Pursuing Efficiency While Maintaining Outreach: Bank Privatization in Tanzania

This paper examines the privatization of Tanzania's National Bank of Commerce (NBC) and aims to derive lessons for other developing countries. The NBC was divided into the new NBC, a commercial bank that assumed most of the original bank's assets and liabilities, and the National Microfinance Bank (NMB), which assumed most of the branch network and the mandate to foster access to financial services. This is the first case where access and efficiency objectives reside in separate post-privatization institutions.Profitability improvements after the privatization of a large state-owned bank might come at the expense of reduced access to financial services for some groups, especially the rural poor. The paper examines whether:

• NBC improved its profitability after privatization relative to other Tanzanian banks;
• NBC experienced decline in outreach;
• NMB achieved relatively deep outreach, but experienced decrease in profits.

The relative success of the two banks in carrying out their mandates could be instructive for privatizations elsewhere. Study findings include:

• NBC's profitability and portfolio quality improved although credit growth was slow;
• NMB profitability and lending has slowly improved, while the share of non-performing loans remains low.