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Tanzania's Bank Industry Analysis

Keywords: banking industry evaluation, five forces bank, tanzania lender analysis

Michael Porters makes are a combination of 5 forces that helps visitors to analyze and determine their business environment. The forces help various market players to know how competitive their industry is and these makes also determine whether a particular industry is attractive enough to type in or not.

The forces are given the name with their founder, Teacher Michael E Porter; he's the author of the bestselling e book called Competitive strategy: Techniques for analyzing market sectors and challengers, which he had written in the 1980's. He created a style of five competitive causes which are widely known as the Porter's five forces framework.

The model was originally developed as a means of evaluating the elegance (profit potential) of different industries. (Johnson et al, 2009)

Whenever any business makes a decision to find yourself in a specific industry, they are advised to first analyze that industry's environment, Is it conducive to find yourself in that industry? Is it attractive in the sense that will it be able to generate income or income? And does the industry have growth potential? These are a few of the questions that that person would ask himself and Michael porter's model is just the answer to these questions. This model assists with examining the industry in general. The model has five basic competitive makes that shape every industry and market. These makes determine the depth of competition and hence the success and appeal of a business. (rapidbi. com, 2008)

As Professor Porter (1980) pointed out "The depth of competition within an industry is neither a matter of coincidence nor misfortune. Rather, competition within an industry is rooted in its underlying economic framework and runs beyond the habit of current rivals. " And therefore there are more players to check out rather than the ones that already are there, it simply means exploring the external environment of the business enterprise.

Every business has suppliers, purchasers, competitors or market sectors offering same products and services, substitutes of goods like the one it's offering and new people or businesses thinking of getting into this particular industry. Hence with all these players, the industry does become competitive and the organizations have to build ways of keep operating their business.

The amount of competition will depend on the way the five competitive forces operate or act in a specific industry, in cases like this in the banking industry.

These competitive forces are:

  • The threat of new entrants
  • Threats of substitute goods
  • Bargaining electricity of customers (Customers)
  • Bargaining vitality suppliers and
  • The overall rivalry or competitiveness for the reason that industry based on all these causes.

The use of these forces model helps in analyzing the appeal as well as the competitive positioning of the business in the industry or market generally.

Now why don't we relate these five causes platform with the banking industry in Tanzania. Before that let us go through a brief history of banking industry in Tanzania.

Banking simply means placing your cash in the banking companies for the aim of keeping it and protecting it from various hazards. This service and different other services like provision of lending options, credit facilities, cheque catalogs, transfer of funds from one country to some other, issues associated with importing or exporting, forex rates and more is provided by banks. Banking is an act of lenders to accept debris from individuals for the aim of lending and investment.

A Lender is a lender or building obtaining money from customers and giving money when they need it. They allow customers to open up accounts in which they deposit and withdraw money.

All the lenders produce services or quite simply are providers. They offer to keep people's money and valuable items, they offer lending options or credit facilities to prospects who require them, and also accomplish transfer funds outside and inside the country.

For the last decade the banking sector in Tanzania has been producing and growing very well. There are many foreign banking companies as well who are opening their doorways in the country. Corresponding to Dr. Elisante (2005) the number of financial institutions has been mushrooming by an alarming quickness. For this very reason the players in the banking industry need to consider their competitive setting and repositioning strategically.

According to his research conducted in 2005, Tanzania possessed only one standard bank, National Loan company of Business in the 1960's. Then in 1986 Corporate and Rural Development Lender (CRDB) arrived to the industry.

Gradually many players arrived to this particular industry. According to Loan company of Tanzania's public website there are 28 recorded commercials bankers as at 18th August 2010, 7 documented regional unit banks as at 16th Oct 2010, 5 authorized finance institutions as at 18th Aug, 2010 and 176 Bureau de change as at 31st December 2009 kept up to date as at 11 Aug 2010. (See Appendix fastened by the end).

Commercial finance institutions- Are types of banking companies that package with offering bank services on profit. These banking institutions are usually managed by shareholders, created as Joint Stock Company. Shares can be found to members and folks buy them. They fee a certain percentage interest for money held in the bill.

Regional unit banking companies - Are finance institutions that are approved to use as a specific region's bank. They actually receive money for current accounts and also allow withdrawals by cheque. Which is not necessary for these banking companies to open up other branches because they are specific to region. (Dr. Elisante, 2005)

Financial organizations- Are entities engaged available of banking, but limited as to size, locations served, or permitted activities, as approved by the lender or required by the terms and conditions of its license. (The banking and lender Act, 2006, P 62)

Bureau de change- Are the establishments that are approved to exchange forex with the local currency and also convert it into foreign currency to everyone of the united states.

As we can easily see that there are many players employed in the same industry, there will be a good deal of competition. Which is essential for the banks to examine their business environment regularly to be able to match the competition and move one step of progress.

