tanzania country scan microfinance · pdf filetriodos-facet 2007 tanzania country scan...

[email protected] www.triodosfacet.nl

Triodos Facet P.O. Box 55, 3700 AB Zeist, The Netherlands Tel.: +31 (0)30 6933766 Fax.: +31 (0)30 6923936

Tanzania Country Scan Microfinance For Hivos/MicroNed

December 2007 FINAL

Triodos-Facet 2007 Tanzania Country Scan Microfinance List of abbreviations

LIST OF ABBREVIATIONS ACB Akiba Commercial Bank Ltd. ADB African Development Bank BOT Bank of Tanzania CCM Chama cha Mapinduza CIDA Canadian International Development Agency CRDB CRDB Bank Ltd. CMSA Capital Markes and Securities Authority COASCO Cooperatives Audit and Supervision Corporation DANIDA Danish International Development Agency DFID Department for International Development (UK) DID Développment International Desjardins DSM Dar es Salaam EAC East African Community EFA Equity for Africa EKN Embassy of the Kingdom of the Netherlands FERT Formation pour l’Epanouissement et le Renouveau de la Terre FICO Financial Cooperative FSDT Financial Sector Deepening Trust GDP Gross Domestic Product GOT Government of Tanzania IFAD International Fund for Agricultural Development IFC International Finance Corporation IFM Institute of Finance Management IMF International Monetary Fund KFCB Kagera Farmers Cooperative Bank NMB National Microfinance Bank Ltd. NGO Non-governmental Organisation MFC Microfinance Company MFI Microfinance Institution MUCCOBS Moshi University College of Cooperative and Business Studies PTF Presidential Trust Fund RFSP Rural Financial Services Support Project SACCO Savings and Credit Cooperative Society SCCULT Savings and Credit Cooperative Union League of Tanzania Ltd SECO Swiss Government’s State Secretariat for Economic Affairs SEDA Small Enterprise Development Agency SELF Small Enterprise Loan Facility SIDA Swedish International Development Agency SMEs Small and Micro Enterprises TA Technical Assistance TANZALEP Tanzania Leasing Project TBA Tanzania Bankers Association TIOB Tanzania Institute of Bankers TOR Terms of Reference Tsh. Tanzanian Shillings VICOBA Village Community Banks VSLA Village Savings and Loan Associations WB World Bank

Triodos-Facet 2007 Tanzania Country Scan Microfinance Table of contents

TABLE OF CONTENTS INTRODUCTION........................................................................................................................ 1 1 General Information .......................................................................................................... 2

1.1 SOCIO-POLITICAL CONTEXT............................................................................................ 2 1.2 ECONOMIC CONTEXT ..................................................................................................... 3

2 The Financial Sector ......................................................................................................... 5 2.1 GENERAL ...................................................................................................................... 5 2.2 NATIONAL POLICIES ....................................................................................................... 5 2.3 THE LEGAL FRAMEWORK................................................................................................ 7

3 microfinance services....................................................................................................... 9 3.1 DEMAND FOR FINANCIAL SERVICES................................................................................. 9 3.2 MICROFINANCE SUPPLIERS .......................................................................................... 10 3.3 SUPPORT AND FUNDING NEEDS .................................................................................... 16 3.4 DONORS AND INVESTORS ............................................................................................. 17 3.5 SUPPORT GAP AT INSTITUTION LEVEL............................................................................ 18 3.6 SUPPORT GAP AT CLIENT LEVEL ................................................................................... 19

4 Actors on sector level ..................................................................................................... 20 4.1 OVERVIEW OF ACTORS ON SECTOR LEVEL .................................................................... 20 4.2 SECTOR NEEDS ........................................................................................................... 22 4.3 SECTOR SUPPORT ....................................................................................................... 24 4.4 SECTOR GAPS ............................................................................................................. 24 4.5 IMPACT MEASUREMENT & SOCIAL PERFORMANCE MANAGEMENT ................................... 24

5 Conclusions & Recommendations................................................................................. 26

ANNEXES: Annex 1 Terms of Reference Annex 2 Directory of Actors at Sector Level Annex 3 List of Relevant Documents and Resources Annex 4 Dutch Donors & Investors in Microfinance, Tanzania Annex 5 Other Donors & Investors in Microfinance, Tanzania Annex 6 Overview of Microfinance Providers in Tanzania

Triodos-Facet 2007 Tanzania Country Scan Microfinance 1

INTRODUCTION MicroNed is a network that brings together the four Dutch development organisations Cordaid, Hivos, ICCO and OxfamNovib. It was created in 2006, and aims to provide a structural basis for coordination and establishment of a specialised sector approach to microfinance. MicroNed specifically aims to strengthen microfinance sector interventions on national level, geared to the development of an enabling environment. Coordination and collaboration in countries and regions as well as on specific themes play a central role. MicroNed will not provide direct support to retail MFIs; this is the exclusive domain of its members. MicroNed will harmonise its members’ activities as far as grant support for sector development in selected focus countries is concerned. Tanzania is one of the nine focus countries of MicroNed. Hivos is country coordinator for Tanzania within MicroNed, and responsible for developing a country sector development strategy, to serve as the basis for coordination between the four MicroNed members. The objective of this assignment is to produce a Country Scan on Microfinance for Tanzania. This document will serve as input to Hivos and MicroNed in the formulation of a country sector development strategy for Tanzania. Marjan Duursma Triodos-Facet Dar es Salaam, October 2007


1 GENERAL INFORMATION

1.1 Socio-Political Context

Basic Socio-Political Indicators1 Area, km² 945,000 km² Capital Dodoma (political) ; Dar es Salaam

(commercial) Population 37.6 Million (2004) % below 15 years 46% (2004) % living in rural areas 66% (2004) Population growth 1.7% per year (2004 – 2015) Population density 37 people per km² Ethnic composition > 80% Bantus (over 120 ethnic groups)

Indian minority, dominating trade Religious composition Christian 50.4%, Muslims 31.8%, African

Traditional 16.1% National language Swahili, English Adult literacy Female 62.2%, Male 77.5% (>15 years) Life expectancy at birth Female 46.2 years, Male 45.6 years People with HIV/Aids 6.5% (in age group 15-49 years) Ranking in Human Dev. Report

162nd

(out of 177 countries, 2004)

ODA Category Least Developed Countries & Territories Proportion poor people 50,87% (2004)

2

Ranking in Gender Empowerment Measure

36th (out of 75 countries, 2004)

Political structure / political forces / conflicts Tanzania became independent in December 1961. Politically Tanzania has been one of Africa’s most stable countries. There are no major conflicts between religions or tribes. Tanzania’s transition from a one-party socialist political system under the Chama cha Mapinduzi (CCM) to a multi-party political system has been without social and political upheavals. Executive power rests with the president and the ruling CCM. The latter is very often the only party within the villages, where the CCM leadership still has a great influence. Government transparency and democratic dialogue are limited. During elections in 2000 and 2005 opposition parties were divided and effective social and political harassment of opposition people by security forces prohibited equal opportunities and a leveled playing field. In both years, elections on Zanzibar (where the main opposition party CUF has its stronghold), were accompanied by political violence. In 2005, J.K. Kikwete was elected as President. Next elections are scheduled for 2010. Tanzania is one a founding member of the East African Community (EAC), which has five members: Tanzania, Kenya, Uganda, Rwanda and Burundi (latter two became full members in July 2007). The 3rd EAC Development Strategy (2006-2010) will guide the members to increased cooperation. Since January 2005, the EAC functions as a customs union, as a first step towards a common market and East African Federation. Incidence and characteristics of poverty, income distribution After over four decades of independence Tanzania remains one of the 10 poorest countries in the world. Poverty remains widespread and deep, with half of Tanzanians living under conditions of deprivation, concentrated in the rural areas where approximately 66% of Tanzanians live. Poverty is closely related to the low profitability of agricultural activities. Major causes of concern are the unequal distribution of wealth and resources. The HIV/Aids situation in the country is less worrisome than in neighboring countries but still HIV/Aids is a leading killer disease for the age

1 Sources: UNDP Human Development Report 2006 (based on 2004 data).

2 % of population living in households with consumption or income per person below the poverty line.


group 15-49. This, in combination with population growth, results in 46% of the population being below 15 years of age. Although Tanzania experienced relatively rapid growth in per capita GDP over the past decade, decline in poverty has been low and concentrated in urban areas. Unemployment is formally about 16%; underemployment is widespread. Therefore, allowances and other non-salary opportunities remain important in the survival strategies of many, especially civil servants. Corruption at all levels remains a major challenge.

1.2 Economic Context Basic Economic-Financial Indicators3 Gross Domestic Product US$ 12.956 billion (2006) GDP per capita US$ 339 annually (2006) GDP growth rate 5.9% (2006) Main exports coffee, minerals, cashew nuts, tobacco, cotton, tea Inflation rate 7.5% (2006) External debt ratio 48.4% of GDP (2006) Exchange rate Slow annual decline against US$, but since 2002 strong decline

against Euro (due to dollar devaluation against Euro) Treasury Bills Weighted Average Yield 15.4% (August 2007) Overall lending rate 16% (August 2007) Short term lending rate (< 1yr) 14% (August 2007) Time Deposit (1 yr) 9% (August 2007)

General economic development Tanzania’s economic performance has been strong over the past decade, supported by prudent macroeconomic policies and far reaching structural reforms. The structural reform agenda has focused on economic liberalization, improved public financial management and tax and customs administration, and financial sector development. Together with infrastructure investment and structural policies to enhance the business environment, this has contributed to solid productivity growth. Since 2000, real GDP growth has averaged 6.3% per annum, one of the highest in Sub-Saharan Africa. Inflation rates have been around 4-6% in the same period. Tanzania’s external debt burden, in net present value terms, has been reduced to about 16% of GDP at the end of 2006, due to improved tax revenue performance and debt relief under the Enhanced Heavily Indebtedness poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative. Nevertheless, with a GDP per capita of less than $340 and widespread poverty, Tanzania still has a long way to go to reach its Millennium Development Goals (MDGs). Tanzania remains highly dependent on aid, with over 40% of its national budget funded by donors (11% of GDP). Agricultural sector Tanzania’s economy is still predominantly agricultural. Its share in GDP is 45%, in exports 75% in employment 80%. Subsistence cultivation and smallholder cash crop production are predominant. The main subsistence crops, accounting for 55% of total agricultural output, are maize, sorghum, millet, cassava, rice plantains, wheat and pulses. Yields are poor due to low input use and limited access to new technologies. The agricultural sector has been growing modestly, although production levels are still far below potential, and have been affected by recurrent droughts. Environmental degradation is widespread in many rural areas due to inappropriate land use and a lack of appropriate technologies. Agricultural growth has occurred mainly through the expansion of areas under cultivation. Monetary indicators Monetary aggregates have grown at a stable pace since 2000, reflecting rapid financing deepening, albeit starting from a very low base. Bank lending to productive non-government

3 Sources: IMF: Country Report Tanzania, Nr. 07/246, July 2007 and BOT Monthly Economic Review,

August 2007.


sectors has expanded sharply (average 32% per annum). However, small and medium enterprises and agricultural activities in rural areas, have so far failed to benefit from this increase. The spread between lending and deposit rates has continued to narrow, indicating more efficient intermediation by banks (5% in August 2007). Nevertheless, general lending rates remain high. Treasury Bill rates have become increasingly volatile since 2005, and overall yields remain high (between 12 – 18% in 2006/2007). This reduces the financial sector’s incentive to broaden the provision of credit to the private sector. In the June 2007 budget, the GOT introduced various strategies to reduce the level and volatility of Treasury bill yields, including focusing its fiscal policy on minimizing domestic borrowing, and transfer of all government deposits from commercial banks to the central bank (approx. Tsh. 1 Trillion). This will especially affect NMB and CRDB.


