FACTORS AFFECTING GROWTH OF MICROFINANCE

INSTITUTIONS IN TANZANIA: THE CASE OF MOROGORO

URBAN DISTRICT

By
Natalia Hamson Ghikas

A Dissertation Submitted in Partial Fulfilment of the Requirements for Award

of the Degree of Master of Entrepreneurship of Mzumbe University
2013
 CERTIFICATION

We, undersigned, certify that we have read and hereby recommend for acceptance by
the Mzumbe University, a dissertation entitled Factors Affecting Growth of
Microfinance Institutions In Tanzania: The Case of Morogoro Urban District,
in Partial Fulfillment of the Requirements for award of the degree in Master of
Science in Entrepreneurship Development of Mzumbe University.

................................................
Major Supervisor

................................................
Internal Supervisor

Accepted for the Board of.......................................

.....................................................................................................................................
DIRECTOR, DIRECTORATE OF RESEARCH, PUBLICATIONS, &
POSTGRADUATE STUDIES

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 DECLARATION AND COPYRIGHT

I, Natalia Hamson Ghikas, declare that this thesis is my own original work and that
it has not been presented and will not be presented to any other university for a
similar or any other degree award.

Signature ___________________________

Date________________________________

This dissertation is a copyright material protected under the Berne Convention, the
Copyright Act 1999 and other international and national enactments, in that behalf,
on intellectual property. It may not be reproduced by any means in full or in part,
except for short extracts in fair dealings, for research or private study, critical
scholarly review or discourse with an acknowledgement, without the written
permission of Mzumbe University, on behalf of the author.

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 DEDICATION

I dedicate this dissertation to my beloved son Tevin Thomas and to my lovely

mother Filmedia Ghiksa for their support and encouragement during my study.

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 LIST OF ABBREVIATIONS

MDGs Millennium Development Goals

NGOs Non- governmental organizations
SACCOS Savings and Credit Corporative Societies
VIKOBA Village Community Bank
NMB National Microfinance Bank
PTF Presidential Trust for Self-Reliance
SIDO Small Industries Development Organization
SEDA Small Enterprise Development Agency
MFIs Microfinance institutions
UNDP United National Development Programme
WB World Bank
URT United Republic of Tanzania
UN United Nations
REPOA Research on Poverty Alleviation
NGO Non-Governmental Organization
MMC Morogoro Municipal Council
US United States
IGA Income generating activities
FINCA Foundation for International Community Assistance
PRIDE Promotion of Rural Initiative and Development Enterprises
NSGRP National Strategy for Growth and Reduction of Poverty
MEDA Micro Enterprise Development Agency
USD United States of Americas Currency (Dollar)
TZS Tanzanians Currency (Shilling)

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 ACKNOWLEDGEMENT

I put the name of the Almighty God above everything that deserves space in this
acknowledgement, for his blessing and guidance that has always been the core of my
academic and non-academic success.

The accomplishment of this work has been contributed by many generous individuals
without whom this work wouldn‟t be complete. This report is a result of these
individuals and it becomes impossible to acknowledge their contributions by
mentioning everyone individually by names, though few among them need to be
mentioned; I am pleased to convey my sincere thanks to Mr. Deogratius Kibona, my
major supervisor for his constructive guidance throughout research work process.

I am indebted to acknowledge the contributions from various respondents from

different categories for their tireless cooperation regardless of many duties and
commitments they had. I acknowledge the management of Morogoro Urban District,
I am also obliged to appreciate the contribution to my family members who have
been waiting me at home. I am particularly thankful to my dear Mom Filmedia
Ghikas and my Lovely Son Tevin Thomas who have been patiently waiting for my
home coming. To them I say „Thank you, May God Bless You‟

Lastly I appreciate the encouragement, moral and material support from my beloved
friends and all family members which enhanced me to accomplish the programme.

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 ABSTACT

The level of poverty in Tanzania is relatively high. Access to finance is cited as one
of factors hampering economic growth and poverty alleviation. Microfinance is seen
as one of the effective tootls that can address poverty alleviation by engaging the
poor in sustainable economic activities. Microfinance services have existed in
Tanzania since the late 1990s, yet they have not attained growth. The main providers
of microfinance services consist mainly of Micro-lenders, Non-Govermental
Organizations (NGOs), Savings and Credit Cooperative Societies (SACCOS), Public
Financial Institutions (PFI) and to a less extent Commercial Banks (CB).

This research report aimed to study and identify the factors that inhibit growth in the
microfinance sector in Tanzania by measuring the perceptions about such issues
among Micofinance Institutiond (MFIs) in Tanzania.

The findings of this study revealed that lack of regulatory and policy framework,
lack of capital and high operational costs were the main problem areas hampering the
growth of MFIs in Tanzania. Microfinance clients have increased their incomes,
capital invested and therefore expansion of their businesses. Despite these
achievements it was further observed that, some conditions like grace period for loan
repayment, collateral and microfinance coverage have been limiting factors for poor
people to access the microfinance services. The most important include the
educational levels of clients, lack of capital to lend to clients and staff related
incentives and skills development. These findings indicate phenomena that deserve
consideration from legislators. Also prominent is the dual nature of the finance
sector, with the conventional banking institutions experiencing factors differently to
the Savings and credit Cooperative Societies (SACCOs), which by their nature have
a lower cost structure and have better information about their own clients, but lack
sufficient access to loan capital.

The study made recommendations which are aimed at enhancing the growth of
microfinance institutions.

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 TABLE OF CONTENTS

CERTIFICATION.................................................................................................................. i
DECLARATION AND COPYRIGHT .............................................................................. ii
DEDICATION ...................................................................................................................... iii
LIST OF ABBREVIATIONS ............................................................................................ iv
ACKNOWLEDGEMENT ................................................................................................... v
TABLE CONTENTS .......................................................................................................... vii
LIST OF TABLE.................................................................................................................. xi
LIST OF FIGURE ............................................................................................................... xii

CHAPTER ONE .................................................................................................................. 1

INTRODUCTION ............................................................................................................... 1
1.0 Introduction ...................................................................... Error! Bookmark not defined.
1.1 Background to the Problem ........................................................................................... 1
1.2 Statement of the Problem............................................................................................... 4
1.3 Objectives of the Study .................................................................................................. 6
13.1 General Objective ......................................................................................................... 6
1.3.2 Specific Objectives ...................................................................................................... 6
1.4 Research Questions ....................................................................................................... 6
1.5 Scope of the Study .......................................................................................................... 7
1.6 Significance of the Study ............................................................................................... 7
1.7 Delimination of the Study............................................................................................. 8

CHAPTER TWO ................................................................................................................ 9

LITERATURE REVIEW ................................................................................................. 9
2.0 Introduction .................................................................................................................... 9
2.1 Theoretical Literature Review....................................................................................... 9
2.1.1 The Concept of microfinance..................................................................................... 9
2.1.2 Microfinance institutions .......................................................................................... 10
2.1.3 Loan Recovery ........................................................................................................... 11

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2.1.4 Corruption................................................................................................................... 11
2.1.5 Collateral..................................................................................................................... 12
2.1.6 Outreach ..................................................................................................................... 12
2.1.7 Micro and Small Enterprises ................................................................................... 13
2.1.8 Microfinance Policy ................................................................................................. 13
2.1.9 Types of Services and Products Offered By Microfinance Intitutions.................14
2.1.10 The Link between Microfinance and Poverty Alleviation ...................................15
2.2 Microfinance performance indicators ........................................................................ 15
2.3 Empirical Literature Review ....................................................................................... 18
2.4 Conceptual Framework and research model ............................................................ 20
2.5 Summary and Gap ....................................................................................................... 22

CHAPTER THREE .......................................................................................................... 23

RESEARCH METHODOLOGY .................................................................................. 23
3.0 Introduction .................................................................................................................. 23
3.1 Research Design............................................................................................................ 23
3.2 Study Area .................................................................................................................... 23
3.3 Study Population ........................................................................................................... 24
3.4 Units of Analysis, Variables and their Measurements ............................................. 24
3.5 Sample Size and Sampling Techniques ..................................................................... 25
3.5.1 Sample Size ................................................................................................................ 25
3.5.2 Sampling Techniques ................................................................................................ 25
3.5.3. Sampling Procedure ................................................................................................. 25
3.6 Types and Sources of Data .......................................................................................... 26
3.7 Data Collection Methods ............................................................................................ 27
3.8 Validity of the Instruments for Data Collection ....................................................... 27
3.9 Data Analysis and Presentation Methods .................................................................. 27

viii
CHAPTER FOUR ............................................................................................................. 29
PRESENTATION AND ANALYSIS OF FINDINGS .............................................. 29
4.0 Introduction ................................................................................................................... 29
4.1 Gender Distribution of the Respondents .................................................................... 29
4.4 Nature of Microfinance Intitutions Customers ...........................................................30
4.2 Age Brackets of the Respondents ............................................................................... 31
4. 3 Educational level of clients ........................................................................................ 32
4.4 Contribution of IGA to the development of Microfinance Institution ................. 34
4. 5 Contribution of Micro Finance Institutions on Peoples Standard of Living ........ 35
4.5.1 Increases in Personal Income .....................................................................................36
4.5.3 Employment Opportunities ........................................................................................36
4.5.4 Increase in Literacy rate..............................................................................................36
4.5.5 High Mortality rate ......................................................................................................37
4.4 Introduction of 82 VICOBA and 64 SACCOS in the Morogoro Urban District.38
4.5 MFIs Best Practice and Financial Sustainability ...................................................... 38
4.6 Microfinance Efficiency and Financial Sustainability............................................. 38
4.7. Respondents Working Experience ............................................................................ 39
4.8 Responses received from the sampled MFIs........................................................... 40
4.7 Performance trends ...................................................................................................... 41
4.8 Marketing issues .......................................................................................................... 41
4.8.1 Lack of information about clients ........................................................................... 41
4.8.2 Client focus................................................................................................................. 42
4.8.3 Low population density ............................................................................................ 42
4.8.4 Skilled staff................................................................................................................. 43
4.8.5 High operational costs ............................................................................................. 44
4.8.6 Portfolio quality ......................................................................................................... 45
4.9 Capitalisation issues ..................................................................................................... 45
4.9.1 Availability of capital to lend to clients.................................................................. 45
4.10 Strategic issues ........................................................................................................... 46
4.10.1 Regulatory and Legislative framework ................................................................ 46
4.11 Correlation of Problems from the Survey ............................................................... 48

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4.11.1 Marketing issues ...................................................................................................... 48
4.11.2 Capitalisation issues ................................................................................................ 48
4.11.3 Operation issues ....................................................................................................... 48
4.11.4 Strategic issues......................................................................................................... 48
5.12 General Conditions Applicable to Loan Agreements, Guarantee and Counter-
guarantee.................................................................................................................................49
5.12.1 Currency ........................................................................................................... 49
5.12.3 Interest rates ..................................................................................................... 49
5.12.4 Situation of the Customer to get loans ............................................................. 49
5.3 Contribution of the Loans to the Market Actives .................................................... ..50
4.12 Summary ........................................................................................................ ...50

CHAPTER FIVE ...................................................................................................... 52

CONCLUSION, POLICY IMPLICATIONS AND RECOMMENDATIONS
.................................................................................... Error! Bookmark not defined.
5.0 INTRODUCTION .............................................................................................. 52
5.1 CONCLUSIONS .................................................. Error! Bookmark not defined.
5.2 POLICY IMPLICATIONS AND RECOMMENDATIONS .... Error! Bookmark
not defined.
REFERENCES........................................................................................................... 62
APPENDICES ........................................................................................................... 65
APPENDIX I.............................................................................................................. 65

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 LIST OF TABLES

Table 3.1 Customers interviewed (by gender) ........................................................... 31

Table 4.1 Age of the respondents (30 IGAS groups = N=90) ................................... 31
Table 4.2 respondents levels of education (N=90) .................................................... 33
Table 4.3: Increases in Production ............................................................................. 36
Table 4:3 Respondents working experience .............................................................. 40
Table 4.4 Responses received from the sampled MFIs.............................................. 41
Table 4.5: Geographic profile of sampled MFIs ........................................................ 43

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 LIST OF FIGURES

Figure 2.2: The Critical Microfinance Triangle ......................................... ................17

Figure 1. Conceptual Framework and research model on the factors affecting growth
of.................................................................................................................................21
Figure 4.1 Gender distributions of the respondents ........................................ ...........30
Figure4. 3: Contribution of Micro Finance Intitutions on Peoples Standard of Living
.................................................................................................................................... 35

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 CHAPTER ONE
INTRODUCTION

1.1 Background to the Problem

There are many types of microfinance institutions depending on structure, function
or philosophy. In many instances, the microfinance market is segmented according to
the clients involved that is, micro-enterprises, women, agriculturalists and so on. A
main goal of many micro finance institutions is to provide sustainable micro finance
facilities to the poor to facilitate income generation and reduce poverty (Baumann,
2001). The genesis of this is that the poor lack access to financial services, credit and
savings facilities.

