Bank of Tanzania Directorate of Micro finance 16th Floor
Frequently Asked Questions
What is Microfinance?
to provision of financial services to low income clients, including the
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?
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.
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.
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.
traditional insurers are reluctant to serve the poor?
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
7. How does microfinance help the poor?
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?
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
12. What is a Microfinance Institution (MFI)?
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
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?
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
16. What are the key microfinance websites?
Click Links for the most-often accessed
17. How many MFIs are in Tanzania?
Click Practitioners to view the MFIs
Directory as per recent survey of MFIs.
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