Status of the Microfinance in Tanzania

By James Mathew Mgaya – Art in Tanzania internship

Introduction

The movement of microfinance is started since 19th centaury in the time of European Union and the creation of modern microfinance in Bangladeshi social entrepreneur Muhammad Yunus in 1983, microfinance was simultaneously created. In 1983, Yunus established Grameen Bank in Bangladesh. The goal of Grameen Bank was to initially provide small loans to entrepreneurs. Microfinance is all about financing low-income earner like food venders (mama lishe), farmers, poor communities, micro- enterprises.

We call them low-income earner to financial service providers, but the nature of this industry is too slow and small in fact they misunderstood it with banking services, but they are so different aspect. Moreover, Microfinance is likely to be called micro-credit or micro-loan which most users are low-income earner while apparently women in Tanzania perspective. In rural areas, they are usually small farmers and others who are engaged in small income-generating activities such as an anti-poverty tool for the people living in rural areas. It claims to assisting communities of the economically excluded to achieve greater level of asset creation and income security to eradicate poverty in Tanzania at the household and community level which is not achieved as it initially aimed.

Many microfinance institutions currently operating in urban areas than rural areas. Microfinance are known to Its reputation of helping low-income households to stabilize their income flows and save for future needs; observing facts are too slow build up existence of Microfinance institutions to rural areas are yet to focus to rural areas while remain with poverty and these kinds of financial services remain unknown to other rural and remote areas. Furthermore, microfinance may help families, farms, and small businesses to prosper, and at times of crisis it can help them cope and rebuild rural communities if introduced and operated in these remote areas.

It is must to be regulated by central bank in Tanzania and have mandate to any financial services provider especially Microfinance is well regulated under BoT but also their National Microfinance policy and other supervisory framework. The emphasis on them is too low as for presence of commercial banks with their innovative product which interfered Microfinance financial services.  It’s not bad notion since it is competitive and commercial era, but it seizes to suppress these micro capital institutions to its existence. In good formality must learn to co- exist as alpha be alpha (BoT) and beta doing beta thing (commercial banks) and let omega enjoy the fruits of being omega (Microfinance institution); this interruption redirects the main purpose of microfinance and it main objective in Tanzania.

Microfinance industry

Regulation 

According to “mondaq.com ” The Bank of Tanzania (the BoT) exercising its powers under section 60(1) and (2) of the Microfinance Act of 2018 (the Act) has published the Microfinance (Non-Deposit Taking Microfinance Service Providers) Regulations of 2019 (the Regulations) among other regulations.”        According to Finandlaw.co.tz which said The Central Bank of Tanzania (Bank of Tanzania) has finally issued the regulations governing Microfinance Business in Tanzania. The regulations come in trio containing, Microfinance (Non-Deposit Taking Microfinance Service Providers) Regulations 2019 (GN No. 679 of 2019), Microfinance (Savings and Credit Cooperative Societies) Regulations 2019 (GN No. 675 of 2019), The Microfinance (Community Microfinance Groups) Regulations 2019 GN No. 678 of 2019.Government view microfinance as powerful allied to combat poverty in Tanzania so they establish it regulate it , supervise it and governed it through Bank of Tanzania, some supervisory frameworks and policies.

Microfinance institutions

Microfinance institutions in Tanzania appeared with three faces: first is Non- Governmental Organisation (NGO’s) which include PRIDE, FINCA, Vision Fund, SEDA, PTF etc. Another, banking services which offer similar range of micro- credit and some are large banks like NMB, CRDB, ACB, and most of regional banks and community banks are also providing these kinds of services like Kilimanjaro cooperative bank, Dar es salaam community bank, Mfindi community bank etc. Finally, cooperative based institutions here we are talking about SACCOS, SACCAS, AMCOS, VIKOBA etc. But not only them provide financial services that predominately as saving based and these are not regulated BoT these don’t work directly as financial institution as agency for poverty eradication includes SIDO, YOSEFO, SELFINA, and Poverty Africa and Zanzibar based Women Development Trust Fund.

Recent years their existence of e-banking or mobile banking institution which provide micro- credit to borrowers with access of internet and some no access of internet. In fact, some are not real financial institution but provide micro- credit and micro- saving like M-pawa through M-pesa, Tigopesa, Halopesa, etc. With those include online microfinance are like TALA, Branch, Timiza, TMF, easy loan, mkopo chap chap loan finder etc.

Source of fund and Operation

Source of financing microfinance so they say is from donors, SACCOS, Government, community based and bank loans. International donors play big part to fund institutions and NGO’s and provide not only substantial financial resources but even technical assistance to them. SACCOS and Community based are mostly use internal source of fund by collective fund measure toward membership that provide equal contribution and distribution and some time the get assistance from donors, government through subsides and noninterest loans, also the use banks loan which can be accessed.

