- Microfinance in Tanzania
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Microfinance in Tanzania began with NGOs and SACCOs (Savings and Credit Cooperative Organizations) in 1995 and has continued to grow with the increased success of microfinance internationally.
Microfinance is still a relatively new concept in Tanzania. Beginning in 1995, it was mainly linked to women and poverty alleviation. The government tried to convince commercial banks to support small and medium businesses. Once the National Microfinance Policy was implemented in 2001, microfinance was officially recognized as a tool for poverty eradication and with its increased use and exposure to the country, banks have taken an interest in offering microfinance. The National Microfinance Bank is an institutional provider of microfinance services, and the AKIBA Commercial bank and CRDB Bank are also two big supporters of microfinance. There are additional organizations involved in microfinance in Tanzania, including FINCA, PRIDE and SEDA as well as the Tanzania Postal Bank. Community banks and small banks have taken an interest in this, as well as many NGOs and non-profit organizations.
A recent 2005 survey done by the Bank of Tanzania (the overseer of microfinance under the Ministry of Finance) updated the directory of microfinance practitioners and includes basic information on microfinance institutions including commercial banks, financial institutions, financial Non-Governmental Organizations (NGO), Savings and Credit Cooperatives Societies (SACCOs) and Savings and Credit Associations (SACAs). The directory includes a total of 8 banks, 45 CBOs, 2 companies, 95 Government programs, 1,620 SACCOs, 48 SACAs and 62 NGOs.
Contents
Commercial banks in tanzania
National Microfinance Bank
The National Microfinance Bank is probably the closest to a large government bank that Tanzania has. It was created from the restructuring of the National Bank of Commerce (NBC) by an Act of Parliament after NBC’s mandated break up due to its monopoly of in commercial banking in Tanzania. NMB is registered in the Companies Registrar and is under the authority of the Bank of Tanzania in external regulation and licensing and prudential supervision. NMB’s main source of funds are deposits and capital making it a self sustainable financial institution. The advantage of NMB is its size and network of currently 104 branches and agencies in nearly every district of Tanzania (currently only 12 branches accommodate microfinance operations). It plans to add 16 more branches and offices that can offer microfinance services. Aside from being a large bank, its microfinance operations are of considerable stature. NMB’s outstanding microfinance portfolio stands at Tsh 907.5 million (693,000 USD) at the end of 2001, with an average of Tsh 323,000 (246 USD) per account. Their loans are comparable to those of other commercial banks that offer microfinance (i.e. AKIBA and CRDB). NMB makes loans to individuals as well as groups of people and businesses in small enterprise. The primary microfinance product offered and stressed are savings deposits which is the easiest to obtain at NMB and quite reliable as well. NMB’s specific strategy towards microfinance is unique in that they link large corporate customers to microfinance loan customers. NMB calls this the Kilombero strategy after they linked the loans given to the Kilombero sugar Company to sugar cane out-growers. The Kilombero strategy encourages growth through loans for the use of capital and growth to both small and large enterprises.
NMB encourages and expands microfinance in three ways:
- Loans to micro and small enterprises for the purchase and inventory and supply of goods
- Collection and payment services to large corporate clients to/from micro and small enterprises
- Add-on services such as money transfers and payroll services to both the large corporate clients and micro and small enterprises
AKIBA Bank
AKIBA has 14 branches in Tanzania, 12 in Dar es Salaam and one each in Arusha and Moshi. Akiba has taken a relatively risky approach to microfinance by embracing and expanding it within their practices. The microfinance products offered at AKIBA are savings deposits, group (called Solidarity Group) and individual micro enterprise loans (called Biashara Loans). Their license came from the Companies’ Act and they are also under the authority (external regulation and supervision) of the Bank of Tanzania. They are currently self sustainable with their source of funding coming from deposits and capital. They are the first commercial bank to pioneer microfinance in Tanzania and have seen a great amount of success with current outstanding loans at Tsh. 18 billion (13.7 million USD), 4 billion of those being individual micro loans and the remainder being loans to groups or businesses. The minimum loan is Tsh. 200,000 (150 USD) and the maximum loan remains at 10 million TZS. Women create over 50% of 12,200 borrowers and generally borrow between TZS 20,000 and 500,000. Being a bank without as much outreach as a bank such as the National Microfinance Bank, AKIBA has an easier time focusing on its microfinance operations and is able to measure its success at a quicker and easier than NMB. In addition, reforms to the bank’s practices have an efficient turnover time as opposed to larger banks and training of employees to a standardized practice is much easier in a bank such as AKIBA.