The goal of microfinance institutions as development organizations is also to service

the financial needs of the unreached markets as means of meeting development
objectives (Ledgerwood, 1999). The development objectives generally include
reduction of poverty, empowerment of the poor and other disadvantaged groups,
employment creation, development of new businesses and helping existing
businesses to grow by diversifying their activities. In a world bank study of lending
for small and micro enterprise projects, three objectives of microfinance institutions
that were most frequently cited were, to create employment and income opportunities
through the creation and expansion of micro enterprises, increase the productivity
and incomes of vulnerable groups especially the poor and women, as well as reduce
rural families dependence on drought prone crops through the diversification of their
income generating activities (Webster et al, 1996).

The microfinance revolution was introduced into the development economics arena
slightly more than two decades ago. However, the widespread adoption of the
microfinance model did not occur until the early 1990s. Since the mid 1990s,
microfinance programmes and institutions have become an increasingly important
component of strategies to promote micro-enterprise development in developing
countries and specifically to reduce poverty (Colin, 2006).

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Micro finance can be defined as a development tool used to create access for the
economically active poor to financial services at a sustainably affordable price
(CBN, 2005). Eluhaiwe (2005) opined that micro finance is the provision of thrift,
credit and other financial services and products in very small amounts to the poor to
enable them to raise their income levels and improve their standard of living.

Micro finance has also been defined as the provision of very small loans that are
repaid within short period of time and is essentially used by low income individuals
and households who have few assets that can be used as collateral (Ukeje, 2005).

United Nation in 2005 defined microfinance as basic financial services, like credit,
savings and insurance, which give people an opportunity to borrow, save, invest and
protect their families against risk (UN, 2005). This definition was used in the context
of microfinance and the Millennium Development Goals (MDGs). It was therefore
observed that microfinance promotes not only credit, but also inculcates savings that
accumulate assets for poor people.

Micro finance is basically a tool designed to improve the capacities of the

economically active poor to participate in the larger economy. The economically
active poor are either micro entrepreneurs who operate in the informal sector
(trading, farming, food catering, craftsmanship and artisanship) or people earning
wages. Such poor people earn their living in either rural or urban areas; and the
financial services for which access is sought are mainly savings and loans (Idolor,
2007).

Micro finance is about providing financial services to the poor who are traditionally
not served by the conventional financial institutions. Many features distinguish micro
finance from other formal financial products. Five of these are: the smallness of
loans advanced or savings collected, the absence of asset-based collateral, and
simplicity of operations (Kimotha, 2005). Others are its targets as the marginalized
group of borrowers, and its general employment of a group lending approach
(Igbinedion and Igbatayo, 2004).

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The main microfinance institutions in Tanzania can be categorized as Non-
governmental organizations (NGOs), Cooperative based institutions namely
SACCOS and SACCAs while the third category is banks. The major players in the
NGOs category include PRIDE Tanzania, FINCA (Tanzania), Small Enterprise
Development Agency (SEDA) and Presidential Trust for Self-Reliance (PTF).
Others, which are relatively smaller in size, include Small Industries Development
Organization (SIDO), YOSEFO, SELFINA, VICOBA, Tanzania Gatsby Trust,
Poverty Africa and the Zanzibar based Women Development Trust Fund and Mfuko.
There rest consists of very tiny programmes scattered throughout the country mainly
in the form of community based organizations (CBOs). Banks that are actively
involved in microfinance services delivery include the National Microfinance Bank
(NMB), CRDB bank, Akiba Commercial Bank (ACB) and a few
Community/regional banks namely, Dar es Salaam Community Bank, Mwanga
Community Bank, Mufindi Community bank, Kilimanjaro Cooperative Bank,
Mbinga Community Bank and Kagera Cooperative Bank.

It is estimated that all the MFIs in Tanzania put together serve a combined client
population of about 400,000 SMEs, which is only around 5% of the total estimated
demand. Commercial banks including community banks account for around 50,000
while the NGO category accounts for the an estimated population of 220,000 clients.
PRIDE Tanzania being the largest single player accounts for about 29% of the
market share in this category or 16% of the existing total market share. Microfinance
institutions (MFIs) have therefore become the main source of funding for micro
enterprises in Africa and in other developing regions (Anyanwu, 2004).

Microfinance institutions have become an important contributor to the Tanzanian

economy. The sector contributes to the national objective of creating employment
opportunities, training entrepreneurs, generating income and providing a source of
livelihood for the majority of low income households by financing the businesses
that they run. The government and its development partners have spent considerable
amount of resources in crafting policies and programs to build the growth of micro

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finance institutions. However growth of microfinance institutions in Tanzania to date
has been largely unsatisfactory.

1.2 Statement of the Problem

Provision of microfinance services that can have a sustainable impact on clients well
being and reduced vulnerability is not an easy endeavour. Microfinance institutions
face many risks that can adversely affect their long term growth, operational and
financial sustainability (Jeyanth, 2003).
With regard to sustainability and growth, a study conducted by Omondi (2005)
revealed that few microfinance institutions had attained sustainability and growth
and had sound financial cost control and good loan portfolios. A good number of
microfinance institutions had not attained financial stability and growth and were
relying on subsidies from donors.

Growth in the microfinance industry may be characterized by an increase in the

breadth and depth of outreach of existing microfinance institutions, heightened
competition among microfinance service providers, diversification of product and
service offerings, and the presence of private and commercial funds for microfinance
activities.

There is little information on a standard blueprint to show us how to achieve these

characteristics and to ensure the growth of the microfinance industry. To a large
extent, the growth should be market driven and is yet to be achieved (Amando,
2005).

Tilman, (2006) highlighted that although microfinance activity has increased

considerably in recent years, significant growth was lacking and microfinance
institutions are still far from reaching a significant portion of the population that
lacks access to formal financial services.

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More than one out five people in the world - about 1.4 billion people - are regarded
as living in poverty. In Africa, the figure in proportion to the world‟s figure is even
higher. Having been in existence over the last twenty years, microfinance is seen as
one of the most effective tools to fight poverty in Africa. (Biekpe, 2007:1).

The above statement demonstrates the significance of microfinance as a potential

tool for poverty alleviation. Notably, increased attention has been paid in recent
years to what microfinance entails, its objectives, its successes and limitations and its
linkage to poverty alleviation. Microfinance entails the provision of credit, savings,
and other basic micro-financial services to the poor and lower income clients, who
do not have access to credit from conventional banks (Robinson, 2001:11).
Microfinance is thus recognised as one of the tools that enhance the capability of the
poor to engage in sustainable productive activities, leading to poverty reduction and
improved social welfare (Adjasi & Coleman, 2006:2).

Microfinance has a dual goal, that of attaining financial sustainability and reducing
poverty, simultaneously. The aspect of sustainability is crucial in poverty alleviation
because in order to have a long term impact, microfinance services should be
provided on a continuous basis (Innovations in Microfinance 2000:2).

Further, studies conducted in Tanzania have shown that even though the
microfinance sector has been growing over the past few years, majority of the
individual institutions have not experienced much growth (TAMFI, 2005). Moreover
much of growth of the microfinance institutions has been spontaneous (TAMFI,
2005). It is therefore against this background that the aim of the study is to assess
factors affecting the growth of micro-finance institutions in Tanzania.

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1.3 Objectives of the Study
13.1 General objectives
The general objective of this study was the assessment of the factors affecting
growth of Microfinance institutions in Tanzania.

1.3.2 Specific objectives

(i) To determine the relationship between the rate of competition and growth of
Microfinance institution. The increased competition in Microfinance sector in
Tanzania has resulted in improved quality and quantity of financial services
and product (Limbu, 2002)
(ii) To assess the impact of effective loan recovery to the growth of microfinance
institution.
(iii)To determine the impact of corruption between client and loan officer to the
growth of microfinance institution.
(iv) To assess the relationship between the value of collateral and the growth of
microfinance institution.

1.4 Research Questions

(i) What is the relationship between the rate of competition and growth of
microfinance institutions?
(ii) What is the impact of effective loan repayment to the growth of microfinance
institutions?
(iii)What is the impact of corruption to the growth of microfinance institutions?
(iv) What is the relationship between the value of collateral and the growth
microfinance institutions?
(v) What are the key problems hampering the growth and sustainability of
Microfinance Institutions in Tanzania?

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1.5 Scope of the Study
Microfinance institutions have a wide coverage in both rural and urban areas of
Tanzania. This study focuses on microfinance institutions operating in Tanzania
which provides both urban and rural population a means to have access to financial
services in their localities to boost their living standards in a sustainable manner in
line with the millennium development goals of alleviating poverty in Tanzania.

To cover all the regions in the entire country will be impossible because of the
limited time frame and financial aspect required for this research. For this reason, the
study therefore will be limited to the registered microfinance institutions found in
Morogoro Municipality where the factors affecting growth of microfinance
institutions will be assessed.

1.6 Significance of the Study

This study will benefit a number of groups among them managers of microfinance
institutions who will use the study to gain an insight into factors that affect the
growth of their businesses and how. This will in turn help them develop modalities to
mitigate those factors that adversely affect the business and enhance those that
promote growth of their microfinance institutions.

The government too will benefit from this study. The government will use the
findings of this study to craft appropriate policies that would promote the growth and
stability of the microfinance institutions.

Further the findings will help the Tanzanian government's development partners,
NGO's, Donor communities and other stakeholders to effectively and efficiently
target their assistance to the microfinance sector.

Moreover, microfinance strategists, policy makers, aspiring microfinance

researchers, university and college students pursuing a career in entrepreneurship or
microfinance spheres will also benefit.

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The great importance to the growing microfinance subsector that affects the majority
of the populations in the developing countries in many ways. If the sector is made
more robust and relevant to the needs of the poor, its impact will probably be
doubled. The experiences of regulating microfinance business across the world
indicate a number of challenges that face target institutions and regulators (Sinha &
Sagar, 2007; Sinha, 2007).

It is hoped that the study will add value in the following areas: It will broaden the
knowledge on the transformation process that microfinance institutions are subjected
to by regulating their operating activities. It will help provide policy makers with
detailed and classified information about the effects of regulating microfinance in
Tanzania. It will help highlight some of the experiences that could help policy
makers to improve on the regulation process. It will create curiosity among
researchers and prompt them to do more research in this field in Tanzania and in
other countries.

1.7 Delimination of the Study

The scope of the study was limited to registered microfinance service providers in
Tanzania. This study was conducted from the perspective of the microfinance
providers, hence the impact of the microfinance services from the viewpoint of the
MFIs clients, would not form part of this research report.

As noted earlier, the Tanzanian microfinance sector is still in developmental stages

and there is no central body to synchronise the MFIs activities, thus the availability
of data on microfinance is very limited. The information for this study was mainly
gathered from the Morogoro Urban District of the microfinance institutions based in.
For that reason, the quality of the research finding was not affected significantly as
critical data were held at the Morogoro Urban District.

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 CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
This chapter presents a review of various literature materials related to the study. It
extensively looks at the conceptual framework and research model related literature
review, summary of gaps to be filled by the study and hypothesis of the study. This
review also highlights past literature that relates to this study, summary of gaps to be
filled by the study.

2.1 Theoretical Literature Review

This section provides a clear definition of terms and concepts that are used in this
work. It aims at avoiding misunderstandings and should help the reader understand
the basic conceptions on which this research work was based.

2.1.1 The Concept of microfinance

Microfinance is usually entail the provision of financial services to micro-
entrepreneurs and small businesses that lack access to banking and related services
due to the high transaction costs associated with serving these client categories. The
two main mechanisms for the delivery of financial services to such clients are either
relationship-based banking for individual entrepreneurs and small businesses; or
group-based models, where several entrepreneurs come together to apply for loans
and other services as a group.

In an effort to put the concept of microfinance into perspective, an extension to the

definition of microfinance pointed out earlier in the study is presented in the
following section. Robinson (2001:9) refers to microfinance as all types of financial
intermediation services (savings, credit funds transfer, insurance, pension
remittances, etc) offered to low-income households and enterprises in both urban and
rural areas, including employees in the public and private sectors and those who are
self employed. Mukama (2005:10) says that the Women's World Banking defined
MFIs as organisations that provide:

9
 i) Financial services to a significant number of people;
ii) Microfinance service that is efficient and financially sustainable;
iii) Services that have a high impact on reducing the poverty of clients
integrated into domestic financial systems, through savings mobilisation as
well as through mobilising funds from commercial sources.

Carlton et al., (2001:20) state that MFI clients tend to cluster around the poverty line
and most beneficiaries of the MFI services are neither poor nor affluent and tend to
come from households that usually meet their daily needs. However, in order to serve
the poor clients, it is necessary to classify them based on their level of poverty
instead of treating them as an undifferentiated, homogeneous group. The segregation
of the poor will ease the burden of the poor in terms of repayment especially because
most MFIs require sustained, regular repayments which can prove to be challenging
to households with seasonal or variable income, which is normally the case with the
poor (Davis 2005:6).

2.1.2 Microfinance institutions

Microfinance institutions are organisations which provide financial services to
micro-entrepreneurs and small businesses that lack access to banking and related
services due to the high transaction costs associated with serving these client
categories.