Many microfinances operate though micro borrowing, but the market is widespread nowadays when involved the big guns like bank they tend to have saving. But may borrower’s ideology is not saving is about getting micro credit which is main purpose. Since then, microfinance drift to commercial more than serving low-income earner and eradicating poverty as government intended. Microfinance suppose to deal with poor and rural areas and urban, but many operations are urban centered which the get collaterals, easy to reach them than rural areas. The interest pricing can be high because most of the local microfinance providers borrow from bank for 10% to 20% this may lead for Microfinance to charge more than bank rate. Which make borrower to use commercial banks despite of many procedure but for some they still enjoy microfinance though they are affected by it.

Challenges

There many developmental challenges faced by micro credit providers in Tanzania because is substantial to the backbone to low income and unemployed to enter economic activities. And these are some challenges.

Criticisms: their propaganda involve charging low rate and oversimplification of procedures than of those commercial banks. Most of them charge low interest of 1% up to 10% mostly with no transaction cost or restriction of having saving. This approaches and techniques cannot do by banks because they can not take risk on loan but to microcredit provider can offer loan for 24 hours, with national identity cards only, that made accessing loans to be very easy than using banks.

Beneficiaries of the benefits; the aim of microfinance institution by Dr Muhammad Yunnus and other idealist like US President Bill Clinton once said, “the poor are credit worthy and that micro financing effort can be self-sustainable, create growth and widespread peace.” But do poor benefit microcredit? All of this institution focusses on commercialize services drift away from it main purpose. These institutions target civil servant’s government officials by using lawson verdict. In large percent poor and rural areas are outreached and not capable of getting these services but other groups benefit these services.

Insolvent of financial services ingredients; financial literacy, trust issues, repayment measures and access to credit. Borrowers of microcredits are client of banks which have bank accounts in consumer perspective to have MFI’s account is not easy due to misunderstanding of financial services to offer savings as product so, also some low-income earners do not have that knowledge of saving. Trust issue faced by microfinance institutions about borrowers do trust these institution because of the  and repayment measures are not comfortable to consumer as it’s recovery is not smooth transaction the fact that the collateral they use are home furniture’s and some time employer’ concerned this bring fear among borrowers and also institution , targeted poorest people are not able to access credit for claims of geographical and socio economic factor for MFI’s not able to reach them at large; remoteness is fact but also repayment capacity of these projected clients like in rural areas. Inaccessibility of credits in areas and nature of competition and profit oriented with business ideology have made them urban centered mind to the point of loss of clients who uses bank services.

Contribution

The developmental outreach of microfinance institutions is reasonable nowadays which can be accessed through e-banking or known as sim banking/ mobile banking, google apps, telecommunication company services even in the phones so it increases number of borrowers to the easy access to credit. Increase of digital services to borrowers reduce time consuming to loan procedures, it establishes more easily accessible micro loans and other services. Women empowerment is achieved in large number of entrepreneurs are women nowadays. Microfinance institutions boost economy as financial tool to eradicate poverty among urban areas and rural areas, low-income earner are motivated to borrow an start micro enterprises to build their individual / household provision this is baby steps to development.  Competitive market goes with using of technology which open so many unemployment problem and easy access of services and availability of many and different product because of increase of Microfinance Institution and financial services providers. Reasonable and competitive pricing of interest for some MFI’s who use donors and subsidies they offer low interest that benefit customers to encourage other client to apply for credit. Innovative products which have different package like mortgages, leasing of buildings, machines, vehicles and furniture and many other uses for loan.

What should be done?

Most of MFI’s must mobilize savings to client to reduce dependence of international donors which lead to good management of savings and to use them to the loan portfolio and building stable source of fund that expanding operations base on Microfinance institution. There is financial inclusion towards Microfinance institution and borrower or low-income earner to overlook individuals and micro enterprises to access financial services according to income level that maybe useful and affordable financial products and services that meet their needs to smooth transactions, suitable payment methods and approaches, potential savings, available and accessible credit, and insurance to be delivered in a responsible and sustainable technique like online.

Return to basics of Micro finance purpose; the idea of microfinance is to provide financial services to poor households, microenterprises, women, and youth so as government to reach the goals. There notion says “Poor people need not just loans but also savings, insurance and money transfer services.”

Coping with economic and political environment; economic policies like millennium development goals and sustainable development goals these change in time with political interest of the country. Monetary policy has been accommodative to support credit and economic growth, as it was supportive to poverty eradication as goal number one and decent work and economic growth. Microfinance institutions needs to consider the political environment when creating business strategies. The entire political environment includes looking at government policies and the risk and instability of current political factors and current political party in power, the degree of politicization effectiveness and efficiency of the current government, government policies, current legal framework, the public attitude towards the economy.

