Performance evaluation of non-banks financial institutions pre and post liberalization.

Abstract

Tanzania like other developing countries embarked on financial sector reforms that included liberalization of the financial sector. The reforms started during late 1980's with the enactment of various laws to support the liberalization. Although the reforms started late 1980's its full effect came into effect during mid 1990's. The study covered the performance of non-banks financial institutions (NBFIS) pre and post liberalization. The period under consideration was 14 years from 1990 to 2003, pre-liberalization period being from 1990 to 1996 and post liberalization from 1997 to 2003. The study involved collection of primary and secondary data from the field for the selected financial institutions that existed pre and post liberalization as well as the regulatory body, the Bank of Tanzania (BOT). The data was analyzed using descriptive analysis, trend analysis and Multivariate Discriminant analysis (MDA). The generated MDA model was validated using failed and non-failed banks and NBFIs, the model classified correctly 100% of the cases. The hypotheses were tested by analyzing the variances of the two periods means using F- distribution. The performance indicators included financial ratios under the components of CAMEL system that is used by BOT in its supervisory roles. The results indicate that the performance of NBFIs improved post liberalization as compared to pre liberalization. Significant improvement was noted on Asset quality, Management quality, Earnings, and Liquidity. The study gives recommendations on the need to re-evaluate the need for privatization of state owned banks since the performance has improved and the need to consider using MDA in the analysis of performance of banks and financial institutions that is conducted by BOT.