The Key to Zanzibar’s Fintech Revolution

If you walk through the city and outskirts of Zanzibar, you will notice many small, family-run businesses, popularly known as kiosks or dukas. Unlike its neighboring cities in the region, the concept of one-stop shops is not as prevalent here. This is not necessarily a drawback. In fact, it preserves a sense of human connection that is often lost in larger, more impersonal shopping malls.

These small, local businesses foster stronger relationships between owners and customers, creating a more personalized shopping experience where customers are known by name, and the business culture feels much more community-driven. These businesses resemble those found in many other countries, primarily selling everyday essentials.

Alongside these dukas, there is also a noticeable increase in woodworking and hardware stores, hinting at an economic upturn on the horizon. Unfortunately, most of these businesses operate in a cash-based system with minimal formal records, leaving little documentation to track their growth or profitability.

This reliance on cash also restricts their access to much-needed credit from financial institutions, a common hurdle for small businesses looking to expand.

The irony is that the solution for these hurdles is within reach. If these businesses were provided with financial education and empowered to utilize existing financial technology (Fintech) tools, they would be better positioned to scale their operations, manage cash flow, and attract more customers.

Fintech tools help businesses streamline their processes, offer access to credit, and provide more payment options, ultimately making these businesses more competitive and sustainable. In turn, this would help the families running these businesses improve their standard of living, providing them with more financial security and the ability to invest in their future, whether through expanding their businesses or supporting their children’s education.

Fintech not only strengthens businesses but also elevates the livelihoods of those at the heart of these local enterprises.

But what exactly is fintech, and how can it help the small family-owned store down the road that sells cement and hardware to the local community? Fintech, short for financial technology, refers to digital tools that make financial services more accessible, efficient, and secure.

In East Africa, particularly in Tanzania, fintech encompasses a wide range of services that have already transformed how people manage their finances. Mobile money is an exemplary financial service that leverages mobile phone technology to provide users with convenient and accessible banking solutions.

Platforms such as M-Pesa, Tigo Pesa, and Airtel Money allow users to send and receive money, pay bills, buy insurance, and access credit right from their mobile phones. These services are not only available in urban centers but, thanks to the ever-expanding mobile network coverage in Tanzania, they have also reached rural communities, significantly increasing financial inclusion across the region.

This expanded coverage enables people in remote areas, who previously had little or no access to formal banking services, to participate in the financial system through mobile phones. Farmers, fishermen, and small business owners can now use mobile money platforms to make transactions, save, and access credit, without the need for physical bank branches.

But despite the remarkable successes of fintech in transforming economies across East Africa, it has yet to be embraced in Zanzibar as fully as expected. In Zanzibar, cash remains the dominant mode of transaction. Even in places that do accept other forms of payment, such as debit and credit cards, additional fees (up to 5%) are often charged.

This not only discourages the use of digital financial services but also exacerbates the reliance on cash, further slowing the adoption of fintech solutions.

This is a surprising reality, given that several innovative financial solutions in the region have already proven their effectiveness and become models for others to follow. Products like M-Pesa have become synonymous with the success of fintech across Africa, embodying the transformative power of digital financial services.

The success of platforms like M-Pesa highlights how fintech tools can break down traditional barriers to financial inclusion and seamlessly integrate into the daily lives of people, offering a convenient and efficient alternative to cash-based systems and helping drive economic growth in regions like Zanzibar. However, this has yet to fully happen in Zanzibar.

For farmers, fishermen, or any business owner, fintech solutions remove the need to carry cash, which can be risky due to the possibility of theft or loss. Moreover, handling cash often incurs additional costs related to security, transportation, and time spent on manual counting and recording. By adopting fintech tools, business owners can significantly reduce these risks and expenses while offering their customers a more efficient, secure, and flexible way to pay.

Beyond payments, fintech platforms also offer microloans through mobile apps, enabling small business owners to access working capital quickly and easily, without the need for traditional bank loans. These platforms assess credit worthiness using alternative data, making it possible for even unbanked individuals to receive financing.

Fintech is not limited to remittances and microloans; insurance is another vital service offered, all through the most basic mobile phone. These platforms simplify the process of obtaining insurance, covering risks such as theft, property damage, and health emergencies. For example, a business can insure its inventory against fire or theft with minimal paperwork and affordable rates, while farmers can protect their crops and livestock from adverse weather conditions or diseases.

This accessibility ensures that small businesses are less vulnerable to unexpected events, helping them recover quickly and maintain financial stability, which is crucial for long-term economic resilience.

