Tanzania’s path to sustainable finance leadership

By Mbazi Gabriel Marisa, Forestry and Development Expert

The age of free money is over. The era when overseas aid flowed unconditionally from the 1960s through the 2000s—has end­ed, and it may never return. For Tanzania, this is not a crisis, but an opportunity. With vast natural resources and a bold Vision 2050, the country is poised to tap a new wave of global capital.

The key is three simple letters: ESG—Envi­ronment, Sustainability, and Gov­ernance. Once an obscure concept in the 1960s, ESG has become the world’s fastest-growing investment filter, embedded in global financial systems and shaping trillions of dollars in funding decisions.

ESG is not free money; it represents an opportunity cost between rapid and risky economic transformation and steady, sustainable transformation. Africa, Tanzania included, must choose between these two models. In my view, the latter is the best, but unlocking it will require serious thinking and restructuring of our economy.

A critical starting point is getting our ESG taxonomy right. Current­ly, Tanzania lacks its own taxono­my, while only five countries on the continent have developed theirs. This puts us in a challenging spot, as existing metrics are often geared towards developed economies and do not reflect our private sector realities.

The Bank of Tanzania must expedite the development of a taxonomy that is tailored to the Tanzanian context while aligned with global standards. This process should be transparent and inclu­sive, suitable for both local and mul­tinational companies, and focused on reducing reporting transaction costs for SMEs while offering a clear pathway for long-term transforma­tion.

Yet a strong framework alone is not enough; it must be matched with high-level expertise and insti­tutional capacity. Banks, DFIs, and regulators need professionals capa­ble of designing compliant products, navigating complex global require­ments, and measuring results with precision. This calls for sustained training programs to equip staff with ESG reporting, compliance, and impact evaluation skills, ensur­ing institutions can meet stringent DFI requirements and attract inter­national capital. Compounding this is another major hurdle: the data gap.

ESG frameworks depend on reliable, comparable, and verifiable data yet Tanzania’s sustainability data landscape remains fragment­ed, with limited historical records, inconsistent reporting formats, and minimal coverage of the nano and informal sectors that dominate the economy. Without a coordinated national ESG data infrastructure, even the most well-designed tax­onomy risks being underutilised or mistrusted by global investors.

Here lies the big elephant in the room: the compliance challenge. ESG compliance requirements are becoming more complex, especially for institutions working with DFIs and other global capital provid­ers. These heightened standards, while necessary for transparency and impact, can create significant operational strain once funds are received. Extensive documentation, ongoing reporting, and stringent verification processes often slow disbursements, limit flexibility, and increase administrative costs.

In practice, even well-funded pro­jects may face delays in execution, reduced agility in responding to market needs, and a heavier oper­ational burden on teams. Without strategies to streamline compliance, the very funds meant to accelerate sustainable development risk being underutilised or delayed.

Another pressing challenge in the credit line marketplace is the cost of capital and prevailing risk per­ception. High interest rates, driven by conservative lending approach­es, often make credit lines prohib­itively expensive—particularly for SMEs and women-led enterpris­es. Limited credit history systems mean many borrowers have thin or no credit files, inflating perceived default risks.

Currency volatility can further raise borrowing costs, espe­cially for foreign-funded credit lines. Moreover, ESG-linked incentives, such as preferential loan terms for sustainable or inclusive business­es, are still rare in Tanzania. Even with a strong taxonomy in place, if the cost of capital remains high and lenders’ risk perception remains unchanged, uptake of sustainable financing products will remain slow.

Tanzania’s economic structure also plays a role. Our market has a vast base of nano clients—indi­viduals and micro-entrepreneurs operating at the smallest scale, often without formal credit histo­ries—while the middle class remains relatively thin. This dynamic lim­its financial uptake and access to scalable finance products, but also presents an untapped oppor­tunity.

While traditional lending models may overlook nano clients due to perceived risk, innovative ESG-aligned financing such as mobile-enabled microloans, green asset leasing, and alternative credit scoring can unlock this segment. By designing products that meet their realities while nurturing upward mobility, financial institutions can expand inclusion, strengthen mar­ket penetration, and build the next generation of Tanzania’s middle class.

Alongside this, strong public-pri­vate partnerships will be vital. PPPs can pool resources, share risks, and scale projects in priority sectors such as renewable energy, climate-smart agriculture, and sus­tainable infrastructure. At the same time, compliance barriers must be addressed early through better coordination between funders, reg­ulators, and financial institutions.

Another priority is building a pipe­line of bankable projects. Too many promising ideas remain unfunded because they lack feasibility stud­ies, clear revenue models, or invest­ment-ready structures. Targeted technical assistance and early-stage design support can close this gap, ensuring projects are financ­ing-ready and capable of delivering measurable results.

Innovation in financing mech­anisms will also maximise ESG’s value beyond traditional lending. Impact-linked finance, blend­ed finance, and revenue-sharing models can deliver both returns and community-level benefits.

Priority sectors like healthcare, where solar-powered facilities can strengthen service delivery, show how ESG finance can transform lives while building economic resil­ience. Crucially, ESG goals must be embedded into Tanzania’s financial strategy so that sustainable finance becomes a homegrown growth driv­er rather than an imported concept.

The opportunity is here. Tan­zania’s potential pipeline spans regenerative agriculture, solar irri­gation, coastal aquaculture, and waste management. Recent green and inclusive finance partnerships between commercial banks such as NMB, CRDB, and KCB has prov­en that ESG-aligned capital can be mobilised at scale when the right structures are in place.

Yet the challenge remains: many projects are not “bankable” due to a lack of preparation. Without a robust pipe­line, even committed funds can remain idle, delaying impact and weakening portfolio performance. This is where capacity building, ear­ly-stage project development, and cross-sector collaboration become game-changers.

The green and blue economy is not merely a moral obligation; it represents a multi-billion-dollar market opportunity across East Africa. For Tanzania, embedding ESG principles into lending mod­els can transform banks from tra­ditional financiers into catalysts for sustainable change.

ESG offers a powerful lever for delivering eco­nomic resilience through diversi­fied, future-proof sectors, foster­ing social inclusion by unlocking finance for women-led and youth-led enterprises, and advancing envi­ronmental protection through cli­mate-smart investments.

With bold leadership, deep technical expertise, and coordinated action between the public and private sectors, Tanzania can move beyond compliance-driv­en approaches—unlocking capital flows that generate lasting prosperi­ty for communities, businesses, and the nation as a whole.