Now why don't we associate Michael Porter's five forces based on the bank industry in Tanzania. We will commence by mentioning each competitive make and entering aspect how each has an impact in the banking sector. How high or low that drive is.


This is one of the competitive forces. By entry this means with an access or a link to something. It simply means how easy or difficult it is to enter the market or a particular industry, in our case the banking sector.

This power simply talks about those players who aren't yet in the industry (bank) but who are thinking about to become listed on. If there are few firms in the market, then they would all carry out their business and also enjoy their talk about of success. If another firm, a couple of join, then it is likely that the prevailing profitability show of the prevailing businesses would be eroded or would come down to a certain ratio because part of that share would be studied by the new entrants.

According to Michael Porter, the threat of new entrants will depend on the obstacles to entry that are factors that need to be defeat by new entrants if they're to compete successfully. (Johnson et al, 2009)

Barriers to admittance are factors that may prevent new businesses to type in the marketplace.

The pursuing are the main barriers to entry relating to the bank sector:

Capital requirements - This means the quantity of capital required to open a particular business. In Tanzania based on the Central bank's rules and regulations, the finance institutions are supposed to have the very least capital dependence on 15 billion Tanzania shillings. Before it was 1 billion, then it was raised to 5 billion and now from this time (2010) it is revised as 15 billion. Therefore any standard bank deciding to enter in Tanzania's banking sector must gratify this prerequisite.

Government guidelines - This means how the Government influences the access of the new organizations on the market. There are certain rules and techniques to be used. Also the Central standard bank, THE LENDER of Tanzania has specific requirements and need paperwork for liberating a banking permit to any banking companies, documents like Memorandum and Articles of Associations, proof of option of funds, details of directors like integrity, integrity and criminal records. The central lender conducts a due diligence to know if the people involved with this industry are fit and capable enough for the positions designated to them. (Dr. Elisante, 2005)

Customer loyalty - This means that established firms (banking institutions) have customers that already know their product's brand and are faithful to that particular firm. As people loan company their money and valuable items with their preferred banks, they have their trust and confidence with that standard bank and hence it is very difficult for a new bank to expect the customers to visit the newly proven bank just like that. For example: If I am a potential customer of Loan company A where I get all the required bank services and also savings, I wont be easily influenced by Standard bank B who has recently entered the market and who is providing the same services as my loan company. I am dedicated to my standard bank.

Switching costs - These are the costs that happen when customers transition to other organizations. If the switching costs are low, then your customers could easily turn from one loan company to another but if the costs are high, then the customers would just stay with the original bankers. In Tanzania as there are many finance institutions who provide same services, some switching costs are low although some are high. For instance: if a person gets the service of moving money from point A to B with the price of suppose TZS 5000 in one bank or investment company and another lender offers the same service with the same cost, the customer would go on with the first choice of his loan company but suppose that the other bank's costs are just a little lower like TZS 2000, then that customer would switch his bank or investment company and go to the one in which he can receive the same service but at low cost.

Economies of scale - it means reduction in producing one device cost of something because of this of producing it in large. The already founded banking companies would be enjoying this gain in so many things like in printing the customer's account balance claims, the printing of cheque book leaflets as well as the creation of the debit or credit or ATM credit cards. Hence it'll be difficult for a fresh bank to enter into the market and revel in this profit as it'll still need to be acquainted with the operations. An example in this factor can be how the already established bankers who have the ability use it to help expand increase their reach by beginning a number of branches around other areas which were not previously protected. A new organization who's still learning the methods doesn't have this advantage and hence it can cause a barrier for it to get into the industry.

Expected retaliation - It simply means the level of resistance or reactions by the banking institutions that are already in the industry. In the event the new loan provider which is about to open up expects reprisal from the prevailing ones, then this can be an obstacle for the new standard bank.

The above are some of the most common barriers to entrance. Many of them are in the favour of the prevailing banks. Which means overall threat of entrance is low as the obstacles are high for the entrants. The new banks need to fulfill the required strategies and be prepared to compete with the existing lenders. However if the accessibility is made by the already well established finance institutions like the microfinance organizations who are familiar with the bank environment, then it is straightforward to allow them to enter the industry and serve the people as a completely fledged loan provider.


Buyers are the people who buy a particular firm's products and services. Any business is exposed for the purpose of advertising its goods and services to the people or the potential buyers. Purchasers are one of the players in the industry who may have the influence on the way a business runs or runs. Any business on the globe is present because there are buyers or customers who use that business's products. By bargaining vitality of the customers it simply means the power of the clients to bring down the price of the products and therefore the success.

