MOSHI CO-OPERATIVE UNIVERSITY

(MoCU)

FACULTY : FBIS

PROGRAM NAME : BACHELOR OF LAW III

COURSE ANTE : LAW 308

COURSE NAME : CAPITAL MARKET AND SECURITIES LAW

INSTRUCTOR : MS FLORIDA

NAME : AMINA YASINI

REGISTRATION NO. : MoCU/LL.B/1668/22

TASK. : INDIVIDUAL ASSIGNMENT

SUBMISSION DATE. : 3 DEC 2024

QUESTION.

The Tanzania Capital market has been moderated growth in recent years,but it is still facing challenges
related to investors confidence and the participation of (SMEs).In response the Capital Markets and
Securities Authority(CMSA) is considering the introduction of a regulatory initiative aimed at creating a
more inclusive and transparent market.This initiative would involve the development of a new set of
rules that streamline the process for SMEs to access the Capital markets,establish a government backed
investment guarantee fund to attract more individual investors and implement stricter measures to
prevent market manipulation

Requirement

As a Policy advisor to the CMSA,what would be your essessment of the potential impact of this new
initiative on the Tanzanian Capital market?How might these regulatory changes affect market
dynamics,investor behavior and the broader economy?
 Capital market; A securities market in which stocks and bonds with long-term maturities are
1
traded or are financial markets for the buying and selling of long-term debt or long term securities
having a maturity-period (age) of one year or more. These markets channel/direct the wealth of savers
to those who can put it to long-term productive/useful use, such as companies or governments making
long-term investments/capital spending. Capital market have two types which are Primary market.The
market for goods or services that are newly available for buying and selling And Secondary market.The
market for goods or services that have previously been available for buying and selling esp. the
securities market in which previously issued securities are traded among investors. — Also termed
aftermarket. 2

Small and medium-sized enterprises are businesses that fall into specific size categories based on the
number of employees and, in some definitions, annual revenue. They are crucial to economic growth,
innovation, and job creation in many countries. 3SME development is high on the reform agenda of
many governments. A broad range of policies and programs target improvements in SME business
environments, as well as financial support to SMEs. Despite the importance of SMEs for job creation and
production, most of the SME literature points to the fact that small and medium firms face higher
barriers to external financing than large firms, which limits their growth and development. 4

Tanzania’s capital market has experienced moderate growth in recent years, but it continues to face
significant challenges, particularly regarding investor confidence and the participation of small and
medium-sized enterprises (SMEs). The regulatory plan proposed by the Capital Markets and Securities
Authority (CMSA) aims to address these issues through a multi-pronged approach that includes
facilitating access for SMEs, establishing a government-backed investment guarantee fund, and
implementing stronger measures against market manipulation.These policy changes could transform the
market environment by improving access, strengthening investor confidence, and promoting economic
growth. This assessment examines the potential impact of these changes on market dynamics, investor
behavior, and the broader Tanzanian economy, while also identifying challenges and strategies that can
be effectively implemented.As a policy advisor to the Capital Markets and Securities Authority (CMSA) of
Tanzania, it is important to assess the potential impacts of the proposed regulatory package aimed at
increasing the inclusion and transparency of the capital market. The package, which aims to ease access
for SMEs, establish a government-backed investment guarantee fund, and implement stronger anti-
fraud measures, could have a wide range of impacts. Here is an assessment of the potential impacts on
Tanzania’s capital market, market dynamics, investor behavior, and the broader economy.and in these
there are negative impacts and positive impact by starting with positive impact in which are as follows

Impact on Market dynamic; here there are Increased Access for SMEs Streamlining the capital
raising process allows small and medium-sized enterprises (SMEs) to participate in public offerings more

1
Black's Law Dictionary (8th ed. 2004)

2
Ibidi 2 black law dictionary

3
https://ec.europa.eu/growth/smes_en)

