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Bank of Tanzania Directorate of Micro finance 16th Floor Frequently Asked Questions
  1. What is Microfinance?

Microfinance Refers to provision of financial services to low income clients, including the self-employed. 

Also Microfinance can be refers as Provision of financial services to "households, smallholders farmers and small and microenterprises of the rural and urban areas"

2. What is Microcredit?

Microcredit is a fundamental part of the Microfinance concept. Microcredit involves the extension of very small loans to unemployed, small entrepreneurs and those who are living in poverty to enable them engage in self-employment projects that generate income. Normally those people lack collateral to enable them gain access to traditional credit from the banking system.

 3. What is Microsavings?

Microsavings are deposit services that allow one to keep small amounts of money for future use. Often without minimum balance requirements, savings accounts allow households to save in order to meet unexpected expenses and plan for future investments.

4. What is Microinsurance?

Microinsurance is a system by which people, businesses and other organizations make a payment to share risk. Access to insurance enables entrepreneurs to concentrate more on developing their businesses while extenuating other risks affecting property, health or the ability to work.

5. Why traditional insurers are reluctant to serve the poor?

Insurance product has high transaction costs, irregular income flows, and on the other hand there are difficulties in controlling moral hazard. There are higher risks in providing this product as well as issues regarding affordability. Furthermore, households have limited understanding of insurance

  6. Who are the clients of Microfinance?

Microfinance clients are generally  low-income people who do not have access to formal financial institutions. In rural areas, they are usually small farmers and others who are engaged in small income-generating activities such as food processing and petty trade. In urban areas, Microfinance activities are more diverse and include shopkeepers, service providers, artisans, street vendors, etc.

7. How does microfinance help the poor?

Microfinance and its components helps poor people or low-income earners to meet their basic needs, and be in a better economic condition. Having access to micro insurance, poor people can handle sudden expenses associated with serious illness or loss of assets. By having savings accounts poor people can also be able to plan for the future e.g children's education. Studies in different countries have proved that through Microfinance poor have been able to graduate from poverty, and illiterate.

8. Why do MFIs charge such high interest rates to poor people?

Providing financial services to poor people is quite expensive, especially in relation to the size of the transactions involved. This is one of the most important reasons why banks don't make small loans. A TZS 50,000 loan, for example, requires the same personnel and resources as a TZS 2,000,000 one thus increasing per unit transaction costs. Loan officers must visit the client's home or place of work, evaluate creditworthiness on the basis of interviews with the client's family and references, and in many cases, follow through with visits to reinforce the repayment culture. It can easily cost TZS 12,500 to make a microloan. This might represent 25% of the value of the loan amount, and force the institution to charge a “high” rate of interest to cover its cost of loan administration.

9. Why  the poor people are willing pay the higher interest rates?

Despite the interest being very high Clients – the poor people are willing pay just to assure long-term access to credit. They recognize that the interest rates in the informal finance sector (moneylenders, etc.) are very high but are better than simply no access to credit at all.

10. Aren't the poor too poor to save?

Poor people normal invest in assets that can be easily exchanged to cash in the future when there is a need of cash. Those assets include Farm products, domestic animals, building etc. Poor people as other human beings need to have a nearest cash to solve emergency problems such as illnesses, school fees, need to expand the dwelling, burial, and weddings etc. With these informal ways that people save it is hard to overcome such problems example it is hard to sale a house when the sudden need for a small amount of cash arises; you can not sale part of the house immediately just to solve a small problem; or if you have loaned your saving to a family member as a way to keep the money safe from theft and fire, the money  may not be readily available when you need them to solve the problem. This shows that despite of all his efforts to save, the poor person needs savings services that are both safe and liquid; savings that can enable him meet emergency needs and accumulate assets at the same time.

11. Why is microfinance so important for women?

When women have access to financial services become more assertive and confident. Women become stronger in decision-making and even leadership within the families and communities.  Studies have proved that Microfinance (having access to financial services) has improved women status within the families and the communities; example women nowadays own assets, including land and housing. 

12. What is a Microfinance Institution (MFI)?

 A Microfinance institution refers to an organization that offers financial services to low-income population. Such organization include NGOs, credit unions, SACCOs, SACAs, Community banks, commercial banks and non-bank financial institutions.

13. What is the government’s role in supporting microfinance?
National Microfinance policy

14. What is the role of the Bank of Tanzania in supporting the development of microfinance?
National Microfinance policy

15. Are there training courses that would enable me to get more in-depth exposure to microfinance?

Yes. A number of institutions provide workshops and trainings on microfinance issues. These trainings vary in length, location, and cost. Please consider the institutions listed below as a starting point in learning more about microfinance; See also the Events for specific announcements of upcoming workshops, seminars, conferences and training. 

16. What are the key microfinance websites?
Click Links for the most-often accessed microfinance-related websites

 17. How many MFIs are in Tanzania?
       Click Practitioners to view the MFIs Directory as per recent survey of MFIs.


Please send us feedback on these answers or suggest your own answers through microfinance@hq.bot-tz.org


What is New ...

Akiba Commercial Bank (ACB) Training Session 

Microfinance clients attending business development training organized by ACB. Business training helps microfinance clients, especially those with no previous experience in running their own businesses and handling finances, to use their loans properly.



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