In addition to insurance, fintech services are also providing innovative savings and investment platforms that help small businesses manage their finances more effectively. Platforms like NALA, founded by a young Tanzanian, started as a remittance application but has evolved to include saving tools that allow business owners to set aside portions of their revenue directly from mobile money accounts.

These digital savings accounts not only help businesses plan for future growth or unexpected expenses but also often offer higher interest rates than traditional banks, making them an attractive option for building financial security. Furthermore, some fintech platforms are beginning to offer investment options, enabling small business owners to invest their surplus capital in low-risk portfolios and earn returns over time.

While these fintech tools are readily available in Zanzibar and have proven vital in empowering small businesses and driving economic growth, they represent only part of the solution. For these tools to reach their full potential, there must be a concerted effort to provide education and raise awareness about how to use these services effectively and safely.

Many small business owners, especially in rural areas, may lack the financial literacy needed to take full advantage of fintechsolutions, and this gap can hinder their ability to grow and scale their operations. In addition to learning how to navigate these digital tools, users must also be educated on how to protect themselves from the risks associated with conducting business online.

As more financial transactions and sensitive data move to digital platforms, the potential for fraud, phishing attacks, and other cybercrimes increases. Without proper understanding and security measures, small businesses may unknowingly expose themselves to financial loss or data breaches.

This makes cyber security awareness just as crucial as financial literacy. Business owners need to be trained not only in using fintech platforms but also in implementing security best practices such as safeguarding passwords, recognizing phishing schemes, and using two-factor authentication to protect their accounts.

However, successful adoption requires more than just technology—it demands public trust and understanding. For financial inclusion to be fully realized, the Zanzibar government must take the lead by providing the necessary infrastructure, regulatory frameworks, and policies that foster a supportive environment for fintechsolutions. This includes not only building mobile and digital networks that reach rural and under-served areas but also ensuring that fintech services are accessible, secure, and inclusive. The government plays a pivotal role in ensuring that appropriatefintech solutions are introduced and scaled by creating policies that encourage innovation in fintech while safeguarding consumer protection, data privacy, and inclusivity.

There is also a need for effective collaboration between fintech companies, the government of Zanzibar, and educational institutions to build comprehensive training programs that can bridge these knowledge gaps. Awareness campaigns, workshops, and online resources can help business owners understand both the benefits of fintech and the associated risks.

By integrating digital literacy with financial literacy, small businesses will not only be more capable of using these services to grow but will also be better equipped to safeguard their operations in an increasingly digital economy. Only through a holistic approach; combining accessible fintech tools with education and awareness, can Zanzibar’s small businesses fully realize the opportunities that financial technology offers.

We have seen the efforts of the government through the Zanzibar Digital Government Strategy and the Zanzibar Digital Economy Roadmap, both of which emphasize the need for innovation and technology as critical enablers of economic growth and inclusion. And in the case of Tanzania, the government has been making great strides to welcome innovators. In July 2024, the government of Tanzania, through the Central Bank (BoT), enacted a new Fintech (Regulatory Sandbox) Regulation, further reinforcing its commitment to fostering innovation in the financial sector.

This regulation aims to create a supportive regulatory framework that allows fintech companies to test their technologies and innovations in a controlled environment. By providing a secure space for experimentation, the act encourages technology companies to be more innovative while ensuring that their products are rigorously tested before being introduced to the market. This initiative represents a strategic effort to balance innovation with consumer protection and regulatory oversight, ultimately driving growth in Tanzania’s financial ecosystem.

We have identified all the key elements required for Zanzibar to successfully empower its small business owners through fintech. However, achieving this vision will depend on the active participation of all stakeholders. Without widespread financial education and awareness, cash will continue to be the easier and more familiar option for many, particularly in rural areas.

Similarly, without the enforcement of the right policies, businesses will lack the necessary incentives to innovate and create fintech products that cater to underserved communities. It’s a two-way street, and progress will only be made when both the public and private sectors, alongside the local population, work together. Most importantly, without full financial inclusion, the lives of Zanzibaris will not see the improvements they deserve.

Financial inclusion is not just about access to tools – it’s about enabling individuals and small businesses to thrive and build better livelihoods. Only by working together can we ensure that fintech drives sustainable socio-economic growth and improves the quality of life for all Zanzibaris.

Joseph C. Rubambe

Technology Consultant. (Project Management, Consulting & Business Transformation Projects)