Ayayi & Yusupov (2008:2) note that micro credit is only applicable to poor people
with at least some minimum level of entrepreneurial skills. They base their argument
on the premise that funds are to be repaid and thus the loans should be accessible to
those who can engage in income generating activities. Offering loans to
economically active people will likely result in high repayment rates and
consequently lead to increased levels of MFI efficiency.

10
2.1.3 Loan Recovery
Loan recovery is the process of repaying back amount of money to the lender.
Typically, the money is paid back in regular installments, or partial repayments; in an
annuity, each installment is the same amount.

The loan is generally provided at a cost, referred to as interest on the debt, which
provides an incentive for the lender to engage in the loan. In a legal loan, each of
these obligations and restrictions is enforced by contract, which can also place the
borrower under additional restrictions known as loan covenants.

Ledgerwood (1999:2) states that the field of microfinance has evolved since the
1980s as donors are supportive of microfinance activities, concentrating on MFIs that
are striving to achieve extensive outreach and financial sustainability, especially
those programmes with focus on poverty reduction. The drive for the achievement of
financial sustainability has led to the current "financial systems" which are guided by
the following principles:
i) Subsidized credit undermines development;
ii) Poor people are able to pay interest rates required to cover transaction
costs and the consequences of the imperfect information markets in which
lenders operate;
iii) The attainment of sustainability is the key not only to institutional
permanence in l ending, but also to enhance the focus and efficiency of
the lending institutions;
iv) The loan sizes to poor people are small, for that reason, MFIs must
achieve sufficient scale if they are to become sustainable; and
v) The accuracy in measuring enterprise growth, as well as impacts on
poverty, cannot be demonstrated easily, therefore outreach and repayment
rates can be proxies for impact.

2.1.4 Corruption
Corruption is commonly defined as the abuse of official power for private gain or,
more generally, the misuse of a position of trust (within administration, private and

11
public companies or politics) for a dishonest personal benefit. The main forms of
corruption involve bribery, embezzlement, fraud and extortion. Depending on the
focus, corruption may also take very subtle forms, such as attending unnecessary
seminars or conferences implying higher inefficiency within the company or
institution.

In this research corruption will imply that loan officers and managers may make
fictitious loans, transfer funds into their personal accounts, receive bribes or simply
steal cash.

2.1.5 Collateral
Collateral, this is what customers offer as saving so that failure to honor his
obligation the creditor can sell it to recover the loan. It is also a form of security
which the client offers as form of guarantee to acquire loans and surrender in case of
failure to pay; if borrowers do not fulfill their obligations the creditor may seize their
asset (Girma, 1996).According to Chan and Thakor (1987), security should be safe
and easily marketable securities apart from land building keep on losing value as to
globalization where new technology keeps on developing therefore lender should put
more emphasis on it.

2.1.6 Outreach
Outreach refers to the number of clients served (Kereta, 2007:9). Outreach is an
important aspect of microfinance in view of the fact that the fundamental aim of
microfinance is to reach the largest number of unserved poor people who do not have
access to financial services. Limited outreach can impact on the sustainability in
terms of benefits linked to economies of scale.

According to the JCC study (2006:5), it is possible to reach many of the

economically active poor profitably, thereby empowering them to partake in the
mainstream of the economy as a means to poverty alleviation.

12
Moyo (2008:41) points out that for microfinance to attain greater outreach, the MFIs
need adequate funding. Funding would generally be required to cover the cost of
reaching the rural areas where poverty is prevalent. The aspect of funding however
poses a challenge especially for donor dependent MFIs because of the drying out of
donor funds. As such, lack of adequate outreach exposes the MFIs to retard growth.

2.1.7 Micro and Small Enterprises

There is a wide range of definitions for MSEs, but for the purpose of this study, a
MSE is defined as a productive activity either to produce or distribute goods and or
services, mostly undertaken in the informal sector. A typical micro enterprise
employs fewer than five workers, usually family members and has very limited fixed
assets.

A small enterprise on the other hand, employs more than five workers and most of
them are in a formal sector with much higher fixed assets compared to micro
enterprise. According to the Small and Medium Enterprises Development Policy,
small enterprises are formal undertakings engaging between 5 and 49 employees, or
with capital investment ranging from Tshs. 5 million to Tshs. 20 million (URT,
2003).

2.1.8 Microfinance Policy

Microfinance in Tanzania is one of the approaches that the government has focused
its attention in recent years in pursuit of its long term vision of providing sustainable
financial services to majority of Tanzanian population (Rubambey, 2001).

In Tanzania, before the current financial and banking restructuring took place, most
of financial services for rural, micro and small enterprises were offered by the
National Bank of Commerce (NBC) and the Co-operative and Rural Development
Bank (CRDB) (Chijoriga, 2000).

Since 1991, the government has been implementing financial sector reforms aimed at
putting in place a competitive, efficient and effective financial system. Although the

13
reforms have had reasonable success in bringing about the growth of competitive and
efficient mainstream banking sector, it has not brought about increased access to
basic financial services by the majority of the Tanzanians, particularly those in rural
areas (Rubambey, 2001).

The realization of the above shortcoming led to the Government‟s decision to initiate
deliberate action to facilitate alternative approaches in the creation of a broad based
financial system comprising of a variety of sustainable institutions with wide
outreach and offering diverse financial products.

The government‟s choice of microfinance was influenced by the conviction that,

given adequate attention, microfinance has the potential to contribute considerably to
the economic development of the country because it is more adapted to the needs of
the low-income population which makes up the majority of Tanzanians.

2.1.9 Types of Services and Products Offered By Microfinance Intitutions

Microfinance offers both commercial banking and microfinance services and
products to its customers. The microfinance services provided are mainly in the
form of loans and deposit. Loans issued are of different types and they include small
and medium enterprises loans, corporate loans, MFI and Savings and Credit
Cooperatives Societies (SACCOs) loans, personal loans, salaried workers‟ loans and
pensioner‟s loans (NMB, 2008).

Deposit include saving account, business account, bonus account, junior account,
time deposit and short term deposit. Furthermore, NMB and CRDB provide other
products such as NMB mobile, NMB salary alert, trade finance, treasury products,
and guarantees (NMB, 2008).

Other NMB,CRDB,NBC,BOA,KCB and POSTAL Bank services include cheques,

standing orders, foreign exchange and foreign USD, travellers‟ cheques cashing
facilities and co-ordinating bank services for public offers (NMB, 2008).

14
2.1.10 The Link between Microfinance and Poverty Alleviation
Microfinance was initiated to meet different objectives. The most commonly
mentioned objectives include: poverty alleviation and improved living standards,
offering financing to the poor (Harper et al, 1999), women‟s empowerment
(Rahman, 1999), and the development business sector as a means of achieving high
standards and reducing market failure (Chijoriga and Cassimon 1999).

Empirical evidences and surveys give mixed results on the performance of

Microfinance schemes. In some cases debacle stories have been reported, yet there
have been success stories. In other cases the reasons for failures or successes have
not been well documented.

Studies by Mosley (2001), Hassan and Renteria (1997), showed that, linking
Microfinance with other interventions such as poverty alleviation often complicates
the functioning of Microfinance by pushing them to areas not considered sustainable.
This implies that there is a conflict in measuring financial performance and poverty
alleviation.

Most of sustainability indicators focus on the Microfinance as a profitable institution

(loan repayment, profitability and degree of subsidizations). Thus for the
Microfinance program to meet the microfinance best practices, as given by
Consultative Group to Assist the Poorest (CGAP), and be financially sustainable, it
has to regard itself as a business venture. As a consequence of this and especially in
the rural areas, very few people qualify for a business loan.

2.2 Microfinance performance indicators

The microfinance concept is based on the unique foundational principles depicted in
Figure 2.2: below. The principles are financial sustainability, outreach and impact,
which form the basis for microfinance performance evaluation. This highly
interactive workshop targets MFI managers of organisations with different profiles
(legal form, age, size, area of operations,…) within a single region or country, who

15
are keen to get more familiar with the calculation and interpretation of the financial
ratios of their organisation. They will have the opportunity to get an on-site analysis
of key performance indicators and return to their institution with practical and ready
to use tools. It must be stressed that this training is based on the real figures of the
participating MFIs.

We distinguish four major dimensions of social performance as follows:

(i) Outreach to the Poor and Excluded: Mission and Targeting Strategies. MFI
have generally been developed to reach a population excluded from the
classical financial system.

MFIs can have the objective of reaching socially excluded populations or the
poor, or simply to offer financial services in a region where classical banking
systems are absent. The depth of outreach of the MFI can be measured to
evaluate its focus on the economically and socially excluded population.

(ii) Adaptation of the services and products to the target clients. It is not
enough to decide to reach a target population. The MFI must learn about the
target population and work on the design of its financial services so that they
can fit with the needs and the constraints of the clients. “Pro-poor” services
are too often standardized. Social performance indicators can analyse the
process leading to service definition and the extent to which the MFI knows
about its clients‟needs.
(iii)Improving social and political capital of clients and communities. For the
MFI, trust between the MFI and the clients can reduce the transaction costs
and improve repayment rates. It thus can foster collective action and reduce
free-riding, opportunistic behavior, and reduce risks. For the clients,
strengthening their social and political capital can enhance their social
organization (collective action, information sharing, political lobbying, etc.).
Social performance indicators should measure the degree of transparency, the
effort of the MFI towards giving voice to its clients within the organisation
and beyond (community, local government, national government, etc.).

16
(iv) Social responsibility of MFI. Social awareness is a necessary pre-requisite
for socially responsible corporate behavior. Social responsibility requires an
adaptation of the MFI corporate culture to their cultural and socio-economic
context, an adequate human resource policy, credit guarantees adapted to the
local conditions, and balanced relationships between staff and clients (in
particular in MFIs where there are elected clients who participate in decision
making).Social performances of an MFI rely on these four dimensions.
Poverty outreach, shaded in one among the different dimensions of social
performances.

An MFI can choose to focus on one or several dimensions but for a global
overview, social performance cannot be reduced to poverty outreach. Within
these dimensions, several subdimensions can be distinguished, and a number
of questions can be generated for each subdimension. Each question is
measured by an operational indicator.

Figure 2.1: The Critical Microfinance Triangle

Source: Kereta (2007:8)

17
Each principle should have performance criteria which would then form a basis for
evaluation of micro-finance effectiveness (Kereta, 2007:8 citing from Meyer 2002).
For this research report, the performance dimensions are denoted in the "Critical
Microfinance Triangle". It should however be noted that microfinance performance
assessment is multidimensional because these three principles cannot be assessed in
isolation as they all symbolise successful microfinance programmes. The elements of
the "critical microfinance triangle" depicted in Figure 2.2: above are elaborated in the
following section.

2.3 Empirical Literature Review

This chapter presents a review of various literature materials related to the study. It
extensively looks at the factors that affect the growth of microfinance institutions.
This review also highlights past literature that relates to this study, summary of gaps
to be filled by the study, previous research findings, various papers and government
publications. For example, Daffi (2010) who conducted a study in Tanzania
mainland focused on small business operated both on individual and group‟s basis.
However, my study will focus on small business operated only on individual basis
and therefore methodology used will differ too.

Amando, (2005) observed that growth in the microfinance industry may be

characterized by an increase in the breadth and depth of outreach of existing
microfinance institutions, heightened competition among microfinance service
providers, diversification of product and service offerings, and the presence of
private and commercial funds for microfinance activities.

Outreach and sustainability are two critical objectives for microfinance institutions
(MFIs). As defined by Christen et al (1999), outreach is the ability to provide quality
financial services to large numbers of people, especially the very poor. Outreach is
also an indicator of the institution's social mission to scale up and provide services to
as many people as possible. Sustainability, in contrast, requires operating at a level of
profitability that allows sustained service delivery without dependence on subsidized

18
inputs. This represents the institution's commercial strategy. For microfinance
institutions growth is the process of balancing the objectives of outreach and
sustainability; balancing the social mission and the commercial strategy.

Despite the increase in number of MFIs in operation, their growth is constrained,

especially in rural areas, because of their limited resource base and lack of
institutional capacity to provide a wide range of financial services. MFI outreach is
predominantly through group based programmes, which have limited absorptive
capacity for financial resources. The focus of most microfinance institutions is
lending to the informal economy MSEs and often women who are conducting trade
in small goods or providing services (Stevenson, 2007).

Craig (1997) on the other hand observed that many microfinance institutions
experience cycles of growth followed by periods of consolidation where they are
forced to solve operational challenges such as decline in portfolio quality , client
desertion, untrained and burned-out staff, and administrative challenges including
loan processing and information systems.

In addition, many smaller credit programs never experience growth because they
lack the resources; technical and or financial and a commitment to the financial
systems approach.

The focus on making MFIs profitable (financially-sustainable), what Cull et al.

