Dar es salaam. Local government authorities (LGAs) need to move beyond dependence on government transfers, donor funding and limited own-source revenue if they are to meet growing demands for infrastructure and public services, a new study has found.
The study says innovative financing instruments such as municipal bonds, green bonds, blended finance and public-private financing could give councils additional options for funding development, but warns that access to money alone will not be enough.
Instead, councils need clear regulations, strong internal systems, specialised knowledge and professional financial advice before they can effectively use such instruments.
The findings are contained in a study titled ‘Institutional support factors and intention to adopt innovative financing instruments: does financial advice moderate?’ authored by Marko Mwita Imori, Pendo Shukrani Kasoga and Chirongo Moses Keregero.
Published on 30 June 2026, in Volume Four, Number One of the University of Dodoma’s African Business Management Journal, the study examined 26 city and municipal councils—comprising 20 municipal councils and six city councils—and collected information from 255 financial decision-makers.
The researchers argue that the issue is increasingly important as local governments face pressure to finance infrastructure, climate action and essential services while operating within constrained public revenues.
Globally, innovative financing is gaining ground. The study cites evidence showing that sustainable bond issuance by subnational governments rose from $13.3 billion in 2018 to $65.7 billion in 2023.
Municipalities in countries including India, South Africa, Morocco, Mexico and Argentina have also used municipal bonds to broaden their financing options.
For Tanzania, however, the researchers say the challenge is more fundamental.
Local governments continue to rely heavily on central government transfers, donor funding and own-source revenue, which may not always keep pace with expanding development needs.
“Financial need alone is not enough to support adoption,” the researchers say, stressing that councils also require suitable organisational systems, specialised knowledge and institutional support to turn financing opportunities into workable projects.
Rules central to financing innovation
The study examined three institutional factors: facilitating conditions, the regulatory framework and complementary knowledge.
Of the three, the regulatory framework emerged as the strongest influence on councils’ intention to adopt innovative financing.
The researchers say clear rules can reduce uncertainty by helping officials understand which financing instruments are permissible, what approvals are required and how transactions should be managed.
“Without such clarity, even councils with capable staff and adequate financial needs may hesitate to adopt new financing approaches,” the study says.
The finding suggests that Tanzania’s financing debate should go beyond asking where councils can find money. It should also examine whether the regulatory environment makes it practical for councils to use new financing instruments.
The study also found that facilitating conditions positively influence adoption intentions.
This means adopting a municipal bond or public-private partnership is not simply a matter of deciding to borrow.
“A council must first identify a viable project, assess its feasibility and risks, prepare credible financial information, meet regulatory requirements and demonstrate how the money will be managed and repaid,” it states.
The researchers note that experience elsewhere shows that the problem is often not a lack of financing instruments but insufficient bankable projects, reliable data, sound procurement and reporting systems and institutional capacity.
Knowledge alone not enough
The third factor, complementary knowledge, also had a positive influence on adoption intentions.
The study describes this as the technical and financial knowledge required to understand financing options, assess risks, appraise projects, prepare documentation and meet reporting requirements.
But the study found that knowledge alone does not necessarily translate into action.
“Financial advisers can help councils assess financing needs, choose appropriate instruments, structure transactions, prepare documentation and comply with regulations,” it states.
The study therefore presents financial advice as a bridge between knowing about innovative financing and being able to use it.
Importantly, however, the researchers found that financial advice did not significantly strengthen the relationship between facilitating conditions and adoption intentions.
In simple terms, advisers can explain complex financing options, but they cannot compensate for inadequate staffing, weak internal systems, poor coordination or limited management support.
Financial advice works best when councils already have basic institutional capacity in place.
“Councils should invest in staff training and financial advice, particularly in public-private partnerships, municipal bonds, risk-sharing, cash-flow modelling and regulatory compliance,” it recommends.
At the national level, the researchers call for clear, consolidated guidance on permissible financing instruments, disclosure requirements and approval procedures.
They also propose a technical assistance facility for feasibility studies and transaction advisory services, alongside incentives for councils that strengthen their financing readiness.