M a r k e t N e w s

Tanzania: Microfinance Sector Vital for Growth

Posted on : Tuesday, 2nd August 2016

 The micro-finance industry in Tanzania plays a big role in bringing equality to all citizens especially the financially underserved population in the rural areas.

There is a large group of dependents, particularly low income earners, on the services offered by micro-finance institutions that have transformed their lives into much better.

Yetu Micro-finance, Managing Director, Altemius Millinga, said in an interview in Dar es Salaam at the weekend that many microfinance clients have been made economically independent with many groups engaging in various economic activities after accessing finance.

"There is bright future of micro-finance industry in the country which is good news to the most financially underserved particularly in the rural areas to have easy access to affordable loans," he said.

Economic growth is strongly correlated with poverty alleviation and access to financial services is key to development and growth in developing countries and emerging economies.

The main challenge in developing countries, especially in rural areas, is to create a sustainable financial system that will contribute to poverty alleviation and economic growth. The larger part of the population in Tanzania lives in rural areas, in which agriculture is the main activity.

Formal financial institutions often avoid financing rural areas due to the perceived higher costs and risks.These are related to the widely-dispersed population, less developed infrastructure and specific client needs of the agricultural sector.

To address this, the government is in the process of establishing legal framework to oversee micro- finance institutions, the initiative that will attract more investors into the sub-sector thus increasing the number of the financial institutions in the country.

"Although they serve millions of the poor, the micro-finance sub-sector has been operating without proper regulation in the absence of a specific law that governs it," he said. Lack of clear legal status to govern micro-finance institutions is perceived as risky and therefore deterring wholesale lenders and investors.

Mr Milinga said microfinance institutions' stakeholders have been advocating for the regulatory framework to make the subsector grow and even protect the consumers.

By increasing access to financial services for the poor segments of society, the financial sector can play an important role in alleviating poverty in developing countries. To achieve sustainable economic growth, the focus should be on the whole range of economic activities linked with a strong micro- finance industry.

Micro-finance institutions are important drivers to a country's economic development because they have the ability to create goods, innovations and employment which can take the economy to a higher level. It is essential that these enterprises have access to financial services fitting their needs, in order to continue and expand their businesses.

For example, in just few years of operations, Yetu Microfinance has reached some 53,000 and after becoming fully fledged micro-finance bank, it now focuses on raising the number to over 200,000. "We are starting with three branches.

We were using them as micro-finance branches and the remaining centres will continue to operate until upgraded," he said. The upgraded centres to now full-fledged branches are Mzizima, Mbagala in Dar es Salaam and Mgeta in Morogoro.

The Managing Director said the bank's customers will also be able to access some bank service through automated teller machines (ATMs). Also he said it was high time that players in the micro-finance industry adopt technological innovations in order to raise the standard of services to serve more people at an affordable cost.

Digital savings group tools can help rural saving groups to use mobile phones to manage their group structure and help with digital savings and credit management.

"This way it will be much easier for such groups to link to formal financial services at any geographical point," he added. Formal financial intermediaries, such as commercial banks, usually refuse to serve poor households and micro-enterprises because of the high cost of small transactions, lack of traditional collateral, lack of basic requirements for financing and geographic isolation.

Providing access to financial services will stimulate the independence and self-development of poor households and micro-entrepreneurs. This will help not only to improve poor people's economic condition, but also to provide a way to maintain or improve their quality of life in the face of uncertainty.

Moreover, gaining access to financial services is a critical step in connecting the poor to a broader economic life and in building the confidence for them to play a role in the larger community.

Source : allafrica.com
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