(2009a) called “big leap”, started in the 1980s and 1990s. CGAP (2001) points out
that the essential elements of this approach are competition, regulation and
profitability. The paper explores the Latin American microfinance market where the
commercial approach to microfinance proceeded swiftly. It describes the market as
witnessing rising competition, which leads to market saturation in some countries.
Olivares-Polanco (2005) examines some of the anecdotal and descriptive evidences
that CGAP (2001) presents. He investigates the effect of competition by mainly

19
focusing on outreach (measured by loan size). His findings show that increased
competition results in lower outreach.

Navajas et al. (2003) studied competition in the Bolivian microfinance market by

focusing on two major MFIs (Casa Los Andes and BancoSol), which collectively
havearound 40 percent market share. The results suggest that outcome of competition
is ambiguous since competition leads to innovation thereby expanding outreach.

However, it reduces the ability of lenders to cross-subsidize less profitable smaller

loans. In a similar study, Vogelgesang (2003) examines how competition affects loan
repayment performance for Caja Los Andes. The analysis indicates competition is
related with multiple loan taking and higher levels of borrower indebtedness.

The probability of default is also shown to be high with higher levels of

indebtedness. On the other hand, he argues the probability of timely repayment is
high in areas where there is high competition and high supply of microfinance
services. Thus, the results seem inconclusive.

2.4 Conceptual Framework and Research Model

Conceptual framework is a written or visual presentation that “explains either
graphically, or in narrative form, the main things to be studied – the key factors,
concepts or variables and the presumed relationship among them” (Miles and
Huberman, 1994, P18). Smyth (2004) defined conceptual framework as structured
from a set of broad ideas and theories that help a researcher to properly identify the
problem they are looking at, frame their questions and find suitable literature.

According to sociologists Haralambos and Holborn, (2008) a conceptual framework

enables the researcher to find links between the existing literature and his own
research goals. Researchers use a conceptual framework to guide their data collection
and analysis.

20
In this study conceptual framework developed considers factors affecting growth of
microfinance institutions, services provided and groups targeted by microfinance
institutions. Microfinance sector is very diverse in terms of industrial organizational,
with MFIs organized as credit cooperatives/unions, non-governmental organizations
(NGOs), banks and non-bank financial institutions. This diversity makes it difficult
to choose appropriate conceptual framework thereby complicating the analysis. The
conceptual framework shown in Figure 1 is a description of three components in
relation to factors affecting growth of microfinance institutions.

Figure 1. Conceptual Framework and Research Model

Independent variable Dependent Variable

 Competition Growth of
 Loan recovery
Microfinance
 Corruption
 Collateral Institution

Control variables

 Tax
 Accessibility to
capital fund
 Educationc (level
of staffs & client)

Source: Researchers construct

21
2.5 Summary and Gap
From literature reviewed the information available indicates that the number of
microfinance institutions in Tanzania is gradually increasing and dominant market
players are growing, most microfinance institutions however register slow growth
and further the reasons for this with respect to Tanzania are not conclusive.

Despite their success so far microfinance institutions only reach a fraction of the
estimated underlying demand. There is huge latent demand for micro-credit around
the country. Even though micro-finance bodies are meant to serve those who have
been left out of the formal banking system, there is a growing concern that many
Tanzanians still lack credit facilities.

This is because despite the growing number of microfinance institutions in Tanzania,

their outreach is constrained especially in rural areas, the study therefore seeks to
establish the factors affecting their growth.

22
 CHAPTER THREE
RESEARCH METHODOLOGY

3.0 Introduction
This chapter discuss the research method that applied in carrying out the study. It
cover the research design, study area, study population, units of analysis, variables
and their measurements, sample size and sampling techniques, types and sources of
data, data collection methods, validity issues, and data analysis methods.

3.1 Research Design

Research design is a frame work or plan for the study used as a guideline in
collecting and analyzing data. Research design is the major foundation within which
the research is carried along Kothari (2004), it carries a clear picture that was
reflected in collection, measuring and analysis of data.

This study adopted a case study in finding out the factors affecting growth of
microfinance institutions in Tanzania at Morogoro Urban District. A case study
design was adopted because it is simple, flexible (in terms of data collection,
methods and analysis), less time consuming, not expensive in collecting data and
observing what was real taking place in the unit, it offered an opportunity for
intensive study based on the fact that it provides insights towards an in depth and
breadth information on several variables from which a single study unit is considered
and offer opportunity to provide generalization.

3.2 Study Area

The study is conducted in Morogoro Urban District. Morogoro Urban District is one
of the six districts of the Morogoro Region of Tanzania. It contains the city
Morogoro, capital of the Morogoro Region, and no villages. Morogoro Urban
District covers 260 square kilometres (100 sq mi).[1] It is bordered to the east and
south by the Morogoro Rural District and to the north and west by Mvomero District.
As of 2002, the population of the Morogoro Urban District was 228,863.

23
The Morogoro Urban District is administratively divided into nineteen wards
(Population and Housing General Report, 2002) which include Bigwa, Boma,
Kichangani, Kihonda, Kilakala, Kingo, Kingolwira, Mafiga, Mazimbu, Mbuyuni,
Mji Kuu, Mji Mpya, Mlimani, Mwembesongo, Mzinga, Sabasaba, Sultan Area,
Uwanja wa Ndege and Uwanja wa Taifa.I have choosen Morogoro urban District
because is my home place and because simple, flexible (in terms of data collection,
methods and analysis), less time cosuming, not expensive in collecting data and
observing what was real taking place in the unit.

3.3 Study Population

The target population in this research was microfinance institutions registered and
operating in Morogoro Urban District. (SACCOS, NGOs, Governmental institutions,
banks such as NMB, CRDB,TPB, and Akiba Commercial bank). There are
registered microfinance institutions in Morogoro Urban District, this are the group
of interest. Questionnaires are administered to finance managers of these
microfinance institutions.

3.4 Units of Analysis, Variables and their Measurements

This study used both individual and groups unit of analysis. The group unit of
analysis used to compare the different categories of microfinance institutions found
in Morogoro Urban District that was involved in the study. The individual unit of
analysis used to the Managers of Microfinance institutions. The variable of interest
was age, level of education, gender, marital status, income of respondents, factors
affecting growth of Microfinance institutions, type of services provided by
microfinance institutions and groups targeted by microfinance institutions. The
results was measured in terms of percentages of the data collected from the study
areas regarding factors affecting growth of microfinance, services provided by them
and groups targeted by the institutions.

24
3.5 Sample Size and Sampling Techniques
3.5.1 Sample Size
Data collection may be done on the entire population but this study covers Managers
of Microfinance institutions Specifically, the coverage include managers from
SACCOS, NGOs, Governmental institutions and from banks found in Morogoro
Urban District.

3.5.2 Sampling Techniques

The study used two different sample techniques. First, the study used purposive
sampling which is a non probability sample that conforms to certain criteria for
selecting Managers of Microfinance institutions. Purposive sampling is very useful
since helped to reach targeted samples quickly and it will help to get easily the
opinions of the targeted population. Specifically, the study use a second type of
purposive sampling which is Quota Sampling. Quota sampling used since it
improves the representativeness of the sample especially with other variables in the
population which the researcher has no control of them (Cooper, 1998).

Second, the study used random sampling in choosing wards which will be involved
in the study. Selection criteria will consider the following factors; time frame of the
study, financial resources, coverage of Microfinance institutions, and accuracy of
information, reliability of information and precision of information.

3.5.3. Sampling Procedure

The sampling procedures involve the following steps:
(i) Obtaining the total number of Microfinance institutions in Morogoro Urban
District,
(ii) Selection of Wards is studied. For this study 10 wards was selected,
(iii)Selection of Managers of Microfinance institutions was studied.

25
3.6 Types and Sources of Data
Both quantitative and qualitative data was used. Primary data collected through
structured questionnaires. Secondary data obtained from the following sources:
Ministry of Finance and Economic Affairs, Ministry of Trade and Industries, Bank of
Tanzania and other international sources like UNDP and World Bank will be used to
gather more information for international comparisons.

26
3.7 Data Collection Methods
Data for this study was collected through the following ways:
(i) Structured Questionnaires: This used to collect Primary data from
Microfinance institutions. Questionnaires developed to obtain survey data to
solicit ideas related to the research problem from respondents. The questions
address the research objectives and questions related to the study. Primary
data are those which are collected fresh and for the first time and thus happen
to be original in character (Kothari, 2004).
(ii) Documentation: This involve collecting information and data from existing
surveys, reports and documents.
(iii)Observation: Observation during the fieldwork used mainly to probe issues
beyond those covered in the structured questionnaires and semi-structured
questionnaires.

3.8 Validity of the Instruments for Data Collection

To ensure the validity study that applied the triangulation technique by using
observations, questionnaires and secondary data analysis concurrently and this was
done through piloting of the data collection instruments used to collect data. The data
collection instruments designed in such a way that they measure attitudes and
opinions of respondents towards factors affecting growth of Microfinance institutions
to the maximum degree possible.

3.9 Data Analysis and Presentation Methods

Data analyzed by frequency distribution and percentages to show the frequency of
institutions citing common factors and the percentage of them identifying similar
factors affecting their growth. Data presented in the form of frequency tables,
percentages, pie charts and correlation analysis, so as to establish the relationship of
variables. Correlation analysis was done in order to test some of the assertions
raised. Correlation coefficient used to quantify the strength of association between
the variables as well as testing the significance of relationships.

27
Written explanations was provided to interpret data, to draw conclusions and make
recommendations. According to Cochran (1989) results from research findings are
often presented in these forms.

28
 CHAPTER FOUR
PRESENTATION AND ANALYSIS OF FINDINGS

4.0 Introduction
This chapter presents data as they have been collected and finally data are analyzed.
Data in this study are presented and analyzed according to the research objectives.

4.1 Gender Distribution of the Respondents

The study examined the extent to which Men and women understand and used the
services offered by micro finance institutions using VICOBA as example Figure 4.1
shows the findings.

The findings of this study revealed that male owned business grow slowly compared
to female owned business. Although the results did not evidence statistical
differences on average sales revenue between male owned business and female
owned business, the level of assets and number of employees were different among
these two groups. Different motives of owning and running businesses were also
observed among the groups. In actual fact, females were observed to be risk averse
compared to males. Due to risk averse it is clear that the returns of female owned
business were also expected to be low. The low level of growth of males owned
business also recount to my theoretical base which sees males in developing
countries as a disadvantaged group which are not groomed for opening and running
business.

Here I concur with theoretical explanation that the growth which resulting from
personal needs of the owner managers are socially generated, socially sustained and
socially changed. In this regard, the social relationship explains growth motives of
the business owners. It is from this point that the social environment where the
females grown in developing countries can explain the differences in growth
performance of their enterprises. Despite of the fact that both females owned

29
business and males owned business experienced microfinance interventions; females
owned business demonstrated higher level of growth than males owned business.

Figure 4.1 Gender distributions of the respondents

Source: Field work 2013

From Figure 4.1 it‟s evident that about 52% of the respondents were found to be
females and 48% were males. This is due to the following reasons: - VICOBA is
accepted to women than Men. Most of men are employed in informal sectors and
they do not have time for entrepreneurship, but women are used to stay at home so
it‟s possible for them to engage in entrepreneurships in order to improve the
livelihood. This confirms that the policy of women empowerment "Wanawake
tunaweza tukiwezeshwa" in villages through engaging in IGA is well accomplished.
MKUKUTA 2009

4.2 Nature of Microfinance Institutions Customers

In order to know the nature and categories of Microfinance Institutions clients the
researcher examined a number of respondents in the study area. These included sex
and education level. The study finding shows that, men are the major borrowers
making up 55% of all the Microfinance Institutions borrowers while women
accounted only 45%. Due to the lack of education many women are not able to
secure jobs as a result; women do engage themselves on self employed activities
which necessitate them to borrow from different financial institution so that they can
be able to run their businesses.

30
Table 3: Customers interviewed (by Gender)
Gender Frequencies Percentage
Male 33 55%
Female 27 45%
Total 60 100%
Source: Field work 2013

4.3 Age Brackets of the Respondents

The study also examine the age of the respondents to know the age group that most
accesses Microfinance Institution services a good example of VICOBA.
[

Table 4.1 Age of the respondents (30 IGAS groups = N=90)

Age N Percent
18-35 years old 38 42.2
36-49 years old 44 48.9
50 and above years old 8 8.9
Total 90 100.0

Source: Field work 2013

From the above table, nearly 48.9% represent age brackets of (36-49), 42.2 %
represent age brackets of (18-35), 8.9% represent age bracket of 50 and above.
This implies that majority of the respondent were in age bracket of (36-49), this age
group is mature enough, dynamic, enterprising and risk taking age. They are able to
support themselves and increase their IGA‟s hence improve their status of life. Not
only the above factors but also the 36-49 age is the productive and reproductive age
as the result their response on IGA can support well development of VICOBA in
Morogoro Urban District. The above age is the time which was reported in many
fields for example the implementation of TASAF projects in all phases reported by
TASAF head office states that the major implementers of the projects their age range
between 15 – 45 years (TASAF Report 2010)

31
4. 4 Educational level of clients
Another characteristic that was considered was education level due to the fact that a
certain level of understanding is required for one to access and analyze the relevance
of loans towards poverty reduction. Again, most of the real poor people are illiteracy
or with low level of education as a result the researcher used this characteristic to
determine whether the real poor are met with banks services particularly, loans
facilities.