AKIBA attributes its success to providing services outside the normal financial institution in teaching invaluable business practices as well as focusing on savings and deposits. The growth in deposits can be attributed to the increase in micro loans and the motivation for attaining loans through microfinance as well as additional success in other banking areas. AKIBA does acknowledge that they do have challenges ahead, however most of these challenges relate to their successes and planning of logistics for increased success such as increasing research and development, mobilizing more deposits to meet loan demands, a suitable MIS system for increased competition (MIS systems manage and monitor large portfolios), human resource training and recruiting (human resources is a relatively new concept in Tanzania and essential to microfinance), balancing between micro and corporate finance (AKIBA only accepts corporate loans from in-house growth, meaning only those microfinance groups that have grown within their bank can obtain larger corporate loans), and anticipated tougher re-regulation by the Bank of Tanzania due to AKIBA’s higher interest rates. In preparation for these challenges, AKIBA has every intention to remain in microfinance and anticipates great success.
One interesting aspect of AKIBA is that 80% of their customers have never held a bank account of any form of savings account at an institution before. This is because most banks have turned these people down due to their lack of prior credit. AKIBA attributes their success to being able to gain these clients and then teaching them “the culture of savings.”
CRDB Ltd.
CRDB stands for Cooperatives Rural and Development Bank however it is not a cooperative. This privately owned bank is one of the oldest banking institutions in Tanzania and the third largest bank in Tanzania (The National Bank of Commerce and the National Microfinance Bank which split from NBC are the two largest banks). CRDB has with 22 branches and 2 agencies in Tanzania. CRDB’s endeavors in microfinance are fairly recent, with pilots in only 4 branches. CRDB was also created under the Companies’ Act and is under the authority of the Bank of Tanzania (external regulation and supervision). However, unlike the other three commercial banks in microfinance, its primary source of funding comes from The Danish International Development Agency (DANIDA) which serves as one of CRDB’s single largest share-holders.
CRDB is different from the other two national banks in that it primarily provides loans to microfinance institutions such as SACCOS (the largest type of MFI in this program). CRDB as a more conservative bank has taken this approach in order to reduce their risks in microfinance by loaning to groups such as SACCOs instead of micro and small enterprise borrowers. CRDB provides SACCOs with financial stability. CRDB’s total assets are as of June 2003 US $370 million. Its total customer deposits account for US$ 330 million. Its pre-tax profit lies at US$ 7.4 million. And its total loans and advances (including microfinance loans to smaller microfinance institutions) is US$ 60 million.
Tanzania Postal Bank
The Tanzania Postal Bank is the 4th commercial bank” that is involved in microfinance. Like the National Microfinance Bank, the Tanzania Postal Bank was created by an Act of Parliament and like the previous three banks, it too is under the Companies Registrar and under the authority of the Bank of Tanzania (external regulation and supervision). Its source of funding is through deposits and capital. TPB was formerly the Tanganyika Post Offices Savings Bank and due its previous functions as a post office with savings deposit services in all post offices throughout the country (through simple accounts), Parliament decided to utilize TPB and create a financial institution of it to promote savings.
As of 2000, TPB has 4 branches and 15 operating units in larger post offices. TPB’s only microfinance service offered is savings and fixed deposits. What is beneficial about TPB is that it offers convenient savings services to those in rural areas due to its widespread presence throughout the country. In addition, these savings services are not as difficult to obtain as an account within a larger bank (CHECK THIS) and those Tanzanians who are more uncomfortable with the use of a bank and or do not have as much credit or capital to create a savings account have access to the savings in the Tanzania Postal Bank. A minimum of Tsh 5000 is required to create an account with TPB. As of the year 2000, TPB had deposits of Tsh 41.5 million and continues to grow although facing competition from SACCOs and commercial banks. The total number of customers that TPB has at the end of 2001 is 1,038,243 account holders. This gives each account an average of Tsh 40,000. TPB’s primary focus is on savings mobilization for the public of Tanzania, however it also offers Western Union transfers and participates in the Interbank Foreign Exchange Market, both increasing TPB’s financial success and adding profit to the business. TPB has acted more like a business particularly since the millennium with an increasing investment portfolio (rose 9% to Tsh 39,373 million in 2001) primarily investing in Treasury bills and government stocks (accounting for 72.3%).
The Tanzanian Postal Bank also offers various types of loans ranging from personal, instalments, short-term and micro-credit (offered to groups). TPB’s loan portfolio mainly consists of “working capital financing, bridging finance, commercial transport loans, crop financing, export-import financing, guarantees and bonds, direct personal loans, employer collective guarantee scheme and group-based loans.” The number of loans approved has also grown in 2001 from 69 in the year 2000 to 356 loans the year after. Problems with increasing loan portfolios is the definite risk involved. Contributing to this risk are issues such as “weaknesses in the legal system regarding contract enforcement, weaknesses and time-consuming title deeds registration procedures, lack of credit reference bureaus, and past history of non-performing loans (examples from other banks).”
NGO
- Tanzania Association of Microfinance Institutions (umbrella organization for all Tanzanian MFIs)
- MEDA
- PRIDE
- PTF
- Opportunity Tanzania Limited
- Five Talents
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