2 THE FINANCIAL SECTOR

2.1 General

Tanzania’s financial sector, and the microfinance industry in particular, is relatively young. Over the past fifteen years, the financial sector as a whole has undergone major changes from the originally state-owned and -controlled system to a liberalized financial sector. Principal elements of reform included liberalization of interest rates, restructuring of state-owned financial institutions, strengthening the BoT’s role in regulating and supervising financial institutions, and allowing entry of local and private banks into the market. The far-reaching reforms have assisted to diversify the banking sector, and develop a small capital market. However, despite the progress, Tanzania’s financial sector remains relatively small, and access to financial services remained stunted for the majority of Tanzanians. By December 2006, total bank assets stood at Tsh. 6.6 Trillion, total customer deposits amounted to Tsh. 5.3 Trillion, with Tsh. 2.4 Trillion outstanding in loans and advances. In all three aspects, there has been over 200% growth compared to 2002. The sector counted 294 bank branches and 176 ATMs, and employed 6,400 Tanzanians4. A number of market trends can be observed: • As the above figures show, there is excess liquidity in the formal banking sector. Government’s

recent efforts to reduce the level and volatility of T-bill yields (see 1.2) is expected to further encourage lending to the productive sector, as well as product innovations (e.g. unsecured loans, mortgage finance, leasing). Product innovations will need to be supported by adjustments in the regulatory framework.

• Several commercial banks are entering the lower income/SME market by introducing and refining their products for retail clients, often combined with short seminars/training for SMEs.

• Particularly in individual loans to the middle and upper segment of micro-enterprises, there is increasing competition in (peri-)urban areas, involving commercial banks, MFI-NGOs and to some extent SACCOs and their networks. MFIs and SACCOs will need to become more competitive, otherwise they might be forced to less profitable segments and zones.

• Technological innovations are bringing financial services within reach of more people, at more convenience. There is growth in delivery channels. Electronic banking, extension of access points are changing the nature of banking. All major banks now have ATMs, or are in the process of deploying them, and POS devices are entering the market, creating new partnerships but also new regulatory challenges. Mobile phone banking is expected to become the next ‘revolution’.

• Salary-based consumption lending is on the increase. Both by commercial banks, as well as by other new (non-regulated) providers, e.g. Blue, Bayport Financial Services, Easy Finance.

The second-generation Financial Sector Reform Action Plan approved by Cabinet (2006 – 2011, with $22 million funding from WB and DFID) aims to further strengthen the banking sector, develop financial markets, reform the pension sector, strengthen the insurance industry, provision of long-term development finance and strengthening micro and rural finance.

2.2 National Policies

Over the past 5-10 years the enabling environment for microfinance in Tanzania has improved significantly. The GoT has come out strongly in support of the development of the industry. The National Microfinance Policy, approved by Cabinet in May 2000, articulates a clear vision for the development of a sustainable microfinance industry, specifying the respective roles of the key stakeholders. According to the policy, the private sector is to be the key provider of financial services; the Government is not to engage actively in the delivery of microfinance. Providers of

4 Source: speech by TBA Chairman (TBA Newsletter, June 2007).


microfinance are expected to apply sound financial principles in delivery of their services, particularly with respect to pricing, loan delinquency control, financial reporting, appropriate techniques and products, gender equity and governance. The microfinance policy is part of the wider policy framework for Tanzania. Other national policies and strategies with relevance to microfinance include: • The National Strategy for Growth and Reduction of Poverty (known as MKUKUTA, 2005 –

2010) contains Tanzania’s overall development strategy. The MKUKUTA addresses three clusters of outcomes: i) growth, and the reduction of income poverty; ii) improving the quality of life and social well-being; and iii) strengthening governance and accountability.

• Small and Medium Enterprises Development Policy, Ministry of Industry and Trade, 2002; • National Land Policy, 1995 The Government of Tanzania has also come out strongly in support of the revival and strengthening of SACCOs. The cooperative history in Tanzania is a tainted one: in the past, the system was highly politicised, resulting in mismanagement, poor governance and in many cases collapse, all at the expense of poor (rural) producers and their savings. In 2001, the Tanzania mainland Department of Cooperatives within the Agricultural Ministry was upgraded to the Ministry of Cooperatives and Marketing. In 2002, a new National Cooperative Development Policy was approved, in line with the 1995 International Cooperative Alliance (ICA) Statement of Cooperative Identity and Principles. In 2006, the Government introduced the National Economic Empower-ment and Job Creation Programme. The programme encourages the establishment of SACCOs at Ward level and offers to lend them a total of Tsh. 21 Billion (Tsh. 1 Billion per region, therefore popularly known as the ‘JK Billions’). So far, the Government has approved NMB and CRDB as its agents to channel the funds to individuals and SACCOs. Financial institutions are expected to triple the amount guaranteed by the Government. By end of March 2007, NMB had received over 50,000 applications and stopped accepting more. In the near future, MFIs, SCCULT and SELF are expected to channel part of the funds. The Government and BOT, with support from FSDT, aim to develop a Rural Finance Services Strategy in 2008.

‘JK Billions’ for SACCOs – the Risks Involved Although the recent drive has increased the popularity of SACCOs both in the political and public arena, it is not likely to assist in the development of long-term sustainable SACCOs, and might even be contra-productive, for several reasons: • Interest rates to the individual borrower are capped at 10% per year.

This goes against microfinance best practices of market regulation of interest rates and will not contribute to the sustainability of SACCOs;

• There is not much expected financial benefit for SACCOs. The 10% interest has to be shared between the SACCO and the bank (NMB/CRDB). With their relatively weak negotiating powers, it is doubtful if SACCOs will even manage to cover their costs of lending;

• Applications from SACCOs/individuals go through financial institutions’ regular channels and need to adhere to existing criteria. Although this is positive from the ‘best practices’ point of view, it has created political tension, including pressure on the banks to revise the loan criteria;

• Experiences from previous Government attempts to reach small producers has shown that although security has been a problem, generally limited capacity to identify, use and manage business opportunities has been a more serious constraint for the majority of the poor;

• Furthermore, historically, people’s attitude towards government funding is mostly synonymous to grants, and as such does not encourage good repayment practices;

• SACCOs are not likely to be sustainable at Ward level, due to limited scope for growth (given population distribution and level of economic activity), as well as limited management capacities. District level SACCOs with branches at Ward level seem to be a more promising alternative;

• It is feared that encouragement of members savings culture will not be internalised as they are mobilised to join SACCOs to be able to access loans. Politicization of SACCOs into a credit-first approach may have far reach consequences, as it may erode peoples’ savings first attitude.


2.3 The Legal Framework 2.3.1 BOT supervised institutions Tanzania has a tiered structure of licensed and prudentially regulated and supervised financial institutions through different entry requirements in terms of required minimum core capitalization, for commercial banks, non-bank financial institutions, Micro-Finance Companies (MFCs) and Financial Cooperatives (FICOs): Minimum Capital Requirements In Tsh In USD 5 In Euro Commercial Bank 5 Billion $ 4,255,319 € 2,999,400 Regional Unit Commercial Bank 200 Million – 50 Million

6 $170,212 –$

42,550 € 119,976 – 29,994

Non-Bank Financial Institution 100 Million – 50 Million $85,106 – 42,550

€ 59,988 – 29,994

Micro Finance Company (MFC) 800 Million (national) 200 Million (1 unit)

$ 680,851 $ 170,213

€ 479,904 € 119,976

Financial Cooperative (FICO) 800 Million in savings and deposits

$ 680,851

€ 479,904

The regulatory and supervisory framework includes the following Acts: • The Banking and Financial Institutions Act (2006); • The Bank of Tanzania Act (2006);

• The Companies Ordinance (Cap 212). In addition, a number of Regulations are relevant for microfinance activities: • The Microfinance Companies and Microcredit Activities Regulations (2005). This allows for the

establishment of MFCs, able to take deposits from the public, subject to supervision of BoT. The minimum core capital requirement for MFCs has been set at Tsh. 800 Million for a nation-wide network and Tsh. 200 Million for a one unit entity. So far, no MFC has yet been licensed.

• Banking and Financial Institutions Regulations (1997) prescribe conditions of entry or exit into the banking industry in Tanzania (licensing requirements).

• Capital Adequacy Regulations (2001) provide for capital adequacy requirements for various forms of banking institutions in Tanzania;

• Other regulations (e.g. on management of risk assets, liquidity assets ratio, credit concentration and exposure limits, internal control and audit).

Entities applying for a license from the BoT as a commercial bank, non-bank financial institution or MFC have to be legally registered with the Registrar of Companies (the Business Registration and Licensing Agency, BRELA) as companies limited by shares under the Companies Ordinance (Cap 212). 2.3.2 SACCOs SACCOs are formally registered by the Ministry of Cooperatives and Marketing. The Cooperatives Audit and Supervision Corporation (COASCO) is mandated to conduct an annual external audit of all SACCOs. In practice, supervision by the Ministry of Cooperatives and Marketing (through the Registrar of Cooperatives) is weak. Partly this is due to lack of adequate technical staff and resources. However, there also seems to be lack of willingness (and/or political room) to take restrictive actions against SACCOs that do not abide by the laws. 5 15 October 2007: 1 US$ = Tsh. 1,175 and 1 € = Tsh. 1,667 (www.oanda.com).