The researcher obtained the information concerning the education level of the
Microfinance customers through documentary review whereby uses different
Microfinace Intitutions documents to get this information such as loan application
forms as well as opening account forms.

The survey revealed that the educational level of clients, especially in terms of
financial literacy and business management, was another challenging aspect to
sustainability of MFIs in Tanzania. In most cases the clients do not have prior
exposure to the formal financial sector. They lack necessary skills and know-how
requisite in operating a business.

Issues of importance are to ensure that clients understand the financial liability and
loan contract to ensure repayment. Increasing repayments of loans will eventually
lead to growth of the MFIs because the repaid funds can serve as capital for future
lending.

An additional constraint to the growth of MFIs in the view of the researcher, is the
lack of innovation among the clients. The loans obtained from the MFIs are mainly
utilized for consumption and income generating activities such as hair salons,
tailoring and other small trading activities. This does not really translate in real
business growth. Always education is the key in every life of any people or
community. The research was not living apart this element. In the Morogoro Urban
District the level of education particularly for those who are the implementers of

32
entrepreneurship activities is steel very poor. Data shows 38.3% are the primary
school levers.

Respondents rage to 7% were neither know to right nor to read their names. 22.2 %
of the respondent are secondary school livers while 31.7% have got college
education.

This implies that the level of awareness of the respondents especially those who are
taking entrepreneurial activities is very low in Morogoro Urban District as the result
it is a great challenge in the implementation of the IGA project as well as
Micrifinance Intitution concern. But point to note is that despite of the level of
education to be very low for most of the implementers of IGA s project in Morogoro
Urban District , still these people are doing well the application/implementation of
Microfinance Finances sevices.

Table 4.2 respondents levels of education (N=90)

Age N Percent
Primary lever 33 38.3
Secondary lever 20 22.2
Colleges lever 30 31.7
Non lever 07 7.8
Total 90 100.0

Source: Field work 2013

This can be related to the introduction of Grameen Bank in the work of Professor
Muhammad Yunus, Professor at University of Chittagong, who launched a research
project to study on how to design a credit delivery system to provide banking
services to the rural poor. Based on his positive results, in October 1983 the Grameen
Bank was authorized by national legislation as an independent bank. In 2006, the
bank and its founder, Muhammad Yunus, were jointly awarded the Nobel Peace
Prize. In 1998 the Bank's "Low-cost Housing Program" won a World Habitat Award,
and now Grameen Bank is among the international Community Financial Institution

33
which help rural poor to improve their standard of living in Bangladesh and most of
the third world countries. Joseph Schumpeter (1984).

From the research findings, it shows that majority of Microfinance Intitutions clients
who access credits have secondary education (22.2%) followed by those with
primary education (38.3%) while those with post-secondary education (degree
holder) accounted for only (31.7%) and Non levers( 7.8). Findings showed that,
people with no formal education (and who are considered to be the real poor) are
likely to have no access to bank‟s services due to lack of awareness and lack of
assets.

This is due to the fact that, customers with no formal education in counted only 7.8%
from all the customers interviewed which is just a very small number compare to
other groups. Furthermore, people with formal education can easily understand the
availability of loans in the banks and follow instruction toward loans. Findings also
reveal that, people with post-secondary education have more awareness and
understandings to bank‟s services and when it comes for loans advances most of
them find it unprofitable hence they don‟t apply for it.

From the observation only 80% of the poor population and SMEs receive adequate
Microfinance services and this is below the decision criteria of 90%. Microfinance
conditions, procedures, lack of employment by the clients, lack of knowledge or
awareness about the bank‟s services have been the reasons for poor population to
receive inadequate bank‟s services.

4.5 Contribution of IGA to the development of Microfinance Institution

After looking the background information about the way IGA contributing to the
development of Microfinance Intitution by looking element of gender, sex,
education and age group so as to make the relation between the two interrelated
factors now let us go in deep by looking the ways IGAs contribute to the

34
development of Microfinance Intitutions.Point to note is that IGA project was
introduced in Morogoro Urban Distric since 2010.

The three years operation in the district encourages me to make assessment of IGA
and its operation so as to realize its contribution to the community in Morogoro
Urban District especially the way its contribute to the development of VICOBA and
SACCOS.

4. 6 Contribution of Micro Finance Institutions on Peoples Standard of Living

The contribution of micro finance Institutions on poverty reduction can be seen by
assessing the effect of credit in improving people‟s standard of living.

Figure4. 2 Contribution of Micro Finance Institutions on Peoples Standard of

Living

P
E
4
O
P
L 3
Series 1
E

0
2009 2010 2011 2012 years
Source: Researcher, 2013

35
4.6.1 Increases in Personal Income
The total income for an individual has increased due to the credits and grants offered
by financial institutions such as NMB, CRDB, BOA, POSTAL BANK, FINCA,
SEDA, SIDO e.t.c. Personal loans and business loans are some of the loans provided
help public gain momentum towards poverty alleviation.

4.6.2 Increases in Production

The main factors behind this is the agricultural loans provided by the bank, which
has led to increase in agricultural production and hence alleviation of hunger within
the Tanzanian community. The researcher asked the question concern the increase in
production level as the provision of loans facilitate the poverty reduction in
Tanzania.

Table 4.3: Increases in Production

S/N Level Frequency percentages
1 high 16 26.6
2 medium 22 36.6
3 lower 18 30
4 poor 4 6.6
Total 60 100
Source: Researcher, 2013

4.6.3 Employment Opportunities

Employment opportunities provided by the Microfinance Intitutions have led to
reduction in street beggars and unemployment problem facing the nation. Graduates
from different higher learning institutions are being enrolled in different grades.

4.6.4 Increase in Literacy rate

The literacy capacity has increased caused by great number of school attendants who
has been provided with loans in running their education dreams. The increase in
literacy is the main drive towards poverty alleviation, without education then any

36
achievement in poverty alleviation will be nothing. Any Nation will be able to
develop if and only if the literacy level is high.

4.6.5 High Mortality rate

The increase in production and the accessibility in acquiring natural resources have
improved the living mortality rate and the food nutrients leading to increase in living
capacity.

The capacity of Borrowers have increased which is a good sign of community

awareness in fighting poverty, People can judge this through number of different
questions:
a. Do borrowers become successful in their undertaking?
b. Who access to credit?

Responding to these questions, Do borrowers become successful in their

undertakings, 75% of the customers interviewed said loans have helped them much
to rise their standard of living and improve their businesses. For instance nine clients
said that before their first loans their lives were miserable where some could not
afford family medical care, had education fees for their children and they were
having a single meal per day. Now, they are having three meals per day, their
children attend to school and they can even save so as to meet emergencies. 20% of
respondents argued that loans haven‟t brought any positive changes to their lives
since they can only break even. The 5% of respondents said that, instead of
alleviating poverty, loans are accelerating it, because few assets owned by the poor
are being auctioned by the bank in case they fail to repay the loans. Some of the
clients were not interested to apply for loans and when they were asked they said
that, they do not borrow because most of the borrowers are not showing good
example in poverty reduction. They said that, they are seeing borrowers embarrassed
because of failure to repay loans on maturity.

37
4.7 Introduction of 82 VICOBA and 64 SACCOS in the Morogoro Urban
District.
Introducing IGA project in 2010 brought the new life to the people of Morogoro
Urban District after manage to introduce 82 groups which implement VICOBA
programme and 64 groups which impliments SACCOS Programme.
In general when these groups was established they are supported for awareness
creation on the issues related to VICOBA and SACCOS that entrepreneurial
activities, tools for running VICOBA and SACCOS as well as technical support for
running IGAs project.

4.8 MFIs Best Practice and Financial Sustainability

According to Woller et al (1999) microfinance best practice refers to practice that
improves institutional efficiency and effectiveness in all aspects of operations. These
include accounting and finance, marketing, product design and delivery, and
management of microfinance. MFIs with exemplary performance like Grameen Bank
of Bangladesh (formally with group lending approach), BancoSol of Bolivia (with
individual lending approach), and FINCA (with village banking model) have been
the basis from which to draw the best practices in the microfinance field. Literature
has been written on what comprises of „best practice to be followed by MFIs for
good result. Donors have argued MFIs to follow the best practices in the
microfinance field. Microfinance best practice literature requires that for MFIs to
achieve financial selfsufficiency they should: „drive down‟ administration costs
(including salary) per unit of output costs (as measured by loans or borrowers); drive
up „staff

4.9 Microfinance Efficiency and Financial Sustainability

Financial Sustainability of Morogoro Urban District forexampe in Microfinance
Institutions in Tanzania productivity achieve significant scale (number of borrowers);
and charge „appropriate high interest rates. According to Gonzalez-Vega (1998)
everything else equal, the more efficient a microfinance institution is, the less the gap
between its actual practice and best practice.

38
There has been a move to copying and applying the best practice throughout the
world advocated by donors and the World Bank (Cho-Béroff et al, 2000). While this
is good, it has to be done with caution. Some of the factors found useful in one
economy and being practiced by large, most successful MFIs, may not hold the same
level of relevance to MFIs operating in different economies. Study by Woller and
Schreiner (2002) reveals this. Their study was examining the determinants of
financial self-sufficiency among thirteen village banking institutions. They
found,consistent with the „best practice requirement‟ , that lower administration
costs, higher loan officer productivity, lower average salary, high real interest rates
were associated with higher level of financial self-sufficiency.
However, contrary to best practice requirement, no other staff productivity indicators
were found to have a significant association with financial self-sufficiency, and the
number of borrowers had no significant impact on financial self-sufficiency.
Furthermore, studies indicate that there have been departures from standard models
for betterment. Morduch (2000) reports that replication of standard models that
FINCAs village banking model in other economies do far better in terms of outreach
than financial sustainability.
Additionally, the replication should not substitute the innovative skills of MFIs. As
Zeller (2000) hasput it, replicating the best practice is far than enough. The
innovation is also needed given the particular environment in which the MFIs are
operating model and developed a simple management structure and accounting
system that resulted in substantial cost reduction, “making it possible to approach
financial sustainability without imposing excessively high costs on clients”
(Morduch, 2000:619).

4.10 Respondents Working Experience

The researcher wanted to know distribution of working experience in order to be sure
of the quality of responses thus satisfy with the inputs made to the research. The
distribution table shows that most of the respondents lie between the periods of 11-15
years, which is adequate experience to be able to provide relevant responses to the
research.

39
As indicated in Table 4.4, the majority of the respondents follow to a class of
working experience between 11-15 years which is 40 percent of all respondents.
Another group of the respondents lies within in a working experience of between 6-
10 years which scored 25percent of total respondents. The group which seems to
have potential to the study is the age of between 16-20 years which marked a total of
10percent of all respondents the group of 1-5 years were 03 making up 15 percent
and the rest is the group of 21 years and above who were 02 making up 10 percent.

Table 4:3 Respondents working experience

Years Frequency Percent

1-5 03 15
6-10 05 25
11-15 08 40
16-20 02 10
21and Above 02 10
Total 20 100.0

Source: Researcher, 2013

4.11 Responses received from the sampled MFIs

The objective of this study was to look at the problems impacting on the growth of
MFIs in Tanzania. This chapter presents an analysis and discussion based on
responses that were received from the sampled microfinance service providers. Each
respondent in the study was asked to rank issues in the questionnaire by the extent to
which it poses a challenge to the particular MFI. The questions were ranked on a
scale of 1-4. Sixteen responses were received out of the total sample of 18, as shown
in Table 4.1: The discussion will cover the order of problems as ranked by
respondents. It should be noted that the microlenders were excluded from the survey
because of their focus on primarily profit maximation and not necessarily on poverty
alleviation.

40
Table 4.4 Responses received from the sampled MFIs
MFI Personal Questionnaires Total responses Total sampled MFIs
interviews received
SACCOS 2 6 8 10
VIKOBA 2 2 4 4
SIDO - 1 1 1
NGOs - 2 2 2
PTF - 1 1 1
Total 4 12 16 18

Source: Field work 2013

4.12 Performance trends

Despite the availability of microfinance services, the study revealed that the extent of
outreach remain low, compared to the potential demand for financial services. The
findings revealed that women account for more than 50 percent of borrowers,
particularly in rural based co-operatives. This phenomenon is in line with
experiences that women generally tend to be good borrowers.
The results from the survey are indicative of problems consistent with the findings
from various studies on microfinance sustainability alluded to earlier in this research
report.

4.13Marketing issues
4.13.1 Lack of information about clients
The study revealed lack of information about the clients as one of the challenges
experienced by MFIs. This is a constraint particularly because the MFIs would not be
able to provide the much needed products and services without knowing the
preferences of their market. This problem is triggered by the lack of market analysis
of the targeted clientele in terms of demographics, to determine the needs of each
segment of potential MFIs beneficiaries. Provision of products/services that are not
needed by the clients will lead to a mismatch between the demand (client) and supply
(MFIs), rendering the MFIs to be inefficient.