Banks will often have many customers or purchasers who use the banking services. The power appears to be divided among these customers. You can find individual customers who keep their money or savings in the bank and find the services they might need and are priced regular charges as well as enjoy a tiny percentage appealing on the money maintained. As there are many fully fledged finance institutions in Tanzania, the clients do have a choice of where they can get a good service. Let's take a good example of Dar sera Salaam. You seem to be to find a standard bank at every part of the location as well as can be found so close like the Gem trust standard bank (T) ltd and The Savings and Financing commercial Loan company on the Samora road, Standard Chartered Loan company and the Stanbic lender, The Barclays standard bank and the Citigroup. The clients can certainly go to 1 bank and ask their services and charges and they can also go directly to the nearby and may deal to get a better price for the service they want.

There are also customers who are big people and in the bank industry they are simply known as the corporate customers. These customers have got a higher bargaining vitality as they use the banking services daily for his or her business purposes like the copy of money, salary obligations, also issues associated with importing and exporting like Starting of Letters of credits, transfer and export documents as well as apply for big loans for their business growth. Therefore these customers do have impact on the banking companies. As they use the bank's services and also pay for them, they are simply bound to deal to be able to get better deals or offers and because these customers form a huge share of revenue, the lenders are obliged to offer better prices.

To compare between the individual customers and the organization, the corporate customer's electricity is higher as they deal with large volume of services. That is also shown on the rates wanted to individual customers for his or her deposits and the rate offered to large customers. There would be a huge difference like the eye on normal checking account is like 2-3 3 % while the fixed first deposit or cost savings with big quantities have like 5 to 6 percent.

Also the concentration ratio determines the energy of the customers. If the clients are few and everything located at one place, then their electric power is high but if they're dispersed, then their vitality is low.

We can say that the power is there but it's still not developed well enough to influence the banking companies.

The overall electricity of the customers in Tanzania is low as almost all of the people are normal middle class ones and there are very few corporate and business customers. And Tanzania continues to be producing its knowledge in corporate and business banking. It is more into retail banking. Which means bargaining ability of the buyers appears to be low.


As Professor Porter (1980) remarked that Suppliers can exert bargaining power over participants in an industry by threatening to raise prices or reduce the quality of purchased goods and services.

Suppliers are the people who give you the necessary what to conduct or carry out your business. When the suppliers are powerful enough, they can raise charges for their services and hence increase your costs and reduce your level of success as you will then sell your product at a price to cover the cost.

There are a number of factors that determine whether the suppliers are powerful or not. Some of these factors are like:

When there is only one or few suppliers, they can take benefit of their position on the market and charge high prices to the firms designed to use the supplier's products.

If the products or services supplied by that supplier is unique and has no substitutes, it will also enable the supplier's bargaining power to be high.

If the costs to move in one dealer to the other are high, then that company would exploit this opportunity and charge high prices for its products.

If the distributor has the electric power of integrating g ahead meaning it might carry out the current activities completed by its potential buyers, then the company poses high electricity in terms of bargaining the costs and having a good price because of its supplies.

(Porter. M, 1980)

The banking industry also offers its suppliers who allow the banking activities to perform easily. The suppliers are split into two groups. Those who supply the banks with its key product i. e. : Money and the suppliers who supply the services that help out with the banking functions.

As Jules Ackerman (2008) remarked that there are three main suppliers of the bank's product, money. These are:

The depositors. These are folks who deposit their money in the bank's offered accounts. You will find time deposits where in fact the bank pays a certain amount of interest to the clients and there's also demand deposits where the customers do not get any interest however they do get the amount they demand directly on the spot. Now these suppliers's vitality is not high enough to effect or have an impact on the bank's operation at all. In Tanzania there's a sizable population around 40 million people, so all the banking companies get these people's deposits in a single way or the other because the people and the finance institutions are saturated and therefore all the banking companies in Tanzania have the ability to attract a great number of depositors.

The large customers or corporations are usually offered with special deals and packages plus they too don't have that much impact in the bank functions. However these customers is actually a risk if indeed they threaten to visit other bank but nonetheless the lender has all the energy.

The Credit market. This is another dealer of money to the finance institutions. They are simply always open to the banking companies that gratify their criteria and the supply of money is unrestricted with this provider.

The third supplier of money to the lenders may be the Central Loan provider. In Tanzania, The Bank of Tanzania issues all the money currencies-coins and notes to the commercial banking companies and finance institutions and as these bank's functions are important for the economy of the country, it generally does not pose a danger to the bankers, unless a specific bank is proved to be undertaking it's business otherwise, the central banking companies will be offering it with it's learning resource.

The bank's other suppliers, who help run the operations will be the ones like the providers of Information technology (IT), security guards, the providers of furniture as well as the employees who perform the banking operations.