6 Tanzania’s banking law permits the establishment and operation of licensed commercial banks and non-

bank financial institutions with lower minimum capitalization requirements, depending on the size of the city where the institution is located (see Schedule 4 and 5 of Capital Adequacy Regulations, 2001).


The Cooperative Societies Act, 2003 creates four cooperative tiers: primary cooperative societies; secondary cooperative societies; apex cooperative societies and federation. The allocation of powers between the different levels, however, is not clearly indicated in the law. In addition, the Cooperative Rules 2004 were formulated, containing amongst others prudential guidelines for SACCOs. In 2005, the Financial Cooperative Societies Regulations were approved. These regulations specify that Savings and Credit Cooperatives engaged in accepting savings and deposits from their members for an amount totalling or greater than Tsh. 800 Million will be licensed as a Financial Cooperative (FICO), supervised by the BOT. So far, no FICO has yet been licensed. 2.3.3 NGOs The NGO-type MFIs are virtually unregulated, even though a number of governmental authorities are involved in the registration of both international and local NGOs: • The Registrar of Societies under the Societies Ordinance; • The Administrative General under the Trustees Incorporation Ordinance; • The Registrar of Companies (the Business Registration and Licensing Agency, BRELA) for

companies limited by guarantee, under the Companies Ordinance (Cap 212).


3 MICROFINANCE SERVICES

3.1 Demand for Financial Services There is a huge unsatisfied demand for financial services both in rural and (peri-)urban areas of Tanzania. Approximately 70% of the population lives in rural areas and has limited to no access to financial services. In 2006, FSDT commissioned a national survey of the demand for, and barriers to, accessing financial services. With close to 5,000 interviews conducted, the FinScope Survey represents the national population of 16 years and over, on the mainland and Zanzibar (21 Million people). FinScope contains a wealth of data, which is available to interested parties for further analysis (per geographical area, per segment of the population, etc). Initial analysis was done by FSDT early 2007 and presented and discussed in a series of workshops (for commercial banks, SACCOs, MFIs, mobile phone companies, researchers). Main findings from FinScope include7: Population profile: confirms that the population of Tanzania is relatively young: 57% of the adult population is less than 34 years, and mainly rural-based (72%). In addition, there are approximately 14 Million people under 16 years of age, which fall outside the scope of this survey. Exclusion: A large segment (54% overall; 45% of urban, 57% of rural) of the adult population has no access at all to financial services, either formal or informal (overall, 9% has a formal bank account (11% men, 5% women, 16% urban, 4% rural), 2% has access to semi-formal finance (NGOs, SACCOs) and 35% has access to informal finance like ROSCAs/ASCAs and moneylenders – these categories are mutually exclusive). Only 20% of the population has access to formal bank within 1 hour walking distance. Financial literacy: is generally low, and lower still for women and for people living in rural areas (92% of the population has heard of loans, but 84% do not understand how interest rates work, or collateral, guarantors, opening an account etc.; 27% has never heard of a savings account). Beyond loans and savings, financial literacy is close to nil (e.g. on insurance, ATMs). Nevertheless, 82% of the total population indicated that they would like to know how to open an account in a financial institution. This indicates a huge need for better and more communication on financial services with the larger population, in the right language. Sources of income: Only 4% of the population is employed in the formal sector. Most people make a living from agriculture, either by selling food crops (36%), cash crops (12%), cattle/livestock produce (9%), or livestock (11%). Others run an informal small business (28%), not (directly) related to agriculture. A large majority of people (61%) goes without cash income at times. Many (28%) depend on getting money from family and friends. Use of credit and loan facilities: of those that borrow, most (38%) turn to family and friends. An additional 33% has a loan from a kiosk, 23% borrows in-kind (e.g. livestock). Only 4% said that they have a loan from a bank (5% of men, 1% of women). SACCOs and MFIs serve only a small percent of all borrowers; 9% and 6% respectively. Use of savings facilities: most people with money do not save it with a bank or financial institution. Of those who save, four out of ten favour saving in-kind (even more so in rural areas) and three out of ten say they keep money in a secret hiding place (similar for urban and rural). Another interesting aspect is that of the people with a bank account (9%), many also save with or borrow from informal providers (48%), SACCOs (26%) or MFIs (15%).

7 Source: Brochure on FinScope Key Findings (2006), and statistics presented in the FSDT workshops (see

http://dgroups.org/groups/FSDT-Tanzania). Unfortunately, there is no comprehensive report with analysis, conclusions or recommendations from the survey. Next FinScope survey is planned for 2008.


Non-monetary financial services: Out of the 54% that has no access at all, 20% uses non-monetary products and transactions (e.g. barter, savings-in-kind). In-kind transactions are especially popular in the rural areas (used by 84% of the rural population, 16% of urban population). Similarly, 80% of the rural population have savings in-kind, compared to 20% of the urban population. Savings in-kind are primarily in livestock (goats, cows), but also to a lesser extent in agricultural produce, food, entertainment items (e.g. radio), means of transport (e.g. bicycle), household items (e.g. salt), agricultural inputs and clothing. Transferring money: 90% of all remittances are within Tanzania. When people want to transfer money around the country, they are seven times more likely to use a personal contact, and three times more likely to use a courier (usually a bus), than any kind of financial institution. Women use any method slightly less often than men. Technology: the internet and mobile phone technology is expanding the potential for financial service customers more rapidly than anything else. Although the number of people who use internet is very low (9% overall, 23% in urban and 4% in rural), nearly half the population already has access to a mobile phone. Internet access is expected to increase in the medium term when connectivity speed increases and cost goes down (e.g. through EASSy project – connecting Tanzania to international glass fibre network in 2-3 years time).

3.2 Microfinance Suppliers The principal providers of financial services to poor and low income households in Tanzania consist of licensed commercial banks, regional and rural unit financial institutions, SACCOs and several local and international NGOs. Currently, there is no comprehensive, detailed data available on the supply side of financial services. FSDT is planning to conduct a supply side survey in 2008. Below follows a description of the various categories. 3.2.1 Regulated and Supervised Institutional Providers As per mid 2007, Tanzania had 23 commercial banks, 5 regional unit banks (Kilimanjaro Cooperative Bank, Kagera Farmers Cooperative Bank, Dar es Salaam Community Bank, Mbinga Community Bank, Uchumi Commercial Bank), 3 non-bank financial institutions8 (Tanzania Investment Bank, Tanzania Postal Bank and Twiga Bancorp) and 2 regional unit non-bank financial institutions (Mufindi Community Bank and Mwanga Community Bank). There are three commercial banks with financial services and products aimed at the poor and low income households: National Microfinance Bank (privatized in 2005 to a consortium led by Rabobank Netherlands, 120 branches nation-wide); CRDB Bank (40 branches nation-wide) and Akiba Commercial Bank (5 branches in Dar es Salaam and Arusha, over 15,000 microfinance clients). The Tanzania Postal Bank, a state-owned non-bank financial institution, provides a variety of savings deposit services nation-wide (total over 100 outlets, and more than 1 million account holders) and has entered into micro-credit provision on a small scale. NMB has by far the largest network of branches, followed by CRDB. Barclays Bank has recently turned its strategy around, and intends to focus on lower segments of the market. It will increase its currently small network to 24 branches in 14 regions by early 2008, using cheaper methods: re-inforced containers, rather than the traditional, expensive ‘brick and mortar’ branches. In addition, the National Bank of Commerce (NBC) has vowed to go rural, and is increasing its branches from the current 42 to over 50 early 2008, using pre-fabricated (and thus cheaper and more flexible) branch buildings.

8 NBFIs are restricted in some areas, e.g. they are not allowed to offer current accounts to their clients.


A new entrant into the market has recently opened its first branch in Dar es Salaam: Access Bank Tanzania, which will focus on SMEs and the low income population. Shareholders include Access Microfinance Holding (38%), ADB, BOI, IFC and KfW (all 15.8%). Grameen Bank is also considering to start operating in Tanzania - initial discussions were held with GoT and BoT mid 2007. Currently there is a trend of commercial banks down-scaling and entering into microfinance (both at the wholesale and the retail level). CRDB provides microfinance services through SACCOs: more than 270 SACCOs are linked to CRDB (> 140,000 members), and at least Tsh. 25 Billion has been loaned to these SACCOs in 2006. With assistance from DANIDA (also 30% shareholder in the bank), CRDB has developed an effective business model that combines tailor-made capacity building with provision of financial services. CRDB has established a separate subsidiary company to drive the growth of this product. SACCOs also make use of the TemboCard (debit card) through CRDB’s ATM (>40) and POS network (>600). NMB is another major player, with large potential given its network of over 120 branches. Since 2006, the influence of Rabobank Netherlands and its consortium is increasingly apparent in the strategic direction of the bank, including a stronger focus on rural lending. NMB is lending to both the top segment of MFIs as well as SACCOs and smaller MFIs. Uchumi Commercial bank is also on-lending to SACCOs (63 by end of 2006), and so is Mbinga Community Bank. Other commercial banks active in the wholesale market include Standard Chartered (Tsh. 5 Billion for wholesale to MFIs, including PRIDE), CitiBank (Tsh. 24 Million to BRAC in DSM), Federal Bank of the Middle East, and to some extent Akiba Commercial Bank and Azania Bank (both overdraft facilities only). As per BOT regulations, unsecured loans to a single borrower may not exceed 5% of a licensed bank’s capital, with acceptable collateral limited to cash or near cash securities. This ceiling is likely to have an adverse impact on the wholesale lending by licensed banks, including regional banks, to microfinance NGOs or SACCOs. In general, the commercial banking system has excess liquidity which is still mostly invested in government bonds. As the economy expands, investment opportunities grow and the remuneration of government bonds is going down, the interest of banks to look for alternative markets will continue to grow, both at a retail level (e.g. SME lending, see 3.2.5) and at the wholesale level. 3.2.2 NGOs Most NGO-type MFIs are registered as companies limited by guarantee, societies or trusts. The main players include PRIDE-Tanzania (>90,000 active borrowers), FINCA-Tanzania (>43,000 active borrowers), SEDA (>17,500), BRAC-Tanzania (>50,000) and Presidential Trust Fund (>10,000). In addition there are a number of smaller NGOs, whose outreach is limited to their immediate geographical area, including SEF and FAULU-Tanzania (both >2,000 active borrowers), WEDAC in Kilimanjaro (>2,000 active borrowers) and FAIDERS in Biharamulo. SELFINA (>1000 active clients) specializes in micro-leasing. Other, relatively new entrants into the Tanzanian market are Tujigenge Afrika, Easy Finance (> 1,100 active borrowers) and GroFin Tanzania. All operate in Dar es Salaam. Another new entrant is Micro Provident Tanzania (Faidika), with employee-based lending through 7 branches. Most of the NGO-type microfinance players are credit-driven and mainly based in (semi-)urban areas. Some (notably SEDA, PRIDE, FINCA) are in the process of transforming into Microfinance Companies (MFCs), so as to be able to attract savings from the public. However, the requirements for an MFC license are stringent and these transformation processes will take time.


