest.

The BoT raised a combined Sh638.7 billion from these issuances, against bids worth Sh1.23 trillion reflecting an oversubscription of nearly ninety-three percent.

Mr Lubeja argues that the solution lies in lowering the yields on government securities. High yields have made Treasury bonds far more attractive to banks than private lending, creating an incentive problem.

“To reverse this trend, there’s a need to lower the yields on government securities. Doing so would make government bonds less attractive, ease pressure on liquidity in the banking system, lower interbank rates, and ultimately bring down lending rates across the economy,” he stated.

Financial analyst Christopher Makombe agrees that government borrowing is central to the credit slowdown.

“One of the key causes of reduced private sector credit is the heavy participation of banks in government bond markets,” he said.

“When banks invest more funds into government paper, less credit is available for households and enterprises, especially small and medium-sized businesses,” he added

Mr Makombe warns that while government borrowing is sometimes necessary, excessive reliance on domestic banks can be damaging in the long run.

“Excessive reliance on domestic banks can crowd out productive sectors, weakening the very growth base needed to sustain public finances over the long term,” he said.

Agriculture, construction, mining, and tourism are still drawing double-digit growth, making them the winners in the current environment.

Manufacturing, once a star performer, has lost momentum and now sits among the losers, alongside small enterprises struggling to compete for credit against the government’s appetite for bonds.