41
4.13.2 Client focus
Clients focus entails the provision of services that are needed by the microfinance
clients. The findings revealed that MFIs do not offer diversified products and
services. Credit was found to be the main financial product offered. With the
exception of SACCOs and mobilising savings from the public is prohibited by
regulatory restrictions. Lack of savings products is a constraint to the MFI's
efficiency because as noted earlier, poor people need a variety of services. The
importance of savings cannot be over-emphasized as savings enable the poor and the
non poor alike to secure a safety net in times of financial needs. More importantly,
availability of savings products can afford the poor an opportunity to accumulate
funds. By focusing on clients' needs, the MFI will be able to provide the services
needed by the clients leading to a high level of satisfaction.

Finally, providing financial services without considering the needs of the target
market is tantamount to failure because MFIs should be client driven. This constraint
will therefore limit the MFIs in achieving their objectives.

4.13.3 Low population density

Tanzania is large and sparsely populated. The majority of the population lives in
rural areas where poverty is prevalent. The findings revealed that the low population
density and the geographic distances are prohibitive to sustainable microfinance
delivery because it requires the service provider to incur additional costs to cover the
distance in order to reach and serve the rural poor. The incremental cost incurred to
travel long distances between rural and urban greatly contribute to microfinance gap,
hence limiting outreach and impact.
Furthermore, the low population density adversely affects the growth of MFIs due to
the lack of economies of scale and low concentration of clients, because reaching
profitable volumes relative to potential clients will not be achievable. On the other
hand, lack of MFIs presence in the rural area also leads to the lack of awareness of
MFI services by the poor.

42
The microfinance providers should not be deterred by distance to reach the poor,
they should instead explore the possibility of outsourcing the function of
microfinance delivery to established institutions which have nationwide networks to
act as their agent or partner to roll out the microfinance services. The cost of
travelling to these remote areas will be greatly reduced because the provision of
service will be close to the MFIs' clientele's place of economic activity. This will
enhance outreach levels.

Table 4.5: Geographic profile of sampled MFIs

TYPE OF MFI Urban Rural Both Total sampled

SACCOS 13 12 8 33
NGOs 10 7 4 21
VIKOBA 9 6 6 21
COMMERCIAL BANKS 4 8 3 15

Total 36 33 16 90

4.13.4 Skilled staff

Although the educational level of staff was not cited as a major problem, there are a
few areas that require improvement, particularly in the area of loan portfolio
management and the understanding of the concept of microfinance in general.
Skilled staffs are essential to the success of the MFI because they should ensure that,
firstly, the borrowers fully understand the terms of the loan as well as the financial
products offered to them. Secondly, the loan officer should be able to offer the
necessary mentorship and other assistance required by clients to equip them with the
necessary basic skills pertaining to business management. Finally, the MFI staff
should monitor the loan performance to ensure that the loan conditions are adhered.

43
4.13.5 High operational costs
Fixed and overhead costs were cited as one of the challenging aspects in achieving
profitable operational levels. The cost of operations was especially driven by the
transaction and administration costs of loan which are generally small relative to the
processing costs. Interest rate charged is another cost driver because MFIs are not
able to charge adequate interest rates to break even in view of the interest rate ceiling
imposed by the Usury Act. Interest rate cap is 30 percent per annum for amount less
than N$10 000 and 27 percent per annum for amounts more than N$10 000.
Evidently, these rates put constraints on the MFI in instances where interest required
to break even exceeds the provided limitations.
According to the Division of Co-operative Development database only 30% of
operational cost by Savings and Credit Associations is covered. The loan amounts
are small, ranging from $50 and pushing the operational cost high especially in cases
where numerous smaller loans are advanced.
High cost was mainly driven by the cost of processing the loans because the rate is
applied uniformly to all loan amounts. The problem of high cost is further worsened
by the fact that the poor are mainly rural based, hence the cost of transport puts a
heavy burden on the expenditure of the MFIs.
Lack of formal track records of the microfinance clientele most of whom are first
time users of financial institutions also led to high operational cost. This occurs
because limited information about the clients makes it difficult to assess the credit
worthiness of the clients. Lack of information about the clients might lead to adverse
selection and moral hazard leading to loan default. In order to mitigate the credit risk,
the MFIs should ideally adopt the Grameen Bank solidarity group model, which have
been effective in the reduction of loan delinquency.
It is commendable to note that the sampled SACCOS and NGOs provide their
services primarily on a group lending methodology and have managed to record low
default rates. lending approach served as deterrent to moral hazard, especially in the
absence of collateral because each member acts as co-members' collateral.

44
4.13.6 Portfolio quality
Portfolio quality reflects the risk of loan delinquency. For this research report,
portfolio quality is measured as portfolio at risk over 30 days since the loan was
granted. The MFIs sampled, especially the SACCOS reported a relatively high
portfolio quality with a reported repayment rate of 98%. Project HOPE has regular
repayment schedules whereby loan officers collect payments every two weeks. In
both cases referred to above, joint responsibility and group lending were the
approaches adopted which contributed greatly to low moral hazard in repaying loans,
hence resulting in reduced default rates. In addition, peer monitoring and peer
pressure among the group members ensured that the members use the funds
productively.

4.14Capitalisation issues
4.14.1 Availability of capital to lend to clients
The results from the survey revealed that there are a few microfinance institutions
that have attained self-financial sustainability as most of them still heavily depend on
donor subsidies as their primary source of capital. While continuous donor subsidy
will enable the MFI to cover the operational expenses, it could lead to a state of
dependency and inefficiency.
A number of donor funded MFIs have closed down post donor withdrawal due to
cash flow problems as pointed out in the JCC Study (2006:13). A case in point is an
NGO funded MFI which could not survive when the donors pulled out.
The same study cited another donor funded programme that collapsed after donor
withdrawal.
The above cases demonstrate the consequences of donor withdrawal on the
sustainability of the microfinance institutions in Tanzania. Needless to say, the same
scenario would repeat itself if the current donor agencies withdraw their funding in
the absence of other sources of funding. The MFIs need to identify alternative ways
of funding to avoid donor over reliance, especially in view of drying up of donor
funds. Lack of funding limits the MFI to meet the capital requirements of clients.
This reduces the level of outreach and impact.

45
SACCOs by virtue of the concept of co-operatives mainly fund their operations
through member savings contributions. SACCOs remain competitive compared to
donor dependent microfinance programmes.
Besides the donations, another source of revenue albeit small, is mainly in the forms
of loan repayments.
Another constraint to sourcing funds from the Tanzanian financial institutions is the
perception of banks towards MFIs. Formal banks are risk averse and view the
microfinance sector as being too risky to transact with.
Furthermore, the survey revealed that obtaining financing from the formal sector is
complicated by the lack of proper regulatory framework that would ensure smooth
contract enforcement through the legal system.
The regulatory restrictions regarding savings mobilisation present another constraint
to obtaining a potential source of funds for on lending. MFIs with the capacity to
handle savings should be allowed to provide savings services to build up on their
reserves to serve as capital for future lending. Increase in lending activities would
likely lead to institutional growth and sustainability.
Finally, MFIs should embark on providing various financial services to enhance the
ability of increasing the capital base particularly in cases where savings mobilisation
has proven to serve as a source of internal funding.

4.15 Strategic issues

4.15.1 Regulatory and Legislative framework
Lack of specific policy and regulatory framework for the microfinance sector was
cited by respondents as one of the main challenges facing the microfinance
institutions.
Regulations are necessary because weaknesses in the institutional framework
adversely affect the efficiency of the microfinance service providers, because in the
absence of the MFI regulatory body, it would be difficult to monitor and enact
various regulations to ensure efficiency in the microfinance sector.

46
The microfinance sector currently operates in a vacuum because there is no specific
dedicated body to oversee its activities. Lack of standardised industry practices
constrain the capacity of the sector due to lack of harmony among the microfinance
providers. It is commendable, however, to note that on the regulatory front, effort is
made to develop the charter for microfinance activities. The signatories to this
charter are; the Ministers of Trade and Industry, Agriculture, Water and Rural
Development, the Director General of the National Planning Commission and the
Governor of the Bank of Tanzania. They have committed themselves to developing
microfinance activities in Tanzania and are therefore signatories to the charter for
good practice on microfinance. Some of the issues outlined in the charter are as
follows,
(i) To address the plight of people who do not have conventional
collateral.
(ii) To use a bottom up approach so that the beneficiaries become the
owners and managers of the MFIs.
(iii) To use a community based approach for the provision of
microfinance.
(iv) To provide loans according to borrower reliability and not according
to loan use for consumption or as investment in production.
(v) To use social pressure (peer pressure as a means to enforce repayment
since legal action is not viable). This should be done by ensuring the
maximum participation by members through ownership and savings,
which should be attractive, safe and compulsory.
(vi) Self-help organisations shall be addressed. These self-help
organizations should be formed voluntarily and take responsibility for
their development.
(vii) To separate responsibility for financial and non-financial services in
order to secure and sustain activities. The costs of financial services
shall be fully covered by the interest income (Mushendami et al.
2004:15).

47
4.16 Correlation of Problems from the Survey
An analysis of the survey results revealed that a correlation exists between the
problems experienced by MFIs as illustrated in Table: 4.2:. Most problems
experienced by MFIs in Namibia are consistent with problems faced by MFIs
elsewhere. Respondents of the survey were asked to rank the problems experienced
by the MFIs on scale of 1-4. Therefore only problems which exceed the threshold of
2 on survey ratings will be discussed in line with the four groupings of problems.

4.16.1 Marketing issues

There is a positive correlation between the lack of information about the clients and
client focus. In the absence of information about clients, there will be a mismatch
between what the clients need and what is offered to them because of the lack of
knowledge about the client‟s preferences. This will lead to reduced quality of service
and failure to retain existing clients and to attract new ones.

4.16.2 Capitalisation issues

Equally important is the correlation observed between lack of funds to lend to clients
and clients focus because greater focus requires more funding to reach potential
clients.

4.16.3 Operation issues

There is a positive correlation between high cost and profit performance because the
MFIs struggle to break even, hence impacting on the attainment of profitability.
Furthermore, high costs also lead to lack of capital to lend to clients because all loan
repayments are ploughed back into business to cover the operational costs.

4.16.4 Strategic issues

The correlation between the regulatory framework and the MFIs‟ availability of
capital to lend to clients can be explained by the restrictions of MFIs to mobilise
savings which could serve as a source of funding for lending activities.

48
Furthermore, regulatory constraints limit focus on clients because although the MFI
is aware of the clients need for savings services, they cannot respond to the needs
because of the restrictions to mobilise savings from the public.

4.17 General Conditions Applicable to Loan Agreements, Guarantee and

Counter-guarantee
4.17.1 Currency
The loan amount is expressed in units of account (UA). Exceptionally, it could be
expressed in local currency if the resources are raised locally. The guarantee
provided by NMB is expressed in the currency of the operation guaranteed. The
document processing fees, interests and other fees are expressed in the currency of
the loan, guarantee or counter guarantee as appropriate.

4.17.2 Interest rates

The interest rates charged by NMB 18% depend on the nature of the project and its
profitability.
The rates are pegged taking into account the financial equilibrium of the institution
and the need to offer favorable terms to borrowers. The interest rates are reviewed
periodically by the Board of Directors to reflect the financial prospects of the Bank
and market trends.

4.12.3 Situation of the Customer to get loans

The researcher observed that the situation of the customers to get the loans it‟s
difficult due the long process which induced by the banks and all microfinance in the
Morogoro region.The researcher observed the loans procedure which provided by
the,CRDB,NBC,KCB,BOA takes a long process of the customers to get the loans
and is not productive for time in order to minimize the poverty in Tanzania.NMB
minimize the procedure of the customers as well the interest rates which lead the
loans to benefial to the customers and make to reduce the poverty alleviation in
Tanzania.

49
4.18 Contribution of the Loans to the Market Actives
The researcher observed that there are contribution of the loans to the marketing
activities in the region which provided by the banks to the customers, the market
activities increase day after day depend on the number of the borrow to the bank, the
researcher find out the bank doesn‟t involve direct to teach costumer about
performance of the business in order to increase market activities
Also the researcher find out due to the increase market activities the poverty level of
the region decrease due to the provision of the loans which provided by Microfinance
Intitution.

4.19 Contribution of the loans in decrease poverty

The researcher find the loans is the one key factor leads decrease the poverty level to
the region, the loans which provided by Microfinance Intitutions contribute for
minimization of the poverty, and the indicator shows the number of the children goes
to school, the production level increases , ability of the people pay school fees,
ability of the people pay health service and the people doing business due to the
circulations of the loans which provided by the Microfinance Intitutions and overall
loans contribute all most the country for minimization of the poverty.

