Downscaling of Commercial Banks and its Impact on their Performance: A Case Study of Akiba Commercial Bank (ACB) in Tanzania

This case study of Akiba Commercial Bank (ACB), Tanzania, examines credit models that banks in Tanzania adopt to provide loans to micro and small enterprises (MSEs).

A growing number of commercial banks have entered the MSE lending market in Tanzania. These banks do not use commercial lending models or traditional microfinance models. The study finds that:

• Banks that lend to MSEs in Tanzania use solidarity group lending and individual lending models that have proved efficient;
• Banks are profitable because repayment rates are high and operational costs are low;
• Key challenges experienced by ACB include lack of software, multiple borrowings, shortage of experienced staff, poor infrastructure and strict regulations.

ACB has demonstrated that downscaling to serve the MSE sector can be profitable. Critical factors for downscaling include commitment and effective leadership, strategic fit, supportive infrastructure, information technology and human resources and appropriate regulatory framework.