BRAC started operating in Tanzania mid 2006, and in 1½ years managed to grow to 40 branches in 6 locations, with a total of over 50,000 members (November 2007). Clients are mainly based in urban and semi-urban areas, all are women. In the course of 2007, BRAC started introducing its non-financial services, mainly in the area of agriculture/livestock and health. The major MFIs (incl. FINCA, PRIDE and SEDA) have reached financial self-sufficiency (on a self-reporting basis). However, the transformation process is costly and likely to reduce self-sufficiency for a certain period (as experience of Micro Deposit-taking Institutions in Uganda showed). Other financial NGOs generally have not yet reached full sustainability and remain dependent on donor support. 3.2.3 Savings and Credit Cooperative Societies SACCOs are the main providers of financial services in the rural areas. In December 2006, there were over 3,500 SACCOs registered with the Ministry of Cooperatives and Marketing, with approximately 420,000 members9. About 60% can be classified as rural and 40% as urban (mostly wage-based). Over the past two years, the number of SACCOs has increased rapidly (to a large extent, recent growth can be attributed to the ‘JK Billions’, see 2.2), however, the average number of members per SACCO has come down to about 120. In general, capacity in SACCOs in Tanzania is weak. There is lack of full-time staff; leaders, managers and staff lack training, adequate record keeping systems and appropriate facilities (secure, with professional image). The majority of rural-based SACCOS are very small (in terms of membership and savings and therefore loan portfolio) pursuing the atomized model. Sustainability of such stand-alone rural SACCOs is questionable, due to sparse population, limitations in infrastructure (roads, power, and communication), subsistence economy with limited business accentuated by seasonality and difficult loan diversification (cotton, coffee, tobacco) thus high risks. Current trends in microfinance thinking, based on worldwide experience, increasingly agree that stand-alone SACCOs are not likely to survive in the long run. External monitoring, supervision and support will continuously be required, in order to allow the SACCOs to grow and prosper. In addition, there are common, specialized needs amongst SACCOs like liquidity management, insurance and auditing, which are better placed in an intermediary organisation. So far two relatively new networks of SACCOs have emerged in Tanzania, where SACCOs own shares in the intermediary organisation and pay for the services delivered: Dunduliza Limited: Dunduliza is a company limited by shares, an off-spring from FISEDA, registered in 2004. Dunduliza receives funding from FSDT, and technical assistance from Desjardins International Development (DID). Dunduliza has 34 associated SACCOs (> 52,000 members) in three regions: Ruvuma, Lake Zone and Dar es Salaam. Services include training to the SACCO staff and leaders, material support (building, safe, stationary, furniture and MIS), salary for the SACCO-manager and intensive performance monitoring. Dunduliza – as a network - is aiming to become licensed by the BoT as a FICO. Umoja wa SACCOs Wakulima (USAWA) was registered in 2006 as a company limited by shares. It is an off-spring from a 4-year project where FERT (a French NGO) provided support to SACCOs in Kilimanjaro region, with funding from EU. USAWA brings together 15 SACCOs in Kilimanjaro (> 3,000 members/clients), all rural/agricultural based. Technical assistance is provided by FERT, funding from FSDT is expected to commence soon. There are a number of other organisations that provide capacity building services to SACCOs, without being a network in the sense as described above. These include:

9 Source: Registrar of SACCOs, December 2006.


• Savings and Credit Cooperative Union League of Tanzania (SCCULT), see 4.1.1. • CRDB, see above. • Rural Financial Services Programme (RFSP, a 9-year IFAD-funded programme under the

Prime Minister’s Office, focussing on strengthening of SACCOs. It is being implemented in the Northern, Central and Southern zones, head office in Mbeya. Besides training, SACCOs receive some material support (stationary, safes). RFSP works through the government system, i.e. the District Cooperative Officers.

• KADERES, an NGO in Karagwe • MuCCOBs through its field wings, e.g. ICCDE-Dodoma • Small Enterprise Loan Facility (SELF) • Arusha Community Initiatives Support Trust (ACIST) in Kilimanjaro. With financial assistance

from Norwegian Aid (loan to ACIST for wholesale lending to SACCOs); technical assistance from TRIAS (Belgian volunteer).

3.2.4 Other Relevant Actors Informal savings and credit associations, in their various forms, play a significant role in creating access to financial services in Tanzania, as the FinScope survey confirmed. Village Savings and Loan Associations (VSLA) are informal, time-bound accumulating savings and credit associations (ASCAs) of 15-30 people. CARE Tanzania has been using this model since 2001. Initially, CARE supported the establishment of VSLAs on Zanzibar between 2001 and 2002. The groups continue to function and grow under an apex organisation that they run themselves, the Jozani Savings and Credit Associations (JOSACA). In July 2006, there were 158 VSLAs with a total membership of 4,552 (70% women)10. Various other CARE-supported projects have also adopted (and/or adapted) the methodology. Roll-out of the Zanzibar model to one or two mainland regions expected in 2008. Village Community Banks (VICOBA) are informal, village based savings and credit groups being promoted in various parts of Tanzania. For example by: • Land Management Programme (LAMP), implemented by local authorities of Babati, Kiteto,

Simanjiro and Singida districts, Kilimanjaro region (funded by SIDA, with project management and technical assistance from Orgut, a Swedish consultancy firm);

• Floresta Tanzania, an environmental NGO in Kilimanjaro (13 village banks with nearly 400 members);

• World Conference on Religions for Peace (WCRP) Tanzania supports VICOBA in Dar es Salaam for youth employment creation.

Community Conservation Banks (COCOBA) are informal savings and credit associations supported by World Wildlife Fund (WWF) in various regions of Tanzania as part of their conservation programmes, amongst others in Ruaha and on Mafia Island. A similar model is used by the Wildlife Conservation Society Tanzania, around Pugu forest, close to Dar es Salaam (7 groups, 300 members). Financial Services Assocations (FSAs) International are supported in Tanzania by Plan International. In 2006, they had a total membership of 4,412 (52% women) in 5 FSAs around Mwanza, Lake Zone11.

10

Source: Village Savings and Loan Associations: experience from Zanzibar, E. Anyango and others, DFS-Kenya and FSDU, 2006. 11

Source: Microfinance in Plan, A Brief, Delores McLaughlin, October 2006; Member-owned Financial Institutions, lessons from Uganda and Tanzania, 1997 – 2004, A. Jazayeri, 2005.


3.2.5 Products and Services Agriculture: Agricultural finance is yet in its infancy – even though the sector provides the mainstay for the large majority of the (especially rural) population. Some of the initiatives include: • CRDB has always been involved in agricultural lending to some extent, with varying degrees of

success. Barclays Bank recently introduced a new scheme to support commercial farming (provide farm inputs and equipment straight from the supplier). Overall, commercial banks still shun away from lending to agricultural small holders, as do NGO-MFIs. Rural SACCOs are usually involved in agricultural lending, but not necessarily in a sustainable manner.

• Some interesting pilots in the area of warehouse receipt schemes, e.g. by FBME Bank (to be combined with insurance cover for stock in warehouses) and soon by NMB Bank. The World Bank is also involved in this.

• A weather insurance product has been developed, yet to be piloted further after initial pilot phase. World Bank, Technoserve, MEDA and local insurance companies will be involved.

• USAWA SACCOs, the network supported by FERT in Kilimanjaro, have developed certain innovations for agricultural lending;

• The Agricultural Input Trust Fund (AGTIF) was established by the GoT in 1994. Loans can be accessed (for inputs and tractors) through various banks and SCCULT. Dunduliza also borrowed funds from AGTIF in 2006, for on-lending to its SACCOs.

• Tanzania Fertilizer Partnership (involving IFAD, Ministry of Agriculture, others) aims to upgrade the agricultural supply chain, including fertilizer input.

SME Lending: The ‘missing middle’ is only recently being addressed and SME finance is still in the developmental stages. SMEs contribute over 30% of Tanzania’s GDP, but lack business skills, track record and/or collateral to meet existing lending criteria from banks. Various banks have started to develop more appropriate products for SMEs: • Akiba Commercial Bank is traditionally focused on SMEs and developed various products; • Exim Bank received $ 6 Million from NorFund for long-term foreign currency lending to SMEs,

through its 10 branches; • CRDB has introduced an SME product, and trained over 700 SMEs, as have NBC (so far 300

SMEs attended workshops) and Barclays Bank; • BOA Bank (former EurAfrican) has a $40 Million fund ‘Aspire Tanzania’ (in partnership with

GroFin and Shell Foundation) which focuses on SMEs in renewable energy; • Tanzania Investment Bank is being transformed by the GOT into a development bank, to

become a major long-term financier to productive sectors. A recapitalization effort is underway, involving the GOT and NORSAD.

• The Government introduced a Credit Guarantee Scheme for SMEs. By January 2007, loans valued Tsh 2.2 Billion had been approved under this facility, and guarantees of Tsh. 1.1 Billion had been issued. Various banks participate.

• Equity for Africa provides equity to SMEs, with focus on agricultural and food processing and manufacturing sectors, initially in northern Tanzania (28 investments so far, total over £ 100,000).

FSDT plans to conduct an SME survey to assess the demand for financial services from SMEs in 2007/2008. Housing Finance: has been introduced recently by a few banks (e.g. United Bank of Africa), but legal and regulatory issues impede growth. • As part of the Second Generation Financial Sector Reforms that the Tanzanian authorities are

in the process of implementing, the project will develop an integrated strategy and an action plan for mortgage finance development. This will include implementing recommendations on regulatory changes, liquidity mechanism and credit enhancement schemes and will particularly include recommendations on options for enhancing mortgage finance provision to lower income groups. The strategy will distinguish between actions needed to support development of the primary mortgage market and extra actions eventually needed to address the needs of low income households.


• Low-cost housing finance: Women Advancement Trust (WAT) SACCO in DSM (largest SACCO in Dunduliza network) is introducing low-cost housing finance. Possibly with support from UN Habitat. FINCA Tanzania is also experimenting with housing loans.

