Tanzania
The Microfinance industry in Tanzania is relatively young. Individual players have been trying to deliver financial services to low-income communities since late 1980s and early 1990s but their efforts have been thwarted by lack of skills and experience, inappropriate methodologies, and above all difficulties in access to sources of funding
The World Bank estimates that less than 20% of Tanzania’s working population in both the rural and urban economies has access to the mainstream banking, which translates into 13 million people not having access to the banking services. It is estimated that 80% of the 13 million are informal sector players i.e. micro and small entrepreneurs (SME) and their number is growing by 4% annually. In general, the microfinance industry in Tanzania faces a tremendous challenge in developing an efficient and effective micro financial system that is capable of delivering appropriate, affordable, quality services to such a large sector with diverse economic undertakings.
It is estimated that there are around 800 institutions providing some kind of financial service to low-income groups in Tanzania.
Generally speaking the composition of the industry’s service providers can be divided into three categories. The first category consists of commercial banks that are under the banking regulations and supervision by the Bank of Tanzania and which are down streaming. The second category of microfinance service providers in Tanzania consists of institutions that are not currently regulated by the Bank of Tanzania. These include NGOs, SACAs SACCOs. These microfinance institutions provide financial services to the SMEs mainly in the form of micro credit with an exception of cooperative based microfinance institutions, which are predominantly savings based. The financial NGOs numbering between 80 and 100 out of which 42 are registered members of the Tanzania Association of Microfinance Institutions (TAMFI), the local microfinance network. A final category of Tanzanian microfinance service providers consists of non-institutional actors who generally operate in the informal sector. These include rotating savings and credit groups, rural savings and credit schemes, and moneylenders. There are no statistics for the actors that fall into this category, but there are numerous entities, which operate informally and provide valuable, but limited and often expensive microfinance services. Since year 2003 positive developments have been noted in the industry whereby a number of banks and financial institutions have developed interest in the provision of funding to the industry either directly to beneficiaries or through intermediary institutions.
It is roughly estimated that microfinance service providers have a combined outreach of around 500,000 clients, which is only about 5% of the estimated total demand.
Regulation
The Government of Tanzania has been supportive of the microfinance industry and it clearly views microfinance as an important tool for successful implementation of its poverty alleviation strategy. The Government began financial sector reforms in 1991 with a commitment “to allow banking institutions to operate on a commercial basis and to make their business and management decisions free from outside intervention within the norms of prudential supervision”. The principal elements of the reforms included the liberalization of interest rates, the restructuring of state-owned financial institutions, the establishment of private banks (both local and foreign owned), strengthening of the Bank of Tanzania’s role in regulating and supervising financial institutions and strengthening of Savings and Credit Cooperative Societies (SACCOs) as grass root providers of financial services. These reforms were embodied in the Banking and Financial Institutions Act and the Cooperative Societies Act, both of 1991, as well as the Bank of Tanzania Act, 1995. Additional reforms were recently introduced via the Financial Laws (Miscellaneous Amendments) Act, 2003.
The framework leading to the licensing of microfinance companies was built through a review process covering three critical areas namely,
a) Legal Framework: Amendments of a set of financial bills in February 2003
b) Regulations: Government Notice No. 80 of 25th March 2005 - Publication of supplementary legislation to the Banking and Financial Institutions Act 1991 - cited as Regulation for Microfinance Companies and Microcredit Activities.
c) Supervisory: Amendments of a set of financial bills in February 2003 – specific amendments to the Banking and Financial Institutions Act 1991 identified the Bank of Tanzania as the regulatory and supervisory authority for microfinance companies.
Under the regulations, microfinance institutions would be free to decide whether to remain operating as credit only institutions or seek to be licensed as microfinance companies to be able to take deposits from the public.
Hivos is the MicroNed country coordinator for Tanzania. A country scan is planned for June 2007 after which more detailed information will be available.
In 2005, the three MicroNed members working in Tanzania, Cordaid, Hivos and Oxfam Novib, granted € 345,000 to 8 microfinance organisations. The outstanding loan portfolio totalled € 2,6 million in loans and equity to 6 MFIs.