Paper

The Contribution of Microfinance Institutions to Poverty Reduction in Tanzania

Examining role of microfinance in poverty reduction
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This study aims to gauge the contribution of MFIs to poverty reduction in Tanzania. The research is based on literature review, questionnaires administered to MFIs and clients, and case study of an MFI.

Though micro and small enterprises contribute around 32 percent of Tanzania’'s GDP, MFIs have limited coverage and poor organizational structures, and are often donor-driven. This study explores potential areas of improvement for MFIs. It includes interviews with clients of Pride Tz, a Tanzanian MFI catering to low-income entrepreneurs, and a review of the MFI’'s performance data to evaluate its impact.

The study reveals that MFIs have a positive impact on poverty reduction. They help clients increase their incomes and capital, and expand businesses. Most MFI operations, however, are based in urban areas while poverty is concentrated in rural areas. Recommendations include:

  • Lowering interest rates to an optimum level;
  • Increasing loan grace periods and reducing frequency of repayment;
  • Improving infrastructure and introducing trade exhibitions for micro and small enterprises;
  • Restructuring MFIs’' training content to include improving their clients’' business skills;
  • Making small base loans flexible to reflect changes in value of money.

About this Publication

By Kessy, S. & Urio, F.
Published