Leasing Finance: Leasing finance is in the early development stages. • Tanzania Leasing Project (TANZALEP) is an IFC/SECO supported project to develop and

support the growth of financial leasing. The initial focus is on developing an enabling tax, legal and regulatory framework, as an essential prerequisite for leasing development. A Leasing Act has been developed, but is yet to be approved. In addition, TANZALEP provides leasing product and business development support and training to banks, prospective leasing companies, equipment supply companies, institutional investors, micro leasing companies and various GOT departments. Tanzalep is also working on a strategy that will enable it to work closely with MFIs, to develop micro leasing for micro enterprises. Furthermore, the establishment of a national leasing association (TALA) is underway.

• Some of the current providers include SELFINA. FINCA Tanzania offers leasing finance for solar home systems, in partnership with Umeme Jua Limited. Tunakopesha Limited offers (salary-based) hire-purchase services for domestic appliances, since 1993. It has 18 branches and over 20,000 clients. The USAWA, the network of SACCOs in Kilimanjaro have also successfully introduced leasing loans.

Micro-insurance: Micro-insurance is yet in its infancy. There are no specialized providers of micro-insurance. The main existing insurance companies do not provide appropriate products or services for the rural and low-income segments. PharmAccess is preparing the piloting of a micro health insurance product, together with a local insurance firm. Remittances: As highlighted by FinScope, the large majority of remittances is done through personal transfer. Only a minor part is handled by the formal financial system. For example through Western Union Money Transfer, offered by Tanzania Postal Bank, DSM Community Bank (linked with MUCOBA) and Kilimanjaro Cooperative Bank. HIV/AIDS: there are a few developments and partnerships in the field of HIV/AIDS and microfinance in Tanzania. • PRIDE Tanzania is associated with the Tunajali Programme (2007 – 2011, with $ 56 Million

funding from USAID), which aims to provide care and (anti retro-viral) treatment to individuals through 38 participating hospitals and health centres.

• MEDA Tanzania was involved in research on microfinance and HIV-AIDS in 2005 (focus risk mitigation strategies related to MFI clients as well as staff), followed by a workshop.

Technological Innovation:

• Umoja Switch provides a shared card payment switching infrastructure and ATM network for a consortium of six local banks (Azania, Akiba, BOA Bank (formerly EurAfrican), Dar Es Salaam Community Bank, Twiga Bancorp and Tanzania Investment Bank). The six banks have a total of 17 branches.

• Debit Cards: CRDB introduced the Tembo card, and Tanzania Postal bank offers its TanPay system. Both have a limited network of Point of Sale (POS) devices. There are about 200,000 Tembo-card holders. CRDB has also started to offer its Tembo cards to SACCOs. Active use of debit cards is still limited; most clients use it for ATM withdrawals. NMB is currently rolling out ATMs nation-wide (so far 200,000 card holders), and will have 100 ATMs by December 2007.

• Credit Cards: Exim bank introduced Mastercard in July 2006 as the first (and only) bank.

• SMS banking: various banks have started introduction of SMS-banking, e.g. CRDB and NMB. This mainly involves requesting and receiving information by SMS, e.g. on account balance, or alert message when salary has been deposited.


• Internet banking: various banks have introduced internet banking, e.g. NBC. However, with only 9% of the population having access to internet, this is not likely to be a driver for access to financial services for those currently excluded.

• Mobile phone banking: Mobile phone banking is expected to be a major driver that will create access for large amounts of people – given that already over 50% of Tanzanians has access to a mobile phone. So far, one entrant into this market has been licensed by the BOT (June 2007): E-Felusi Africa Limited, a local company. They are currently piloting their system (mobipawa) with FMBE Bank. Other entrants are expected, notably Vodacom, which is planning to roll out its successful M-PESA from Kenya to Tanzania in 2007/2008. Other mobile phone operations may follow. There are regulatory issues yet to be addressed in the process of developing mobile banking.

3.3 Support and Funding Needs Category Support and Funding Needs Commercial Banks - Develop appropriate loan products & risk analysis techniques for small-holder

agriculture - Developing appropriate loan products for SMEs & risk analysis techniques - Build staff capacity to enter into the SME, agricultural, microfinance market - Develop whole-sale lending linkages with SACCOs and smaller MFIs - Support to develop other products (micro-leasing, housing finance, micro-insurance, remittances) - Spreading best practices & facilitate exchange of experience in mentioned innovative products and services. - Support impact assessment, social performance reporting, GRI

Community Banks - Develop whole-sale lending linkages with SACCOs and smaller MFIs - Capacity to select, buy, introduce and manage an appropriate MIS - Capacity building of management, staff and board members - Support to develop new products (micro-leasing, housing finance, agricultural lending, SME finance, micro-insurance, remittances) - Support impact assessment, social performance reporting, GRI

NGO-MFIs - Support in transformation into a regulated MFC (TA, sub-ordinated debt, equity), for the largest MFIs - Capacity to select, buy, introduce, and manage an appropriate MIS - Support to develop new products (agricultural lending, micro-leasing, housing finance, micro-insurance, remittances, SME finance) - Capacity building support to scale-up outreach and manage this effectively (TA, training, grants) - Support impact assessment, social performance reporting, GRI

SACCOs

- Capacity building of SACCO staff, leaders and members in SACCO management, governance, record keeping - Develop adequate record keeping systems (esp. weak on loan portfolio management) - Develop appropriate facilities (secure building, safe) - Develop appropriate loan products (agriculture, micro-leasing)

SACCO Support Organisations

- Develop appropriate network (legal) structures - Support in legal and regulatory issues (federated network, FICO, other options) - Business plan development (sources of income generation, financial sustainability) - Capacity building of field officers in microfinance best practices (esp. loan portfolio management) - Appropriate MIS to monitor SACCO performance on network level - Development of other services at network level (e.g. liquidity management, insurance, security, lobby and advocacy) - Support impact assessment, social performance reporting, GRI


3.4 Donors and Investors 3.4.1 MicroNed Members MicroNed is a network of the Dutch development organisations Cordaid, Hivos, ICCO and Ofam Novib. It was created in 2006 to cooperate on a structural basis with respect to the establishment of a specialised sector approach for microfinance. Cordaid’s microfinance policy focuses on a few selected countries, in which Tanzania is not included: Ghana, Malawi, Zambia and Sierra Leone. Support to microfinance initiatives is limited to i) those partnerships already in place before the new policy (and country selection) took effect; ii) initiatives that fit within the programme ‘Access to Markets’, for example access to credit for small-holder agriculture (i.e. directly linked to production). Instruments include grants and loans. Hivos: Tanzania is one of Hivos’ focus countries for microfinance. Hivos provides grants for capacity building, and conditional grants (seed capital) to promising initiatives. The Hivos-Triodos Fund provides loans, guarantees and equity to (more mature) microfinance institutions. Hivos is MicroNed country coordinator for Tanzania. ICCO: Currently, ICCO is not active in Tanzania. ICCO partners with Oikocredit and Rabobank in Terrafina. Terrafina supports microfinance in Africa (especially in rural areas and lower segments of the market). Currently, Tanzania is not part of the focus regions: West Africa, Great Lakes and Horn of Africa. The number of focus countries is expected to increase in 2010. Instruments include grants, loans and guarantees. Oxfam Novib: Oxfam Novib provides grants for capacity building to microfinance actors in Tanzania. Its microfinance strategy includes a focus on increasing rural outreach, women/gender mainstreaming and encouragement of competition, with the aim of reducing interest rates. Triple Jump, a fund management company, currently manages the Oxfam Novib Fund (targets emerging MFIs, loans size between $150,000 and $1 Million) and ASN-Novib Fund (targets expanding/mature MFIs, loan size between $500,000 and $5 Million). Triple Jump Advisory Services provides technical assistance and consultancy services to Triple Jump supported MFIs. In 2006, the three MicroNed members working in Tanzania (Cordaid, Hivos and Oxfam Novib), granted € 382,300 to 7 microfinance organizations. Their outstanding loan portfolio totaled € 3,660,183 in loans and equity to 7 MFIs by 31st December 2006 (with two institutions receiving a combination of grant and loan/equity: WEDAC and SEF). The two largest clients are PRIDE Tanzania (nearly 50% of total loan/equity portfolio, by HTF and Oxfam Novib) and Akiba Commercial Bank (32% of total loan/equity portfolio, by HTF). See Annex 4 for details. 3.4.2 Other Donors and Investors The Financial Sector Deepening Trust (FSDT) is the major donor in the microfinance market in Tanzania. FSDT was established in 2004 as a joint initiative of four donors: EKN, DFID, SIDA and CIDA. DANIDA joined in 2005. Since 2006 the World Bank’s Improving Access to Financial Services programme is also channelled through the Trust. FSDT supports three pillars of financial sector development: i) expanding the scale and viability of financial institutions, ii) financial sector infrastructure (including capacity building) and iii) the policy, legal & regulatory framework. FSDT provides grants, loans, guarantees to commercial banks and debt/equity instruments such as convertible loans (against market interest rates/fees). All donors are member of the Programme Investment Committee (PIC). The total budget for FSDT is around US$ 50 million for 2006 to 2010. Actual disbursements of funds is picking up in 2007. It took longer than expected to hire a qualified team for the Trust and the Trust had to invest a lot of time in developing a pipeline of projects.


Priorities for FSDT for 2008 include: • Conducting a microfinance supply side survey, and an SME demand survey; • Developing a rural financial services strategy for the BOT and GOT (including SACCOs); • Developing a financial literacy strategy; • Capacity building, principally for SACCOs – a national training and standards programme for

SACCOs and other small MFIs; • SACCO networking – developing more programmes along similar lines to Dunduliza’s; • Developing programmes to support informal financial groups; • Developing enabling environment for mobile phone banking. Vodacom is planning to roll out its

MPESA mobile banking in Tanzania in 2008 (with internal resources, based on pilot in Kenya). FSDT is interested to support a second commercial provider to pilot mobile phone banking;

• Agri-finance: weather insurance, warehouse receipt schemes etc.; • Develop facility to provide MIS advice and support for MFIs and small banks; • Build capacity in banks and MFIs to improve SME lending; • Support to various MFIs (banks, NGOs, SACCO networks) to increase outreach

Apart from the three MicroNed members, there are a few other Dutch donors and investors active in microfinance in Tanzania. These include DOEN Foundation/Triodos DOEN, FMO, Ministry of Foreign Affairs, Oikocredit, Rabobank, and Rabobank Foundation. Total grants provided amounted to €530,000 to two institutions in 2006 (mainly Ministry’s support to FSDT) and € 933,557 in loans and equity to 4 institutions (36% of the total in Akiba, by Triodos DOEN and FMO). See Annex 4 for details. Other major international donors and investors include Africap, Care International, DANIDA, IFAD SIDI and Stromme Foundation. See Annex 5 for details.