4.20 Summary
Although the analysis in this report is limited to the sampled MFIs, the findings
provide a good overview of the status of microfinance in Namibia because it presents
the few significant players in the microfinance industry.
The findings revealed that in general, the availability of microfinance services in
Tanzania has impacted positively on the lives of the poor. However, the extent of
outreach remains low due to many challenges that impact greatly on their growth and
sustainability.
The micro financial services offered are limited to mainly credit, whereas the MFI
clients need a variety of services such as savings and insurance. The savings
component encouraged by the microfinance programmes offers an important pool of
capital re-lending

50
Furthermore, although banks are cited in this study as having business units that offer
microfinance services to their clients, the minimum amount offered is in excess of
the amount required by the poor.

51
 CHAPTER FIVE
DISCUSSION OF THE FINDINGS

5.0 Introductions
Researcher presents the finding and carries out analysis of the findings from different
methods used by the researcher and also to explore ways in which in data and results can be
presented effectively within a report

5.1 Corruption.
Corruption is commonly defined as the abuse of official power for private gain or,
more generally, the misuse of a position of trust (within administration, private and
public companies or politics) for a dishonest personal benefit. The main forms of
corruption involve bribery, embezzlement, fraud and extortion. Depending on the
focus, corruption may also take very subtle forms, such as attending unnecessary
seminars or conferences implying higher inefficiency within the company or
institution.Inorder customers to be given credit must provide corruption to loan
officer which lead people fail to borrow and find onether place and find onether
place where they can borrow without giving bribes. This lead to the institution not to
grow and loose customers.

In my findings corruption has imply that loan officers and managers may make
fictitious loans, transfer funds into their personal accounts, receive bribes or simply
steal cash

5.2 Collateral
Collateral, this is what customers offer as saving so that failure to honor his
obligation the creditor can sell it to recover the loan. It is also a form of security
which the client offers as form of guarantee to acquire loans and surrender in case of
failure to pay; if borrowers do not fulfill their obligations the creditor may seize their
asset.

52
A lage percent of Tanzanians have no copyright of property, so it becomes very
difficult to get there loan from Microfinance Institutions, so that most of the
Microfiance Institutions fail to get profit, and if they fail to make profit the
Microfinance Institution will not grow.

5.3 Competition
According to analysis of questioner and interviews, now days in Tanzania there are
many Institutions that offer loans so the people are able to choose where there terms
are cheaper for mortgage or loan.

5.4 Loan Recovery

Due to the majority of Tanzanias have no knowledge and skills of entrepreneurship
they fail to return there loan.

5.5 loans procedure by microfinance institution

5.5.1 Identification
Project identification is done in concert within the country. Once the viability of a
project is established, it‟s economic, financial, environmental and technical
characteristics as well asa the conditiona that will ensure its success are examined
and described in detail. Thereafter the project is included in the pipeline of projects
to be financed.

5.5.2 Preparation
Project preparation is the second phase in the cycle of a project. This phase aims at
accelerating studies on the project and to prove that project can achieve its technical,
economic, financial, instutional and social objectives. The preparation of a project is
mainly incumbent on the promoter.

53
5.5.3 Appraisal
Project appraisal comes after the preparation phase during which MFIs specifies the
objective of the project, its institutional and organizational implications as well as its
technical, economic and fianancial justification. The social and anvironment aspects
of the project are also appraised. This phase ends with the preparation of an appraisal
report upon which the Technical and Research. Committee bases its technical

5.5.4 Negotiation
At the end of the appraisal phase, Microfinance Institution and the borrower enter
into negotiations officially.The negotiations lead to an accord which defines the
project and specifies the programmend to be implemented in order to achieve the
objectives of the project. A report on the main issues raised during the negotiations is
prepared and signed by the borrower and the MFIs. It is at this stage the two parties
define the modalities for the disbursement of the loan.A representative of the loan.
Administration division makes copies of the manual of disbursement available the
negotiation of the borrower.

5.5.5 Approval
When the negotiation are concluded, the management ofMFIs submits the project to
the board of direct of MFIs for the consideration and approval. After careful of
consideration of all the aspect of the project, the board of the Directors may approve,
reject project or give instruction for futher appraisal. The loan agreement is signed
once the project is approved by the board of Directors.

5.5.6 Implementation and supervision

The implementation of the project starts with the signing of the loan agreement. It is
incumbent on the brrower which id beneficiary of the various forms of assistance as
specified in the loan agreement to manage and implemente the project in a
satisfactory manne.r The client must periodically provide information on the status of
the implementation of the project. MFIs must regulary supervise the project in order
to verify the progress realized and to insure that disbursement are made as agreed

54
between the brrower and MFIs. This stage of the process calls of mutual assistance
and collaboration between the clientand MFIs.

5.5.7 Projec completion report

After the completion of the project and at least six months after the full disbursement
of the loan, the brrower is obliged to prepare a project completion report giving
his/her perspective on the implementation of the project, the performance of those
who intervened in the project, as well as in the on the attainment of the objectives of
the project. MFIs will also prepare its own project completion report in which is
assesses the result of the project, identify shortcomings, highlight the successes and
also draw the necessary lessons.

5.5.8 Presentation appraisal

After the preparation of the project completion report by the client and by MFIs, the
Bank undertakes a post appraisal mission in order to assess the result achieved in
relation to the initial objectives. During retrospective appraisal the necessarly lessons
are drawn in order to make recommendation on how to ensure more efficient
development and approve upon the practices and procedureas of MFIs.

5.5.9 Legal provisions governing disbursement.

This manual is not a legal or contractual document. It is meant to inform client of the
regulation and the procedure applicable to disbursements in line with the provision of
the articles of the association, the General condition applicable to loan, guarantee and
cuner-guarantee and statementof General policy of MFIs.

5.5.10 Loan agreement

The main legal document relating to aproject financed by MFIs is loan agreement
signed by the borrower and the borrower which specifies the term and condition of
the loan.

55
5.6 General condition applicable to Loan Agreement, Guarantee and Counter-
guarantee.
The loan amount is expressed in units of accounts (UA). Exceptionally, it could be
expressedin local currency if the resources are raised locally. The guarantee provided
by MFIs is expressed in the currency of the operation guaranteed. The document
processing fees, interests and other fees are expressed in the currency of the loan,
guarantee or counter guarantee as appropriet.

5.6.1 Interest Rates

The interest rates charge by MFIs 18% depends on the nature of the project and its
provitability. The rates are pegged taking into account the financial equilibrium of
the institution and the need to offer favourable terms to borrowers. The interest rates
are reviewed periodically by the board of Directior to refrect the financial prospects
of the MFIs and market trends.

5.6.2 Stution of the customer to get loas

The researcher observed that the situation of nthe customers to get loan it‟s difficult
due to the long process which included by the Bank and all microfinance in the
region. The researcher observed the loan procedure which provided by MFIs its takes
along process of the customers to get the loans and is not productive for time in order
to minimize the poverty in Tanzania. MFIs its minimize the procedure of the
customers as well the interest rates which lead the loan to benefial to the customers
and makes to reduce the povertyallviationi Tanzania.

5.6.3 Contribution of the Loan the Market Actives

The researcher observed that there are contribution of the loans to the marketing
activites in the region which pro vided by the Bnak to the customers, the market
activities increase aday after day depend on the number of the borrow to the bank,
the researcher find out the bank doe‟nt involve direct to gteach customer about
performance of the business iun orde to increase market activites.

56
5.6.4 Specific observation
The data that were collected from the field has been presented,analysed and
discussed in to give meaningfullinformation. The study aimed at scrutinizing poverty
alleviation in the morogoro region and Tanzanian in general by MFIs.

In this charper, response rates has been dealt with first, followed by the
characteristics and find from the management staff and then followed by that of the
characteristics findings from MFIs.

Freaquent distribution was used to organise data,to give meaning to the response
rates and facilitates insight. In the relevant tables the frequency distribution of
responses has been ordered in the order of occureneces from the highest to the lowest
occurences obtained from.

57
 CHAPTER SIX
CONCLUSION, POLICY IMPLICATION AND RECOMMENDATIONS

6.0 Introduction
The objectives of this research report was to identify the factors hampering the
attainment of sustainability by Tanzania MFIs. Respondents were asked to rank
problem experienced by a particular MFI. The findings from the respondents
revealed that the MFI in Tanzania are faced with numerous problems.
The issues of lack of funding, lack of regulatory framework, high operation cost of
operation and profit performance featured prominently as the main challenges facing
the MFIs. On the basis of the finding of the study, conclusions are set out in 6.1 and
policy implication recommendations in 6.2

6.1 Conclusions
Based on my findings,most of the microfinace Institutions in Tanzania depend on
donor funding and lack alternative source of funding.This has led to the closure of
MFIs in the even of donor withdrawal.

Also in the case of Loan Recovery, due to the majority of Tanzanias have no
knowledge and skills of entrepreneurship they fail to return there loan.MFIs should
train their customers na visit their business place before giving them loan.

Another is Collateral. A large percent of Tanzanians have no copyright of their

property so it becomes very difficult to get loan. I advice the Tanzania Municipals
especially the Morogoro urban district to be able to give people title deeds to their
land so they can use them to get loans

Also in the case of Competition, MFIs should enter in a competitive market in order
to win the market and to get more customers.

Last is corruption,The Managers of MFIs should pay their loan officer a good salary
so that they will not be able to take bribe to their customers.
58
Furthermore, in view of Tanzania‟s classification as a middle income country by the
ODAs (Angula: 2005:9), development assistance which is particulary crucial in early
stage of MFIs development has been drying up in recent years. MFIs should thus
strive to attract funding from other source as donor subsidy is not perpetual. In
additional, donor dependet programmes should look at how best they can implement
robust financial sustainability measure without compromising their objectives of
poverty alleviation.

Lack of regulation is another concern for the microfinance providers. There is

consensus among the respondents that regulation is necessary to provide a clear
strategic direction and ensure a conducive environment for microfinance sector
development.

High operation cost impacted negatively on the efficiency of the MFIs. Cost recovery
was particularly constrained by the imposition of the usury Act that stipulates the
interest rates ceiling.

This poses a challenge in that MFIs are not able to charge interest rates that enable
them to recover cost and attain profitable levels.High operational costs contributed to
the lack of sustainability. MFIs should explore and implement effective cost recovery
measures.

Although the performance of MFIs in Tanzania lags behind other regional MFIs,
there seems to be an effort to become more efficient. Furthermore, the establishment
of the Microfinance Bank is a positive development in that a veriety of product and
services will be offered, especially to the economically active poor. In light of the
capitalisation issues, MFIs need to adopt prudent financial principal to entice
cormercial bank and other investors into partaking Microfinance activities because
banks are risk averse.

59
Finally, although Microfinance might have a small impact on the economy as a
whole, it makes a different in the lives of the beneficiaries. The government and
other stakeholders should thus strengthen the relationship with the MFIs by assisting
the MFIs to overcome problems, especially those relating to fund and regulations in
order to contribute towards Microfinance development.

6.2 POLICY IMPLICATION AND RECOMMENDATIONS

This study makes anumber of recommendations as far as MFIs are concerne in
Tanzania.In order to improve the efficiency of the microfinance sector, it is of great
important to address the issues identified from the respodents as impacting
negatively on their operation.

Tanzania Government Should formulate and implement a regulatory and policy

framework critical in the flourishing of the microfinance sector.
Restrictions of saving mobilization ned to be revisited in light of the fact that
savings can be a source of funding for on lending to clients.
Microfinance Institutions should be located within reach to ensure accessibility to the
poor and should target clients with economic business ideas to borrow for income
generating projects.
Donors and microfinance service providers should have exit policies in place to
ensure sustainability of these programmes post donor withdrawal; otherwise funding
of the early operations will be wasteful.
Finally, in order for microfinance interventions to be effective, there are a set of
recommended key principal essential to microfinance institutions to achieve that. The
consultative group to assist the poor ( CGAP) development key principles are
amongst others:
(i) The need for microfinance service to fit the needs and preference of clients.
(ii)The to reach a necessity of microfinance sustainability in order to reach a
significant number of poor people.
(iii)The potential of interest rate ceiling to damage poor people‟s access to financial
services

60
(iv)The role of government as an enable for provision of financial services, bysetting
a supportive policy environment for microfinance activities. These principal must be
followed strictly to improve the situation.

61
REFERENCES
Amando, M. 2005, Stimulating the growth of microfinance in the Philippines .
Central Bank of Philippines.
Anyanwu, C. M 2004, Microfinance Institutions in Nigeria: Policy, Practice and
Potentials. Central Bank of Nigeria, Abuja, Nigeria.
Barclay, O. 2006, Valuing micro finance institutions. Opportunity international.
Savings and development-NO. 3 – 2006
Baumann, T. 2001, Micro-finance and poverty alleviation in South Africa. Bay
research and consultancy services Cape Town
Christopher, J. & Colin, H. 2006, Finance for Small Enterprises Growth and Poverty
Reduction in Developing Countries. Journal of International Development J.
Int. Dev. 18, 1017-1030 (2006)
Craig. F, 1997, Managing Growth: The Organizational Architecture of Microfinance
Institutions. Accion International.
Glenn, D. & Washington, K. 1996, Kenya Rural Enterprise Program: Directing
credit to low income groups. Micro-Finance Series, AFTE1, Africa Region,
Washington, D.C.: Findings Africa region Vol.8
Government of Kenya 1997, The Economic Survey, 1997, Ministry of Planning and
National Development, Government printers, Nairobi.