The suppliers of Information technology do exercise some extent of power. This is because certain software allows the lenders to carry out their services and therefore the banks are dependent on the suppliers for these services. And the suppliers knowing that the banks cannot perform their jobs without this technology take advantage and demand them quite a good amount of cash. But we can see that Tanzania is now coming up in IT field as well, there are other organizations providing these services and hence this will result neutralizing the supplier's ability.

Also there are suppliers of security guards and the banking institutions also use the automated alarms which means this threat is reduced. For the employees, Tanzania's education system is rolling out, there's a special institute of bankers called Tanzania institute of bankers (TIOB) there are extensive students who graduate each year and hence there is supply of these young experts ready to give their services in the banking sector.

The overall ability of the suppliers in the banking industry can be said is low. They don't really pose a threat of affecting your choice of the banking institutions in general.


This is the fourth competitive pressure. Substitute goods are those goods that will vary from the ones that one company offers but they perform the same function just like the original products. It's such as a replacement of the initial product.

The option of substitutes limit the returns of an industry by placing a ceiling on the costs firms on the market can profitably demand. (Porter. M, 1980, P 23)

In the bank industry this drive does indeed show a risk as the general public do have other alternatives to go to apart from the banks. We can also see this in Tanzania that there are many other organizations offering similar services as banks like the micro-credit firms like FINCA and SACCOS which provide loans to individuals, the Bureau de change that help the people to change their currency into international or also to change foreign currency to local one. So if one person had not been happy by the exchange rate wanted to him by the bank, then he could easily go to the bureau to get a much better rate and change his money.

Nowadays there are the mobile telephone sectors offering the service of transferring funds from one spot to another. Let's take a good example of Mpesa, a Vodacom service to copy money from one point to the other. An identical service also provided by the Zain network called ZAP.

There is also the occurrence of American Unions in Tanzania now. So if I want to copy funds from here to my friend in another country, then I have the option or choice of either heading to a loan provider or a European union outlet to perform the task.

Therefore the aforementioned force seems to be high in the banking industry. The customers have a choice and it is up to them what they choose. This creates competition among the list of companies in the bank sector. However, because of the fact that it is much safe and folks have much self confidence in lenders, this hazard is minimized.


Let us now see the last drive of the five pushes framework of Michael Porter. Competition or Rivalry simply means undertaking some jobs with the fellow associates and then trying to out do or perform better than them all. Being the very best.

Being in any sort of people must come to deal with competition. Every business wishes the people to buy their products and hence that firm can do everything possible to make it happen. As Michael Porter (1980) pointed out that the businesses will use various strategies like price competition, advertising fights, product introductions and increased customer support or warranties.

In the banking sector you can find a big package of competition. As there are a number of banking institutions in Tanzania and everything aim at bringing in people to bank or investment company with them, the industry is very challenging.

There are lots of factors that affect the degree of rivalry like:

Competitor balance - If the competitors are of equivalent size and power and all aim at the same customers, they would do anything in their capacity to succeed those customers. For example in Tanzania most finance institutions offer retail banking and hence each of them target the retail customers.

Industry development rate - If the overall industry keeps growing, then all the members will benefit equally but if there is slow growth, then your firms would make an effort to achieve growth by fighting fiercely. We can take the example of the recent economic crisis, they have afflicted all the companies and the banking sector is no different. Hence to accomplish growth or edge, all the bankers are launching different strategies to be able to capture the market.

Low differentiation - Where there is absolutely no or low differentiation in the merchandise offered, then the level of rivalry is high. Generally all the bank's products are similar, all offer accounts like checking account, current profile or fixed first deposit accounts and other services like cheque clearing services, characters of credit and so forth. So basically all the products are same. Thus as there may be little differentiation, your competition is high generally to attract the clients to standard bank with a certain standard bank rather than a certain bank.

(Johnson et al, 2009)


As for concluding the study question, Michael Porter's five forces construction has helped us in inspecting the banking sector of Tanzania. We are now in the position to state which ability is high and which is low. And the way the general banking environment appears like.

As reviewed above, it was found out that the hazards of new entrants is low, the bargaining electric power of customers as well as suppliers is low, The risks of substitutes is high and as a whole the bank environment is competitive as there already are established players in the industry.

Therefore the overall rivalry is saturated in the bank sector in Tanzania as you can find competition not only from the finance institutions itself but also from other non-bank financial institutions like SACCOS, insurance companies, microfinance establishments (MFI's). However, banks having been in this industry have got knowledge and experience and also big sites, advertising power, to allow them to overcome these risks.

In order to battle the competition, the banking institutions need to examine their strategies often and also be innovative. They need to think of and bring new product offers to be able to entice more customers. One main aspect of the bank sector is its customer support. The banking companies should invest in this area and make their business a success.

Banks play an important role in the economy of any country, hence the Government authorities should also think of some strategies in order to make this sector a strong one.

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