3.5 Support Gap at Institution level There are huge gaps still to be filled at institution level. The Tanzanian economy in general and the financial sector in particular, still lack sufficient base capacity in terms of human resources and effective and efficient organisations. This lack of ‘absorption’ capacity at institutional level is considered the major bottleneck in developing the microfinance market in Tanzania. Currently, the major donors and investors, including MicroNed members, all support the same top-5 microfinance institutions (ACB, FINCA, PRIDE, SEDA, BRAC). Additionality should be a point of attention for MicroNed members. So should ‘creating leverage’ (making additional funds flow to the microfinance market as a result of the donor/investor’s intervention). With excess liquidity in the national banking system, the creation of wholesale linkages should be a priority. One way of creating leverage is through using guarantees, but this instrument is not widely used by donors and investors active in Tanzania. Other major bottlenecks affecting all financial institutions and their limited rural outreach are beyond their (and their donors’) control. Structural weaknesses in power supply (most rural areas have no electricity), roads and telecommunications all limit growth of microfinance actors. Reform of the agricultural sector by the GOT is another area that would support the growth of the microfinance market. The support and funding needs as identified per category in 3.3 have been ranked in order of priority. Dutch MicroNed members could contribute to all or a selection of categories. Additionality (notably with FSDT) would be found especially in the smaller and more risky investments. Given the generally weak capacity in the less mature MFIs, SACCOs and their networks, the priority of grant funding should be on capacity building, including bringing in expert (if necessary international) on-the-job training, coaching and TA, with regular contact and follow-up.


3.6 Support Gap at Client level There are huge gaps at client level, as was highlighted by the FinScope survey (3.1). Only 9% has access to the formal financial system, 2% to NGO-MFIs and SACCOs, and 35% to informal finance – leaving 54% of the population over 16 years completely excluded. At client level, the three main bottlenecks on the demand side are i) limited capacity to invest money effectively (limited basic education, lack of entrepreneurial attitude, lack of business and management skills; ii) lack of financial literacy; iii) lack of collateral. Priorities at client level should therefore include: • Improve financial literacy, especially in rural women and children (primary schools), starting

with basic financial products; • Access to savings and loan products that are appropriate, are brought physically close to the

(rural) client, and fit their needs. Given that currently the majority of all savings is either non-monetary, kept at home or in the informal system, promotion of a savings culture should be a priority. Given that the large majority of the rural poor depend on agriculture, agricultural loan products and micro-leasing should also be part of the priorities. Given that physical access is a major bottleneck in Tanzania, support to innovative mechanisms for financial services delivery should be part of the strategy (mobile phone banking, rural mobile banking vans, sms-banking, POS devices, smart cards etc

• Improving outreach of financial services to the currently excluded will need to be supported by appropriate strategies in the area of Business Development Services and access to markets for small producers, to improve the capacity to invest money (savings or loans) effectively. Investing in education, vocational training centres and business support centres enhances business skills and increases the number of ‘bankable’ projects.


4 ACTORS ON SECTOR LEVEL

4.1 Overview of Actors on Sector Level 4.1.1 Networks and Associations There are various networks and associations within the financial sector. However, representation is fragmented according to legal status (commercial banks, community banks, SACCOs). The microfinance sector lacks a network or association that can bring together the variety of players and represent their common interests. The Bank of Tanzania (BoT) is the Government’s focal point in microfinance, has the following responsibilities: develop a policy, legal and regulatory framework; guide the development of the sector; coordinate Government intervention and interface with other stakeholders in the field; monitor performance of the sector; and disseminate relevant information to the public (e.g. through the microfinance sub-web on BoT’s website). Tanzania Bankers Association (TBA) was established in 1995 and has 27 members (December 2006). Membership of TBA is open to all banks and financial institutions licensed by the Bank of Tanzania to carry on banking business in Tanzania. TBA has produced a Code of Banking Practice which is about to be adopted. In addition, ownership and management of the Dar es Salaam Electronic Clearing House will be migrated from the BoT to TBA. TBA also produces regular newsletters. Coalition for Microfinance Practitioners and Service Providers was established as a company limited by guarantee in June 2006. It has 14 fully paid up members (24 registered members). The coalition is led by interim leaders (including Mr. Joel Mwakitalu of SEF and Ms. Felistas Coutingho of Tujijenge Africa). An AGM and election of the board is planned for early 2008. So far, the coalition has organized a few events (e.g. a workshop on MFC regulations with BoT). The initiative is much welcomed, as the Tanzania Association of Micro Finance Institutions (TAMFI) has been dormant for a number of years and is considered beyond resurrection. Community Banks Association of Tanzania: The five community banks in Tanzania have formed an association, chaired by Mwanga Rural Community Bank. Savings and Credit Cooperative Union League of Tanzania (SCCULT) is the apex body of SACCOS in the country. More than 700 SACCOs out of 3,500 are members of SCCULT. However most of the membership in SCCULT is urban and employee based. The apex is envisaged to provide technical support to members including common and specialized services like internal auditing, insurance, supply of stationeries and training, lobbying and advocacy. However, SCCULT’s capacity is limited, in terms of staffing, financial resources and equipment. SCCULT also has a wholesale Credit Fund for on-lending to SACCOs, which has attracted many new members. Tanzania Federation of Cooperatives (TFC): SCCULT is one of the founding members of TFC. TFC was registered in 1994 as a national cooperative umbrella organization, to unite all registered cooperative organizations (through their credit unions/apex). The Capital Markets and Securities Authority (CMSA) is a Government Agency established to promote and regulate securities business in the country. It was established under Capital Markets and Securities Act, 1994. CMSA's Mission is “to design and implement purposeful measures which will enable the creation and development of sustainable capital markets that are efficient, transparent, orderly, fair and equitable to all”. Lobby: there is very little pro-active, co-ordinated lobby within the microfinance sector. This is partly caused by the lack of a network or association that unites the various players (from commercial banks to rural SACCOs). On the side of commercial banks, TBA is a relatively strong


platform for lobby. Lobby for and by SACCOs is less coordinated, in practice mainly by the few strong networks (Dunduliza, FERT, MuCCOBs) on incidental basis. MFI-NGOs lack representation/networking possibilities. FSDT supports lobbying efforts of various players where possible; however, as it is a donor funded trust, its room for (political) maneuver is limited. The recent establishment of the Coalition is therefore considered as an interesting initiative and opportunity.

4.1.2 Capacity Building Services In general the supply of capacity building services (training, technical assistance, consultancy) to microfinance actors (banks, MFIs and SACCOs) is still very weak. Tanzania has a young and growing market economy, and there are few qualified service providers available to enhance the capacity of the industry. Existing suppliers of capacity building and training support include: BOT Training Institute in Mwanza provides a number of training courses relevant for microfinance (especially relevant for non-cooperative models, such as solidarity group lending NGOs and commercial banks involved in microfinance). Tanzania Institute of Bankers (TIOB) was established in 1993 and provides a Banking Certificates Programme. TOIB aims to set, promote and upgrade professionalism in the banking and financial services industry in Tanzania. Members are financial institutions and individuals. Institute of Finance Management: provides graduate and post-graduate education, as well as short courses in banking, insurance and finance management. Moshi University College of Cooperative and Business Studies (MUCCoBS), affiliated to Soikoine University of Agriculture, is the main institution dealing with training of cooperative officers, auditors and staff of SACCOs. In partnership with DID, MUCCoBS offers a distance learning programme (40 weeks) on ‘Professional Financial Co-Operative Management’. In addition, MUCCoBS has a network of 20 regional wings (Institutes of Continuing Cooperative Development and Education, ICCDE). Some of these (e.g. Dodoma) have well-developed programmes for facilitating the establishment and strengthening of SACCOs. MUCCoBS also provides consultancy services. In addition to the above, various microfinance actors provide training to their SACCO-affiliates or clients. This includes Dunduliza, USAWA, RFSP, SELF, SCCULT and CRDB. MicroSave has trained various individuals from Tanzania in its variety of courses. However, currently there is only one active Certified Service Provider. MicroSave’s action research programme works with FINCA Tanzania, Tanzania Postal Bank and PRIDE Tanzania. MicroSave is expected to transform into a consultancy company (based in Kenya) from 2008. Consultancy companies: there are a small number of consultancy firms active in the sector, but most are small and few are specialised in microfinance best practices (including MEDA, Economic Development Initiatives (EDI), Ernst and Young, Global Associates, CEMIDE, K-REP Advisory Services and Triodos-Facet). Three individual consultants have been trained by MicroSave in various courses and products. However, only one is available in the market (with CEMIDE). Generally, there is serious lack of professional, national providers of microfinance capacity building (training, TA, consultancy services) – on the individual level, and on the institutional level. As a result, several institutions have resorted to bringing in those services from abroad: ACB (ACCION International), Dunduliza (DID), USAWA (FERT), NMB (Rabobank, and formerly Fineline Consulting from Kenya). SNV-Tanzania also provides capacity building services for microfinance in various regions of the country, as does Swiss Contact.


4.1.3 Other Services Rating Agencies: The practice of external ratings has yet to gain ground in the relatively young microfinance industry of Tanzania. Of the various international rating agencies, MicroRate has been most active in Tanzania, with ratings of PTF (2005 and 2007), FINCA-Tz (2004) and PRIDE-Tz (2004). There are no rating companies based in Tanzania. Auditors: there are 13 auditors approved by the BoT to audit BoT supervised financial institutions. Non-regulated financial institutions may choose any auditor. For SACCOs, COASCO formally has to conduct an annual audit (although often late, and often not at all). Auditors generally have limited understanding and knowledge about microfinance. Credit Information Bureau: the establishment and operationalization of a credit reference bureau for the financial sector has since long been on the drawing boards. In 2004, a Credit Information Bureau for the commercial banking sector was established with Tanzania Bankers Association. However, its successful implementation is hampered by the lack of a national ID-system12.

4.2 Sector Needs Legal and Regulatory System • Improve legal framework for land ownership and weak judicial system (to encourage

agricultural lending, leasing, housing finance); • Improve legal/regulatory framework for mobile phone banking; • Capacity building in BOT in prudential supervision to oversee fast-growing and diversifying

financial system; • Strengthen regulatory framework for non-bank financial institutions (e.g. pension funds); • Capacity building for Registry of Cooperatives in supervision of SACCOs. Market Information: There is need for reliable market information to facilitate and encourage financial institutions to enter into new areas (geographically, as well as in terms of client segment and products): • The FinScope survey has brought about a wealth of data on (potential) clients’ demand for

financial services. The database is available to any interested party for further analysis. However, most local financial institutions lack the capacity, skills and time to use the database effectively. Support (technical support as well as grants) will be needed to enable them to utilize its potential.