Harper, M 2003, Key writings on Microfinance, ITDG Publishing, Samskriti, New

Delhi, India.

Hospes, R. 2002, An Evaluation of Micro-Finance Programmes in Kenya as

Supported through the Dutch Co-Financing Programme. A study
commissioned by: Steering Committee for the Evaluation of the Netherlands
Co-financing Programme
Humphrey, K. 2006, Growth of micro enterprises in Kenya: A case of automotive
garage operators in Kariobangi, Nairobi.

Igbinedion, O. J. and A. S. Igbatayo (2004), Micro Credit and Poverty Reduction in

Sub-Saharan Africa: Challenges and Policy Framework in Nigeria. Nigeria
Journal of Business Administration, Vol. 6, No. 2, pp. 15-35.

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Eluhaiwe, P. N. (2005), Poverty Reduction Through Micro Financing: The Case of
India. CBN Bullion, Vol. 30, No. 3, pp. 42-51.
Jeyanth, K. 2003, Institutional Preparedness and Sustainability of Micro Finance
Institutions During Post Disaster Scenario. Disaster Prevention and
Management Vol. 16 No. 1, 2007

Kaoma, K, 2001, Towards best practices for microfinance institutional engagement

in African rural areas. Selected cases and agenda for action. The World
Bank, Washington, DC, USA. International Journal of Social Economics
Vol. 31 No. 1/2, 2004

Kimotha, M. (2005), National Micro Finance Policy Framework and its Expected
Impact on the Micro Finance Market in Nigeria. CBN Seminar to Mark the
International Year of Micro Credit in Nigeria, 15-16 December, Abuja.
Kitabu, B. 2007, An assessment of the impact of credit services on women micro
entrepreneurs in Kenya: Case of KWFT credit services in Nairobi.

Kothari, C. R., (2004). Research Methodology. Methods and techniques (2nd Ed.),
Wishwa Prakashan.

Ledgerword, J. (1999), Microfinance Handbook: An Institutional and Financial

Perspective on Sustainable Banking with the Poor. Washington D.C.:
WorldBank.
Ukeje, E. U. (2005), Poverty Reduction Through Micro Financing: The Case of
Uganda. CBN Bullion, Vol. 30, No. 3, pp. 52-63.

Lincolin, A 2005, An assessment of performance and sustainability of micro finance

institutions: A case study of village credit institutions in Gianyar, Bali,
Indonesia.

Munguti, K. 2005, Analysis of effects of micro financing on micro and small

enterprises: A case of K-rep Bank's Juhudi and Katikati loan programmes.

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Murumbutsa, W. 1998, Entrepreneurial factors influencing the growth of Micro-
enterprises in the manufacturing sector. Institute of human resources
development.

Mutua et al 1996, The view from the field: Perspectives from managers of
microfinance institutions. Journal of International Development: Vol. 8,
No. 2,179-193

Omondi, G. 2005, Factors influencing the establishment of micro finance schemes in

Kenya.
PRSP, 1999, Poverty Reduction Strategy Paper (PRSP).

Rusdy, H. 2007, Understanding the success factors of micro-finance institution in a

developing country. International Journal of Social Economics. Vol. 34
No. 6
Sajjad, Z. and Imran, M. 1999, Wider impacts of microfinance institutions: Issues
and concepts. Bangladesh Institute of Development Studies, Bangladesh.
Copyright 2004 John Wiley & Sons, Ltd.

Satta, A. 2007, Performance evaluation of three small firms' financing schemes in

Tanzania. Leeds University Business School and Institute of Finance
Management, Dar es Salaam, Tanzania. Journal of Accounting &
Organizational Change Vol. 2 No. 2
Stevenson, L. 2007, Support for Growth-oriented Women Entrepreneurs in Kenya.
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South Africa.

64
 APPENDICES
APPENDIX I
QUESTIONNAIRE
Dear Sir/Madam
SURVEY OF MICROFINANCE PROBLEMS, CHALLENGES AND BEST
PRACTICES.
I am currently a Masters student at the Mzumbe University Morogoro. The field of my
study is microfinance sector. You are part of a sample of providers of finance and
other products to lower income groups, so I kindly ask you for your co-operation.

You are so important in this study. The information you are going to provide will
help the researcher to know the factors Factors Affecting Growth of Microfinance
Institutions In Tanzania .
The information that you are going to provide in this questionnaire will only be used
for the purposes of this study and not otherwise. No name of respondent will be
revealed.

Thank you in advance.

I can assure you that:

a) The results would be anonymous and
b) No strategic information is required.
This is perception research, so there are no real wrong or right answers, but I ask you
to be as honest as possible in reflecting on the issues raised.
I thank you for your time.
Please: Feel free to contact me if there is any uncertainty regarding any questions or
issues.
Kindly contact me on the on the details below once done.;
Kind regards
Nataria Ghikas
Cell: +255715434349

65
SECTION A: CREDIT OFFICERS

TYPE OF MICROFINANCE SERVICE PROVIDER

(Commercial bank, Non bank financial Institutions, NGO, CRDB, BOA, NMB,
FINCA,NBC,SACCOS etc).
1.……………………………………………………………………..
2. Year established…………………………………………………

3. Which financial service do you offer? (tick √ the applicable service)

Credit ………………………………………
Savings……………………………………..
Insurance……………………………………

4. Who are the major donors/ sponsors?

…………………………………………………

5. Who are the target group? (Put a tick √ in the applicable block)
Women Men Both

Individuals Groups Both

Employed Unemployed Both

6. Number of borrowers (clients) individuals & groups who had received loans
so far ………………………………………………….

6. Which geographic areas do you serve? (Put a tick √ in the applicable block):
(i) Only Rural
(ii) Only Urban
(iii)Both

66
7. Please indicate whether Yes/No you currently experience the following
factors/problems as challenge in your organization. If your answer is “Yes”
please rank that factor/problem by putting a tick against a relevant code concerning
to which extent does that factor/problem affect your organization from expanding
microfinance services to more low income people.
Ranking codes:
(i) The factor is a severe problem
(ii) The factor is a moderate problem
(iii)The factor is a minor problem

SECTION B . INDICATE WHETHER THESE FACTORS ARE PROBLEM

OR NOT? (Put a tick √ in the applicable block)

Problem Yes No Not a Minor Moderate Severe

Problem Problem Problem Problem
Quality of loan
book(payment
default risk)
Interest rate to
charge

Service quality to
customers
Incre sed
competition
Lack of information
about clients
Profit performance

Client
focus(delivering
what clients want)

67
 High costs
Attracting low-
income clients
(poor clients
response)
Clients retention

Educational level
of clients
Skilled staff
(microfinance
skills)
Availability of
capital to lend to
clients
Inadequate donor
funding (for
donor funded
projects)
Legislation and
regulatory
framework
Unregistered
lenders
Clear ownership
structure/donor
intervention
Low population
density

68
9. Other Problems (Please mention specifically)

.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
........................................................................................................................................
10. Suggest two things that can be done to significantly increase your services to
the poor
(i) .............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.................................. …………………………………………………………
(ii) .............................................................................................................................
.............................................................................................................................
.............................................................................................................................
................................................... ……………………………………………..
11. Mention two possible factors affecting the growth and sustainability of the
MFIs in Tanzania.
(i) .............................................................................................................................
.............................................................................................................................
.............................................................................................................................
………………………………………………………………………………….

(ii) .............................................................................................................................
.............................................................................................................................
.............................................................................................................................
............................................................................................................................

12. What is your position in credit department office?

…………………………………………………………….............................................
.........................................................................................................................................
........................................................................................................................................

69
13 How do you observe the whole process of loan advancing and recovery to
your customers? Do you get any complaints?
Yes
No
If yes what are they?

................................................................................................................................
................................................................................................................................
................................................................................................................................
................................................................................................................................

14. What do you think should be done to reduce the complaints from the
customers?
……………………………………………………………………………………
……………………………………………………………………………………
……………………………………………………………………………………

15. Who are your main customers at your intitution?

a) SMEs( Small and Medium Enterprises)
b) Individuals
c) Corporate
d) Both

16.Do you provide business knowledge and advices to your customers before
loan?
a) Yes
b) No

70
SECTION C: LOAN PORTFOLIO INFORMATION FOR THE YEAR
2012/213

a. How much loan amount was disbursed (TZS)?

…………………………………...............................................................................
...................................................................................................................................
b. How many (number of) Loans were disbursed?
……………………………………………………………………………………
…………………………………………………………………………………….
c. How many loans were active?
……………………………………………………………………………………
……………………………………………………………………………………
d. How much was the value of outstanding loan portfolio?
……………………………………………………………………………………
……………………………………………………………………………………
e. How much loan payment was overdue (in arrears)? (TZS)
……………………………………………………………………………………
……………………………………………………………………………………
f. How much was the value of outstanding balances of loan in
arrears (overdue)?

…………………………………………………………………………………………
…………………………………………………………………………………………
g. How much were Loan Loss provisions?
……………………………………………………………………………………
…………………………………………………………………………………….
h. How much loan was written off as bad?

…………………………………………………………………………………………
…………………………………………………………………………………………
THANK YOU FOR YOUR COOPERATION

71
 APPENDIX II

QUESTIONNAIRES FOR THE ENTRPRENEURS

I am currently a Masters student at the Mzumbe University Morogoro. The field of my
study is microfinance sector. You are part of a sample of providers of finance and
other products to lower income groups, so I kindly ask you for your co-operation.

You are so important in this study. The information you are going to provide will
help the researcher to know the Factors Affecting Growth of Microfinance
Institutions In Tanzania .
The information that you are going to provide in this questionnaire will only be used
for the purposes of this study and not otherwise. No name of respondent will be
revealed.

Thank you in advance.

I can assure you that:

a) The results would be anonymous and
b) No strategic information is required.
This is perception research, so there are no real wrong or right answers, but I ask you
to be as honest as possible in reflecting on the issues raised.
I thank you for your time.
Please: Feel free to contact me if there is any uncertainty regarding any questions or
issues.
Kindly contact me on the on the details below once done.;
Kind regards
Nataria Ghikas
Cell: +255715434349

72
SECTION A: BACKGROUND INFORMATION
1. Personal Details
Date interview..........................................................................................
Name of participant………………………………..................................
Age…………………………………………….......................................
Sex…………………………………………………................................
Name of district……………………………………...............................
Name of the Division……………………………… ...............................
Name of ward ……………………………………. ................................
Name of Village.......................................................................................

2 . Level of Education
a) Primary ( )
b) Secondary ( )
c) Collage ( )
d) Non ( )

3. Marital status .Are you:-

a) Single ( )
b) Married ( )
c) Divorce ( )
d) Widows ( )

4. Do you know anything about Microfinance Institution and interprenueship?

a) Yes ( )
b) No ( )

73
5. If yes can you explain in short meaning of Microfinance institution and
Interprenueship?
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………

6. If you get capital mention any three major economic activities you would
prefer to start in your area.
a) ………………………………………………..................................................
b) ……………………………………………….................................................
c) ……………………………………………….................................................

7. What do you think should be done so as to improve the lending capability?

…………………………………………………………………………………
…………………………………………………………………………………
…………………………………………………………………………………
…………………………………………………………………………………

8.What is the kind of service you acquire from Microfinance Institution?

a) Savings only
b) Credit
c) Both saving and credit
d) none

9. If you acquire credit what is the type of loan you take from Microfinance
Institution?
…………………………………………………………………………….....................
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................

74
10.How do you assess the lending procedure?
a) Simple
b) Complicated

11.How do you see the interest rate?

a. Hig
b. Moderate
c. Low

12.What about the repayment period, is it {Tick whichever appropriate}

Short moderate long

If short suggest the repayment period and reason

………………………………….....................................................................................
.........................................................................................................................................
.........................................................................................................................................
........................................................................................................................................

13 Are the condition of loans advancing and recovery favourable?

d. Yes
e. No

14. Do you think the loan you received was enough?

a) Yes
b) No

Why................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................

75
15, Did you use the loan as planned?

a) Yes

b) No

If, No,Why Not

.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
..................................................................................................................................

16. Do you think loans have improved your life in one way to another?

a) Yes
b) No
If no why do you keep on borrowing?

……………………………………………………………………………………
……………………………………………………………………………………
……………………………………………………………………………………
……………………………………………………………………………………

17.Why most of the customers fail to repay the loans?

……………………………………………………………………………………
……………………………………………………………………………………
……………………………………………………………………………………
……………………………………………………………………………………
……………………………………………………………………………………

76
18. What do you think Microfinance Institutions should perform to improve
the whole system of loans advancing and recovery?

…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
………………………………………………………………………….......................

THANK YOU FOR YOUR COOPERATION

77
 APENDIX III

MAP SHOWS AREAS WHERE VICOBA OPERATES IN TANZANIA.

Source:-Field Work 2013

78