Case Study

A Critical Look at the Role of Microfinance Banks in Poverty Reduction in Tanzania: A Case of Akiba Commercial Bank Limited

Examining MFI effectiveness in reducing poverty
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This paper examines the effectiveness of microfinance banks in reducing poverty in Tanzania through a case study of Akiba Commercial Bank (ACB). The study examines credit access, borrowers' success in their undertakings and poverty reduction in terms of income, employment, education and housing. The study used simple random and purposive sampling techniques on 120 respondents. It collected data through questionnaires, semi structured interviews, observations and documentary reviews. Study findings show that:

  • Majority of the poor do not access bank loans because they lack guarantors, assets, businesses, salaried employment and savings accounts in banks;
  • Respondents also lack the ability to make weekly deposits in the special savings accounts as collateral;
  • Most respondents felt that credit does not make them successful in their undertakings, instead, it makes them more dependent;
  • Effectiveness of microfinance banks in poverty reduction is limited, because banks are not pro-poor.

The paper recommends that banks should encourage the poor to borrow by revisiting collateral conditions and reducing interest rates. ACB should widen its market by introducing loans for housing, education, agriculture and initial capital. The government should consider establishing independent funds to help the poor.

About this Publication

By Dimoso, P. & Masanyiwa, Z.