• Need for specific demand data on SMEs (study to be commissioned by FSDT, 2008) • Need for specific data on current supply of microfinance (geographically, as well as in terms of

client segments and products). Comparison with data from FinScope will highlight the ‘black spots’ in access of financial services (and thus indicate priorities for intervention). FSDT will commission a national supply side survey in 2008.

• Need for reliable and timely information about borrowers, their credit history, and other lenders to the potential client, to facilitate risk assessment and reduce delinquency. This information should be shared between lenders, through a Credit Information Bureau. Tanzania’s CIB is so far only available to regulated entities (excluding MFIs and SACCOs), and its successful operationalization is hampered by lack of a national ID system.

• Networking: There is strong need for much more sharing of information, coordination,

networking and exchange within the sector (involving practitioners, government, donors and capacity builders). This could be done through organising workshops, information seminars, through an email network, newsletters etc.

12

A National ID system has been on the Government’s drawing board for years, however, not likely to materialize in the short term.


The Tanzanian sector so far lacks an entity that can bring together, coordinate and represent the various institutions engaged in microfinance – commercial banks, community banks, NGOs, SACCOs, donors and service providers (like the Association of Microfinance Institutions in Uganda). Such an entity could also o Represent microfinance players’ interests, including lobbying and networking with the BOT

and the Government, on policies and the regulatory framework for microfinance; o Improve sharing of information, networking and exchange within the sector (involving

practitioners, government, donors and capacity builders); o Spearhead capacity building for the sector. There is need to bring together the various fragmented networks, including Tanzania Bankers Association, Coalition for Microfinance Practitioners, SCCULT, Association of Community Banks.

Capacity building/training: Tanzania lacks specialised microfinance training agencies offering (accredited) courses open to all, as well as a dedicated entity spearheading capacity building for the sector as a whole. In order to build (more) sustainable institutions, second and third tier MFIs and SACCOs require access to capacity building and training which is: • In line with international best-practices; • Accessible in terms of language used (Swahili); knowledge level, geographical location, cost

and time involved; • Focused on building sustainable, market-driven institutions (including all aspects of

management and governance); • Standardized, and of guaranteed quality; • Tailored to their specific situation and needs, per segment: commercial banks, rural community

banks, NGO-MFIs, rural SACCOs, SACCO Networks. Also, auditors, accountants and consultants should be encouraged to participate, to increase the level of professionalism of supporting services offered. Courses should include: o All aspects of SACCO management (for SACCO staff and leaders); o Agri-finance and risk assessment tools o SME lending products and risk assessment tools; o New products (micro-leasing, micro-insurance, HIV/AIDS risk mitigation, housing finance)

As an entry point, there is a need to assess training needs across the microfinance sector. This should include commercial banks, community banks, NGO-MFIs, SACCOs and their networks, but also service providers to the industry like auditors, accountants, and consultants. Improving financial literacy: As confirmed by FinScope, there is a huge need to improve financial literacy, especially in women, and especially in rural areas. As education for the majority of rural women is limited to primary education (92%), this would be a logical starting point. Financial literacy should also be supported by the government (education), but also by the financial sector itself, through improved transparency on financial products, code of conduct for consumer protection etc. Should be spearheaded through national level agency – e.g. Tanzania Bankers Association, in partnership with Coalition for Microfinance Practitioners, SCCULT, Association of Community Banks. Support to ICT innovations and mechanisms that bring financial services closer to the rural people in a more efficient and effective way. This could include support to mobile phone companies or other providers of mobile phone banking solutions, rural mobile banking units (instead of expensive ‘brick and mortar’ branches), introduction of smart-card solutions and Point of Sale networks etc. Develop partnerships between different players for introduction of new products, just like TANZALEP is an engine of change for the leasing sector, there is need for coordination and initiation in other areas as well. For example in micro-insurance: bringing together insurance companies, MFIs, regulators, and best practices from elsewhere (e.g. MicroCare Uganda). Similarly for low cost housing finance and in HIV/AIDS risk mitigation.


Market Linkages Promote market linkages and local wholesale financing (through linking Tier 1, Tier 2 and Tier 3 institutions). The market for wholesale lending consists mainly of SACCOs (3,500) and both large and small NGOs. This market is huge, and is currently mainly restricted by the limited capacity of SACCOs and NGOs to deliver financial services effectively and service (semi-) commercial loans.

4.3 Sector Support The main donors and investors in broader sector support include: • FSDT (see 3.4.2) • WB and DFID through the second-generation Financial Sector Reform Action Plan of the

Government ($22 Million, 2006 – 2011), see 2.1. • IFC and SECO through the Tanzania Leasing Project (TANZALEP), see 3.2.5.

4.4 Sector Gaps Of the sector needs identified in 4.2, some are (also) being addressed by the donors and investors mentioned in 4.3. Priorities for MicroNed members at the sector level should include: • Support to networking: sharing of information, coordination, networking and exchange within

the sector, involving practitioners, government, donors and capacity builders and best practices from elsewhere.

• Support to capacity building/training: building specialised microfinance training agencies offering accredited, accessible, tailor made, Swahili-taught courses open to all. Should be tailored to specific situation and needs per segment: commercial banks, rural community banks, NGO-MFIs, rural SACCOs, SACCO Networks. Also, auditors, accountants and consultants should be encouraged to participate. Courses should include: o All aspects of SACCO management (for SACCO staff and leaders); o Agri-finance and risk assessment tools o SME lending products and risk assessment tools; o New products (micro-leasing, micro-insurance, HIV/AIDS risk mitigation, housing finance)

• Support to ICT innovations and mechanisms that bring financial services closer to the rural people in a more efficient and effective way.

• Develop partnerships between different players for introduction of new products, just like TANZALEP is an engine of change for the leasing sector, there is need for coordination and initiation in other areas as well. For example in micro-insurance, low cost housing finance and in HIV/AIDS risk mitigation.

• Develop market linkages and local wholesale financing (through linking Tier 1, Tier 2 and Tier 3 institutions), to increase additionality and leverage of funding provided by MicroNed members.

4.5 Impact Measurement & Social Performance Management Very little work has been done in Tanzania on impact measurement and social performance indicators to date. Akiba Commercial Bank, as an investee of Triodos Bank, participates in a project initiated by Triodos Bank and the Global Reporting Initiative (GRI) in 2004, called Transparency in Sustainability and Finance. The project focuses on assisting MFIs in the implementation of GRI as a reporting mechanism. In 2006, six institutions (including K-REP from Kenya and Centenary Rural Development Bank from Uganda) presented their first ‘triple bottom line’ reports. So far, Akiba has not actively implemented the approach.


In addition, Triodos Bank and Triodos Facet implement SMARTRAC, a capacity building programme that integrates risk management tools and skills with sustainable reporting, to support MFIs in managing their triple bottom line (with funding from EU, Doen Foundation and Triodos Foundation). No partners yet in Tanzania, expected in 2007/2008. Evaluations and assessments of various microfinance actors (MFIs, SACCO networks) have, to some extent, taken impact of financial services into account. However, these types of assessment only generate anecdotal evidence of impact and/or some case studies. Full-fledged impact studies of microfinance in Tanzania are not available.


5 CONCLUSIONS & RECOMMENDATIONS Opportunities for supporting microfinance initiatives in Tanzania are enormous. It is one of the ten poorest countries in the world, but politically stable and enjoying continued economic growth. This economic growth is driving increasing demand for access to financial services. At the same time, still 54% of Tanzanians has no access at all to financial services, be they formal or informal. As result of structural reforms, there is continued financial market deepening, including growing bank interest in ‘down-scaling’ to SME and microfinance sub-sectors. The regulatory framework provides for licensed MFCs and FICOs. However, major bottleneck are limited market capacity (in terms of human resources and effective and efficient organisations), low levels of financial literacy in clients, as well as limited business skills to invest money effectively, and recent politicization of SACCOs formation. Recommendations and priorities for MicroNed’s country strategy for Tanzania can be summarized as follows: At Institution Level: Category Support and Funding Needs Commercial Banks - Develop appropriate loan products & risk analysis techniques for small-holder

agriculture - Developing appropriate loan products for SMEs & risk analysis techniques - Build staff capacity to enter into the SME, agricultural, microfinance market - Develop whole-sale lending linkages with SACCOs and smaller MFIs - Support to develop other products (micro-leasing, housing finance, micro-insurance, remittances) - Spreading best practices & facilitate exchange of experience in mentioned innovative products and services. - Support impact assessment, social performance reporting, GRI

Community Banks - Develop whole-sale lending linkages with SACCOs and smaller MFIs - Capacity to select, buy, introduce and manage an appropriate MIS - Capacity building of management, staff and board members - Support to develop new products (micro-leasing, housing finance, agricultural lending, SME finance, micro-insurance, remittances) - Support impact assessment, social performance reporting, GRI

NGO-MFIs - Support in transformation into a regulated MFC (TA, sub-ordinated debt, equity), for the largest MFIs - Capacity to select, buy, introduce, and manage an appropriate MIS - Support to develop new products (agricultural lending, micro-leasing, housing finance, micro-insurance, remittances, SME finance) - Capacity building support to scale-up outreach and manage this effectively (TA, training, grants) - Support impact assessment, social performance reporting, GRI

SACCOs

- Capacity building of SACCO staff, leaders and members in SACCO management, governance, record keeping - Develop adequate record keeping systems (esp. weak on loan portfolio management) - Develop appropriate facilities (secure building, safe) - Develop appropriate loan products (agriculture, micro-leasing)

SACCO Support Organisations

- Develop appropriate network (legal) structures - Support in legal and regulatory issues (federated network, FICO, other options) - Business plan development (sources of income generation, financial sustainability) - Capacity building of field officers in microfinance best practices (esp. loan portfolio management) - Appropriate MIS to monitor SACCO performance on network level


- Development of other services at network level (e.g. liquidity management, insurance, security, lobby and advocacy) - Support impact assessment, social performance reporting, GRI

At Client Level: • Improve financial literacy, especially in rural women and children (primary schools), starting

with basic financial products. • Access to savings and loan products that are appropriate, are brought physically close to

the (rural) client, and fit their needs. Given that currently the majority of all savings is either non-monetary, kept at home or in the informal system, promotion of a savings culture should be a priority. Given that the large majority of the rural poor depend on agriculture, agricultural loan products and micro-leasing should also be part of the priorities. Given that physical access is a major bottleneck in Tanzania, support to innovative mechanisms for financial services delivery should be part of the strategy (mobile phone banking, rural mobile banking vans, sms-banking, POS devices, smart cards etc.

