How Tanzania can speed up SMEs cashless switch

A 2024 Financial Sector Deepening Trust (FSDT) report shows that 68 percent of SMEs still rely on manual record-keeping and only 27 percent use formal digital payment systems—highlighting the gap between national progress and the lived reality of smaller businesses.

Economists and digital payment experts told The Citizen yesterday that, to ensure fairness in business, SMEs must be supported to benefit from digital payments without being burdened by excessive costs.

They warned that without targeted interventions, the country’s cashless transition risks widening inequalities between large corporations that can afford sophisticated systems and the smaller enterprises that form the backbone of Tanzania’s economy.

“The numbers on digital uptake look impressive, but SMEs face cost barriers, infrastructure gaps and low digital literacy, which stop them from fully embracing the shift,” said an economist and policy analyst, Dr Zacharia Msuya.

The struggle comes at a time when East Africa is racing to establish itself as a digital payments hub.

In this context, Tanzania’s efforts are increasingly drawing regional attention. The Financial Sector Development Master Plan (FSDMP) 2020–2030 provides a clear roadmap, emphasising financial inclusion and expanding digital infrastructure.

Regulatory reforms—such as enforcing interoperability among mobile money providers, introducing electronic money issuance rules and licensing payment service providers like Pesapal—have set Tanzania apart as one of East Africa’s most progressive digital regulators.

“Interoperability was a turning point,” noted a Nairobi-based financial inclusion specialist, Dr Leonard Wanyama. “It cut costs, made transactions faster and showed the region that regulatory willpower can unlock digital ecosystems.”

SMEs on the margins

Despite these policy successes, the reality on the ground for SMEs remains challenging in both countries. Many still operate in cash-heavy environments, especially in rural areas where digital infrastructure is weaker.

Experts argue that high transaction fees often make cashless systems unattractive to businesses with razor-thin margins.

For business owners like Halima Mwampamba, who runs a clothing shop in Kariakoo, the digital shift feels complicated.

“Some customers want to pay by mobile money, others by card. To meet everyone’s needs, I would need different devices and systems and that’s too expensive,” she said.

As such, Dr Msuya said, “The result is a dual economy: while large and mid-sized enterprises benefit from cashless systems, most SMEs—the very backbone of Tanzania’s economy—remain marginalised.”

This gap is what makes the recent partnership between I&M Bank Tanzania and Pesapal significant. By integrating point-of-sale terminals, e-commerce platforms and mobile payment solutions into one offering, the two institutions aim to reduce the fragmentation that frustrates SMEs.

Both, while signing the MoU earlier this month, pledged to conduct merchant training and onboarding campaigns to strengthen digital literacy.

I&M Banks CEO Zahid Mustafa said the collaboration will “simplify operations, enhance customer experience and accelerate growth” for businesses.

Pesapal country manager Bupe Mwakalundwa added: “We are enabling businesses to become more agile and customer-centric in a fast-changing digital economy.”

Analysts see such partnerships as vital, but they caution that scale and inclusivity must be the focus.

“The real test is whether boda boda riders, informal traders, or smallholder farmers can access and afford these solutions,” Dr Wanyama argued.

What needs to change?

Experts say the next phase of Tanzania’s cashless transition must directly address the obstacles SMEs face. Lowering transaction costs is critical.

They say that with many small businesses operating on profit margins of less than 10 percent, even modest fees can be prohibitive.

Improving infrastructure is equally important. While internet penetration reached 58 percent in 2024, connectivity remains unreliable in some areas.

Expanding affordable and stable network access could unlock vast new markets for digital payments.

Digital literacy also demands urgent attention. Training programmes—whether through banks, fintechs, or public-private partnerships—can help entrepreneurs understand and trust digital systems.

“When SMEs see that these tools can help them track sales, reduce leakages and grow their customer base, adoption will follow naturally,” Dr Msuya noted.

For Tanzania, the progress made so far is undeniable. The regulatory framework is stronger than in many neighbouring countries, partnerships like I&M–Pesapal are broadening the ecosystem and transaction volumes point to a market ready for transformation.