Impact of non-bank financial intermediaries on monetary policy in Tanzania 1967-2014

This study has examined the impact of development of Non-Bank Financial Intermediaries (NBFIs) on money supply in Tanzania using time series data over the period from 1967 to 2014. The study employed Autoregressive Distributed Lag (ARDL) bounds testing approach to cointegration to investigate the existence of relationship between NBFIs and money supply in Tanzania. The results from the study confirmed that NBFIs growth has led to an increase in time and saving deposits, which both have a significantly high impact on broad and narrow money supply. This means that the narrow money became less effective in monetary policy implementation compared to the broad money. Also, the broad money appeared to be more was more elastic to income fluctuations as compared to narrow money. The high elasticity meant that fluctuations in deposit preferences caused by a slight change in income would be better reflected by the broad money than the narrow money. On the policy area, results suggested that that the broad money should be preferred and used in the monetary policy implementation since this would enable policy makers to effectively monitor non-banks and so control both their interest rates and loan provisions. Also, the use of broad money in monetary policy implementations will enable regulators to better keep an eye on non-banks to ensure that the entire financial system is in line with the monetary policy goals and objectives set.