4
http://www.enterprise
easily. Regulatory changes that reduce barriers to entry can empower SMEs, facilitating their growth and
stability. Greater access to capital for SMEs can enhance their operational capabilities, allowing for
expansion and increased market presence.The introduction of new regulations aimed at facilitating
access to capital markets for small and medium-sized enterprises (SMEs) could have a significant impact
on market dynamics. By facilitating a more straightforward process for SMEs to participate in public
offerings, these regulations could significantly increase the number of companies that choose to go
public. These changes are important because they open up capital markets to a wider range of
businesses, which historically may have faced barriers due to onerous regulatory requirements or high
costs associated with public offerings.5Also here there other things whichch are market depth and
liquidity more inclusive market can strengthen capital markets, increase the number of listed companies
and investment vehicles, thereby attracting institutional investors and boosting overall market.

Enhanced Investor Confidence and Market Participation Government-Backed Investment

Guarantee Fund This fund would reduce perceived risks for retail and institutional investors, thereby
attracting more participants. Investors will feel more secure knowing their investments have a partial
safety net, potentially boosting liquidity. Creating an Enhanced Investor Confidence and Market
Participation strategy through a Government-Backed Investment Guarantee Fund sounds like a
promising initiative! Here are some references and resources that support the concept of such funds
enhancing investor confidence and participation in the market 6 also here there isMarket Expansion:
With more individual investors entering the market, there will be greater diversity in ownership,
improving market depth and reducing volatility.

Implementing Strong Measures Against Market ManipulationStrong measures aimed at

preventing market manipulation are essential for building trust among investors. Also it Improved
Transparency strengthened regulatory oversight can lead to greater transparency in business
operations, which is essential for maintaining a fair market environment.and with Investor
Protection stronger regulations can protect retail investors from fraudulent practices, thereby
promoting a better investment environment.Impact of Implementing Strong Measures Against Market
Manipulation also it enhanced Disclosure Requirements stricter oversight will require companies to
disclose accurate and timely information, reducing information asymmetry. There isFair Market
Practices greater transparency in operations ensures that all market participants have access to the
same information, leveling the playing field.

Broader Economic Implications the overall impact of these regulatory changes could have a
significant impact on the broader Tanzanian economy, both negative and positive.like Economic Growth
Drivers which enabling SME Access to Capital small and Medium Enterprises (SMEs) often face
significant barriers to accessing finance, which hinders their growth. Regulatory changes that facilitate
easier access to capital—such as enhanced credit guarantees or streamlined application processes—can
encourage SMEs to invest in new projects, technologies, and expansion efforts. This can lead to
increased productivity and output, and stimulate economic growth Investor Confidence strong

5
U.S Securities and Exchange Commission (SEC)(2004)

6
R. W. Kolb and T. A. Overdahl (2008), Futures, Options, and Swaps,
regulations that ensure transparency and accountability can increase investor confidence in financial
markets. When investors feel secure that their investments are protected, they are more likely to invest
in local SMEs, providing much-needed capital that fosters business growth and innovation. Also broader
Economic Implicationsit creat job also it nake financial inclusion in which here it led to Access to Capital
for Marginalized Groups improved access to capital markets can lead to financial inclusion, especially for
marginalized groups such as women and small entrepreneurs. By enabling these people to access
financing, they can start and grow their businesses, which can contribute to closing the economic
gender gap and fostering innovation7 by finishing with negative impact in which h are as follows

Implementation Costs establishing a bond fund specifically designed for Small and Medium
Enterprises (SMEs) in Tanzania involves significant implementation costs. These costs can be divided into
several key areas:

Regulatory Framework Development: Developing a robust regulatory framework is essential to ensure

that the bond fund operates effectively and transparently. This includes developing new laws,
regulations and guidelines governing the issuance of bonds, fund management and investor protection.
The process requires legal expertise and extensive stakeholder consultation, which can be costly.

Infrastructure Development: A bond fund requires an operational infrastructure that includes

technology systems for managing transactions, monitoring investments and reporting to stakeholders.
This may involve significant investment in IT systems and human resources to manage these activities
effectively.

