What World Bank reforms mean to businesses in Tanzania

Currently, the World Bank Group offers 20 guarantee solutions spread across the institution. Each comes with different processes, rules and standards. Ultimately, this holds back their potential and impedes client access.

The Private Sector Investment Lab, launched by the World Bank Group in June 2023, was created to identify barriers and potential solutions to renewable energy investment.

Political risk insurance emerged as a key area of interest among the group, which also raised issues with accessibility.

The G20 independent expert group’s recent report on strengthening multilateral development banks also called for an expanded use of guarantees to mitigate risk and catalyse private finance.

“We need the private sector’s resources and ingenuity to tackle major global challenges. By consolidating our offerings, simplifying processes, and boosting accessibility we are delivering faster, easier access to guarantees for businesses,” said World Bank Group president Ajay Banga.

“Our new guarantee marketplace is a crucial step forward towards tripling our guarantees business at the World Bank Group, but more importantly helping investors do more in developing economies and accelerate positive change,” he added.

Economic experts received the reform news with cautious optimism, urging developing countries to be extra careful.

“You know, it’s a bit tricky to quickly judge such a move because it comes with both positive and negative effects,” said Prof Abel Kinyondo of the University of Dar es Salaam.

“It comes with the possibility of more funding to be pumped into developing countries and therefore increase financing of projects. On the other hand, such a move means increasing the debt burden on poor countries, most of which are already stressed,” he said.

He urged countries such as Tanzania to be careful and select priorities which need urgent funding.

Prof Haruni Mapesa of Mzumbe University’s Department of Economics said the overhaul is a good move that will increase the circulation of money in the economies and enable more institutions to borrow.

He added that the government needs to ensure that it opens up people’s ability to get title deeds of their lands so as to use them as collateral.

“People have assets but they do not have title deeds which is important criterion for obtaining loans.”

Prof Mapesa added that banks and relevant professionals should start training young people with actionable ideas so that when those guaranteed opportunities come they can take advantage of them.

“The reforms will be good because if they also benefit African banks,” he said.

Finance and banking senior lecturer at the University of Dar es Salaam Business School Tobias Swai said the reforms provide a tool that would help countries to decide whether to borrow or not.

“It’s a good thing that looks at all the risks before making decisions. This will help in decision making to see what the risks are and look at the sources of income so that the debt is excessive,” Dr Swai said.

The overhauled approach, the first significant change in 15 years, will consist of six concrete updates, including to ensure condensed structure which means moving all of guarantee experts from across the World Bank Group under one roof.

The agency also wants to establish simplified and comprehensive product menu by compiling all World Bank Group guarantees in a single menu, allowing clients to easily identify and select the guarantee instrument that best suits their individual needs.

The institution seeks to streamline process by launching a common approach for all guarantee reviews and removing redundant processes, giving transparency and certainty to clients.

Another update is ensuring greater accessibility through investing in a more accessible client experience by growing its guarantee teams and training staff worldwide, providing private sector and country clients with easy access to guarantees from anywhere in the world.

The group also focuses on scale by applying a risk-weighted approach that focuses resources on high-impact projects and portfolios of projects, reducing duplicative risk analysis and freeing up capacity to tackle more complex challenges.