Professionalism: expertise in Microfinance institution is very important that can make industry is moving very fast as India’s microfinance sector is fragmented with more than 3000 microfinance institutions in India are estimated to account for almost 74 per cent of the total loans outstanding. The work of expertise it means put right person for right job with standards, awareness, and practises in microfinance sector.

The verdict

Upon the creation of microcredit by Bangladeshi social entrepreneur Muhammad Yunus in 1983, microfinance was simultaneously created. In 1983, Yunus established Grameen Bank in Bangladesh. The goal of Grameen Bank was to initially provide small loans to entrepreneurs. When the movement gain momentum globally: Tanzania 1980’s adopted Microfinance institution as the proper tool to reduce poverty, allowing poor citizens from lower socio-economical classes to participate in the building of country’s economy. Microfinance is a government strategy used to help Tanzanians to fight poverty by providing a variety of financial services to poor and low-income individuals who do not have access to banking and related services for the growth of economy to household level.

Women’s Empowerment in Accessing Financial Services

By Marina Joseph – Art in Tanzania internship

World Bank views financial inclusion as means that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit, and insurance – delivered in a responsible and sustainable way. Financial inclusion expands access to efficient financial services. Achieving inclusive growth means promoting often overlooked groups of people in the society such as women and poor people as they disproportionately face access to quality financial services. Empowering such groups helps increase participation in the economy and their standard of living improves simultaneous 

Women’s World Banking (WWB) is a global network comprised of 39 leading microfinance institutions from 27 countries. The network members are diverse in geography, size, and structure but united in the firm belief that microfinance must remain committed to women as clients, innovators, and leaders. In 2009 WWB was asked to review proposals by the G-20 Financial Inclusion Expert Group which they gladly did as it was an acknowledgement that women face different or additional barriers to entry in accessing finance.

WWB offered 9 suggestions to financial institutions interested in increasing access to finance for poor and low‐income women. The following are the suggestions

  1. Time: Acknowledge constraints on women’s time and mobility
  2. Confidentiality: Give women the choice of who they want involved in financial transactions
  3. Product design: Accommodate all levels of literacy in product design and marketing
  4. Documentation and collateral requirements: Be sensitive to the fact that requirements for documentation and collateral may exclude women  
  5. Loan size: Give women access to a range of loan sizes and structures  
  6. Accounting for cultural norms: Tailor marketing strategies to reach women
  7. Branding: Create a brand position that honors women  
  8. Institutional Culture: Ensure gender positive interactions
  9. Moving beyond credit: Offer a full suite of financial products  

World Bank’s empowerment sourcebook, ‘empowerment is the expansion of assets and capabilities of poor people to participate in, negotiate with, influence, control, and hold Empowering Women through Microfinance: Evidence from Tanzania 36 accountable institutions that affect their lives’. In a developing country such as Tanzania financial inclusion for women can have transformative effects. Tanzania’s policy makers have made steps in creating an enabling environment for women’s financial inclusion. 

In 2006 Alliance for financial inclusion (AFI) mentioned efforts that Tanzania is a country is undertaking to bridge that gap. The following are some of the existing and expanding policies to achieve that

Financial inclusion data disaggregated by gender 

The Bank of Tanzania has expressed its intent to collect sex disaggregated data and is in the process of expanding its financial inclusion database collecting data similar to Findex 2014. As a country it has developed policies based on FinScope surveys in 2006, 2009 and 2013, which provide financial inclusion data broken down by gender. A new FinScope survey will be conducted in 2016 and is expected to have an even stronger influence on policy direction.

  • Development of financial infrastructure

Significant progress and development have been made by Tanzania in developing payment infrastructures that are effective alongside its regulatory framework for mobile money. These infrastructures help in building information based on women as clients so they can be better served.  

  • Women’s financial inclusion as an explicit policy objective with quantitative targets

Tanzania’s 2013 Framework gives priority to poor rural households and their enterprises, including low-income women and youth, without specifying gender targets. Following the high-level conference on women’s financial inclusion held in Yamoussoukro in August 2015 and the 7th AFI Global Policy Forum (GPF) held in Maputo in September 2015, the Bank of Tanzania decided to introduce gender targets and indicators in the revised measurement framework, with the possibility of integrating gender issues into the Financial Inclusion National Framework itself ( Alliance for Financial Inclusion, 2016). 

  • Financial consumer protection regulation

The Financial Inclusion National Council recognizes the importance of financial consumer protection which has been emphasized with the growth of digital financial services. The Bank of Tanzania sees consumer     protection as particularly important for women as they are considered to be more vulnerable to the environment.