Small medium-sized (SME) Risk: Profile Investments in SMEs inherently carry higher
risks compared to larger corporations due to several reasons:

Lack of Financial Stability: Many SMEs face challenges related to cash flow volatility, limited access to
credit markets, and poor financial management practices. These factors contribute to their perception
as risky investments.

Governance Issues: Governance structures within many Tanzanian SMEs may not meet international
standards due to limited resources or expertise. Poor governance can lead to misuse of funds raised
through bonds or failure to meet repayment obligations.

Moral HazardvThe concept of moral hazard arises when one party engages in risky behavior because
they do not fully understand the consequences of that risk. In the context of a bond fund for SMEs in
Tanzania:

Risk-taking Behavior: If investors believe that their investments are protected by government
intervention or insurance mechanisms associated with the bond fund, they may take on excessive risk
without properly assessing the potential downside risks. This can lead to poor investment decisions that
ultimately jeopardize the sustainability of the SMEs involved in the bond fund itself.

7
https://www.afdb.org/en/
Inadequate safeguards: To mitigate moral hazard, it is important to design safeguards into the bond
fund structure. This may include placing limits on the amount of risk that individual SMEs can take or
requiring them to maintain certain levels of financial health before being eligible for financing through
bonds. Also there are the recommendations that will help the SME to participate in tanzania

Recommendations to Enhance SME Participation in Tanzanian Capital Markets

Capacity Building for SMEs

To enhance the participation of Small and Medium Enterprises (SMEs) in Tanzanian capital markets, it is
important to provide comprehensive training and support aimed at helping these businesses meet the
requirements for listing. This involves developing programs that educate SMEs on corporate governance
principles, financial reporting standards, and compliance with regulatory frameworks. By equipping
SMEs with the necessary skills and knowledge, they can better cope with the challenges of capital
market operations. Workshops, mentoring programs, and partnerships with established companies can
facilitate this capacity building.

Investor Education

Another important recommendation is to launch awareness campaigns aimed at educating retail

investors about the risks and opportunities associated with investing in SMEs. Many potential investors
may lack the knowledge of how to evaluate SME investments or may have misconceptions about their
potential. Educational programs can include seminars, online resources, and information materials that
explain investment fundamentals, risk assessment methodologies, and the unique characteristics of SME
investments. By developing a more knowledgeable investor base, confidence in SME listing can be
significantly enhanced.

Phased Implementation

Implementing regulatory changes in a phased manner allows for careful monitoring of their impact on
the market. This approach allows regulators to assess the effectiveness of new policies and make
necessary adjustments based on real-world results. For example, initial phases could focus on a small
number of sectors or types of SMEs before expanding to broader categories. Feedback mechanisms
should be established to gather insights from stakeholders during each phase, to ensure that any
emerging challenges can be promptly addressed.

Stakeholder Engagement

Engaging with a variety of stakeholders—including financial institutions, industry associations, and

investors—is essential for gathering feedback and ensuring the success of initiatives aimed at promoting
SME participation in capital markets. Collaborative efforts can lead to a broader understanding of
market trends and help formulate strategies that are aligned with stakeholder needs. Regular
consultations can foster a sense of ownership among stakeholders while also facilitating knowledge
sharing that improves the overall development of the market.8
8
Capital market authority (CMA) reports
In conclusion, the proposed regulatory plans by the CMSA hold great promise for revitalizing Tanzania’s
capital markets. By facilitating access for SMEs, establishing a government-backed investment guarantee
fund, and implementing stronger anti-fraud measures, these changes could increase investor confidence
and participation. The resulting effects of market dynamics are likely to foster a more stable economic
environment characterized by increased employment opportunities and diversification across sectors.

REFFERENCE

WEBSITE

https://ec.europa.eu/growth/smes_en)

Enterprise Analysis survey data at http://www.enterprise

https://www.afdb.org/en/

READINGS

Black's Law Dictionary (8th ed. 2004)

U.S Securities and Exchange Commission (SEC)(2004)

R. W. Kolb and T. A. Overdahl (2008), Futures, Options, and Swaps,

Capital market authority (CMA) reports