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Municipal-owned community bank: capital raising dilemma

Tobias Aloisi Swai (Department of Finance, University of Dar es Salaam, Dar es Salaam, United Republic of Tanzania)

Publication date: 5 October 2019

Abstract

Learning outcomes

The case introduces student to basic understanding of banking sector in Tanzania as well as the strategies and struggle to raise capital through shareholders’ funds. Application of Banking theory and Pecking order theory is evidenced from the case. The case outlines why the bank struggled to raise capital and what triggers the capital raising strategies. It also give students an opportunity to think about applicable theories of capital structure and bank capital, and strategies the bank could use to rescue its capital crunch in the future.

Case overview/synopsis

The case provides details of how the Capital Community Bank (CCB) raised its capital through strategic financial engineering which enabled it to raise the minimum regulatory capital required to be licensed as a financial institution unit, to a regional financial institution, to a fully fledged commercial bank. The bank started with a paid up capital of TZS 472.3m in 2002, involving four Local Government Authorities and individual investors. Capital raised to TZS 31.3bn in 2014 and down to TZS 20.6bn at the end of 2016. The minimum regulatory capital required is TZS 15bn, while paid up capital was 16.9bn. With the change of the management team in 2017, the bank is looking for avenues to raise further capital to meet the regulatory limits and continue to survive as a commercial bank, given dramatic changes in the banking sector in Tanzania.

Complexity academic level

The case is suitable for third year students in Bachelor of Commerce/Economics specializing in banking/financial services. It also suits postgraduate/master's students seeking a Postgraduate Diploma or Master of Business Administration in financial institutions/banking course.

Supplementary materials

Teaching Notes are available for educators only. Please contact your library to gain login details or email support@emeraldinsight.com to request teaching notes.

Subject code

CSS 1: Accounting and Finance.

Keywords

Acknowledgements

To all who contributed to this study and to my colleagues at the Center for Banking and Financial Services Research (CBFSR) at the University of Dar es Salaam Business School.

Disclaimer. This case is written solely for educational purposes and is not intended to represent successful or unsuccessful managerial decision-making. The authors may have disguised names; financial and other recognizable information to protect confidentiality.

Citation

Swai, T.A. (2019), "Municipal-owned community bank: capital raising dilemma", , Vol. 9 No. 2. https://doi.org/10.1108/EEMCS-02-2018-0027

Publisher

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Emerald Publishing Limited

Copyright © 2019, Emerald Publishing Limited

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