Modern creative Makonde sculpture.Factors determining interest rate spreads in Tanzania: an empirical analysis.

Interest rate spreads in Tanzania have for a long time been considered by the business sector as well as the general public as being inordinately high and unrealistic even after the liberalisation of the financial sector a decade ago. Interest rate spreads or intermediation spreads refer to the difference between lending rate which borrowers of funds have to pay to commercial banks and deposit rate which commercial banks reward savers. High interest rate spreads as represented by high lending rates vis a vis low deposit rate are considered counter productive. They work as an impediment to the expansion and development of financial intermediation as potential savers are discouraged by low returns on deposits while prospective investors are put off by high lending rates. This dual problem reduces feasible investment opportunities and therefore the growth potential of an economy. This research work which covered commercial banks operating in Tanzania attempts to identify and examine a number of factors that are said to determine interest rate spreads, a subject currently under debate.