• Improving outreach of financial services to the currently excluded will need to be supported by

appropriate strategies in the area of Business Development Services and access to markets for small producers, to improve the capacity to invest money (savings or loans) effectively. Investing in education, vocational training centres and business support centres enhances business skills and increases the number of ‘bankable’ projects.

At Sector Level: • Support to networking: sharing of information, coordination, networking and exchange within

the sector, involving practitioners, government, donors and capacity builders and best practices from elsewhere. MicroNed members could especially encourage this between various microfinance actors supported in Tanzania, as well as between similar actors in, especially, Uganda and Kenya. Examples might include: o Between commercial banks focusing on microfinance (K-Rep and Equity Bank in Kenya,

CERUDEB in Uganda and Akiba Commercial Bank, but possibly also the smaller Community Banks, in Tanzania)

o Between NGO-MFIs involved in transformation (e.g. MDIs in Uganda, those whishing to become MFCs in Tanzania)

o Between MFIs and other players that have developed and tested innovative products (micro-leasing, micro-insurance – e.g. MicroCare, agricultural lending, SME lending)

• Support to capacity building/training: building specialised microfinance training agencies

offering accredited, accessible, tailor made, Swahili-taught courses open to all. Should be tailored to specific situation and needs per segment: commercial banks, rural community banks, NGO-MFIs, rural SACCOs, SACCO Networks. Also, auditors, accountants and consultants should be encouraged to participate. Courses should include: o All aspects of SACCO management (for SACCO staff and leaders); o Agri-finance and risk assessment tools o SME lending products and risk assessment tools; o New products (micro-leasing, micro-insurance, HIV/AIDS risk mitigation, housing finance)

• Support to ICT innovations and mechanisms that bring financial services closer to the rural people in a more efficient and effective way.

• Develop partnerships between different players for introduction of new products, just

like TANZALEP is an engine of change for the leasing sector, there is need for coordination


and initiation in other areas as well. For example in micro-insurance, low cost housing finance and in HIV/AIDS risk mitigation.

• Develop market linkages and local wholesale financing (through linking Tier 1, Tier 2 and Tier

3 institutions), to increase additionality and leverage of funding provided by MicroNed members.

Coordination: • Maintain and further improve coordination between the four members in terms of investments

in Tanzania. All three seem to have similar focus, additionality could be improved. • Maintain and further improve coordination with other microfinance investors in Tanzania,

especially the FSDT, as the major donor for the sector. FSDT has a strong focus on broader sector development. As it is locally based, the trust is generally well-informed and well-connected to developments and players in the market. Given its structure, the trust mainly funds large projects and initiatives. MicroNed members have a niche in funding initiatives which require smaller amounts, a faster processing time and/or carry more risk.

• The Embassy of the Kingdom of the Netherlands (EKN) in Dar es Salaam is interested to

stay informed and updated on intiatives by MicroNed members in Tanzania. EKN is one of the funders of FSDT, and part of its Project Investment Committee.


ANNEX 1

Terms of Reference Country Scan Microfinance Sector in Tanzania

Introduction MicroNed is a network organisation that has been established early 2006 by Cordaid, Hivos, Icco and Oxfam Novib, in order to strengthen and coordinate the joint contribution of Development Finance Organisations in the Netherlands to the microfinance sector. Only less than 20% of the people in need has access to financial services and an increased effort should be made to support new and emerging MFIs. Furthermore MicroNed wants to strengthen national microfinance sector interventions, geared to the development of an enabling environment. Coordination and collaboration in countries and regions as well as on specific themes play a central role. MicroNed will not provide direct support to retail MFIs; this is the exclusive domain of its members. MicroNed will harmonise its members’ activities as far as grant support for sector development in selected focus countries is concerned. Each focus country has a coordinator who is responsible for developing a country sector development strategy paper serving as the basis for coordination between the four MicroNed members. For Tanzania Hivos is the country coordinator with the responsibility to make a country scan. Objective and expected results Objective of the assignment is to make a country scan providing the necessary information needed to formulate a country sector development strategy paper for the MicroNed members. The country scan should really serve policy development. It should provide the information needed to identify priority needs of the microfinance sector in Tanzania, especially on sector wide level. The expected result of the assignment is a document with the main text structured along the following lines: 1. General information (political history, population (demographics and culture), social indicators

(literacy rate, position of women, hiv/aids, ..), macro economic situation and indicators, … 2. Financial sector

2.1. General 2.2. Banking sector 2.3. Microfinance sector: national microfinance strategy, regulatory framework and supervision

3. Microfinance services

3.1. General characteristics of microfinance sector (maturity, volume, rough estimation of potential and actual market size (rural and urban), competitiveness of the microfinance market in urban and rural areas (e.g. signs of saturation for certain products or certain groups), degree of professionalism, recent and expected future developments)

3.2. Microfinance suppliers: description according to category (banks, NGOs, Companies, S&C cooperatives, Microdeposit taking institutions, informal financial institutions, …., with respect to numbers, volume, outreach, savings, client profile, lending methodologies, products and services (with explicit attention for micro-insurance, HIV-Aids, remittances, rural financial services, and technological innovation), performance and sustainability, etc. Specify for rural/urban, men/women, … What are common problems/weaknesses of the different categories of MFIs?

3.3. Support and funding needs: what are the main support and funding needs of the MFIs per category (not per individual MFI but common needs that many MFIs in a certain category have). Which needs have a priority?

3.4. Donors and investors: Who are the main donors and investors for the microfinance sector and what are the details of their support/investments (target categories of MFIs, type of support, amounts, etc.) Give a specific overview of MicroNed’s members’ activities in the country.


3.5. Support gap: What general needs of MFIs are not fulfilled? Which ones have a priority? What could the Dutch MicroNed members contribute?

3.6. Support gap: What general needs of (possible) clients are not fulfilled? Which ones have a priority?

4. Actors on sector level

4.1. Description of networks/associations, training & advisory services, consultants, rating agency, specialised auditors,…, their activities, performance, outreach, etc.

4.2. Sector needs 4.3. Sector support 4.4. Support gap 4.5. Impact measurement and social performance management: what has been done in the

country on impact measurement and social performance indicators, by whom, what are the results, any additional support needed?

5. Conclusions and recommendations/input for a country sector development strategy paper,

identification of priority needs, with special attention for sector level. Annex 1: Directory (institutions, addresses, websites, contact persons, telephone numbers, email

addresses) (only at sector level) Annex 2: Overview of relevant studies, reports, etc. on the country. The main text should count between some 15 and 30 pages with detailed relevant information added in annexes. Amounts should be given in both local currency as in Euro with specification of exchange rate and date thereof.


ANNEX 2

Directory of Actors at Sector Level

Institution Contact Person Contact Details Authorities, Networks, Associations

Bank of Tanzania Directorate of Microfinance 10 Mirambo Street, P.O.Box 2939, DSM Tel: +255 – 22 – 238384 (Directorate of Microfinance) Website: www.bot-tz.org

Capital Market and Securities Authority (CMSA)

Dr. Fratern M. Mboya, CEO

P.O. Box 75713 Dar es Salaam, PPF Tower, 6th Floor Ohio St./ Garden Ave.

Tel: +255 – 22 – 211 4960 and 212 9724-/28 Email: [email protected] Website: www.cmsa-tz.org

Savings and Credit Cooperative Union League of Tanzania (SCCULT)

Mr A. Mshaweji , Executive Secretary

Coop. Building, 10th Floor, Room No. 10,11&12, Lumumba Street, PO Box 20640, DSM Tel: +255 – 22 - 218529; Mobile: + 255 – 741 - 326719 Email: [email protected]

Coalition of Microfinance Practitioners and Service Providers

Joel Mwakitalu, interim leader (Global Associates)

Email: [email protected] Mobile: + 255 – 784 - 657718

Community Banks Association of Tanzania A.Y. Ghuhia, Chairman (and CEO Mwanga Rural Community Bank)

Mwanga Rural Community Bank, PO Box 333 Mwanga, Kilimanjaro Region Email: [email protected]

Tanzania Bankers Association (TBA) Ms. Touse M. Joune, Executive Assistant

Sukari House, 4th Floor crn Sokoine/Ohio, PO Box 70925, DSM Tel: + 255 – 22 – 212 0551 / 212 7764 Mobile: + 255 - 756 – 547707 Email: [email protected]; [email protected] Website: www.tanzaniabankers.org

Tanzania Institute of Bankers (TIOB) C. J. Nyoni, Executive Director 10th floor, NIC Investment House, PO Box 8182, DSM Tel: + 255 – 22 - 2133350 Email:[email protected] Website: www.bot-tz.org/TIOB

Capacity Building Services

Bank of Tanzania Training Institute Mr. Wamgimwa, Principal PO Box 131 Capri-Point, Mwanza Tel: + 255 – 28 – 2500709 / 0983 Email: [email protected] or [email protected] Website: www.bot-tz.org


Institution Contact Person Contact Details Centre for Microfinance & Enterprise Development (CEMIDE) - consultants

Altemius Millinga, Executive Director

Mkunazini House, Kidongo Chekundu, P.O. Box 10272, DSM Mobile: +255 - 754 – 376 122 Email: [email protected]

Economic Development Initiatives (EDI) Limited – consultants

Ms. Louise Barnett, Managing Director

PO Box 393, Bukoba Tel: + 255 – 28 – 222 0188, Mobile: + 255 – 754 – 742494 Email: [email protected] Website: www.edi-africa.com

Global Associates - consultants Joel Mwakitalu, Partner Mobile: + 255 – 784 - 657718 PO Box 42110, Dar es Salaam Tel: +255 - 22 – 285 0097 or 0745 826259 Fax: +255 22 285 0972. Email: [email protected]

Institute of Finance Management (IFM) Prof. Tadeo Satta, Director of Dev. Finance

Shabaan Robert Street, PO Box 3918, DSM Tel: + 255 – 22 – 211 2931/4 Email: [email protected] Website: www.ifm.ac.tz

K-REP Advisory Services - consultants Country Manager 2nd Floor, JM Mall, Samora Avenue, P.O. Box 77152, DSM Tel: + 255 – 22 - 2136944/8 or Mobile: + 255 - 754- 060054 or 880808 [email protected] Website: www.k-repconsulting.com

Mennonite Economic Development Association (MEDA) – consultants

Boaz Boazi, Faustin Tarimo 386, Toure Drive, Masaki, DSM Tel + 255 - 22 - 260 1822 or 260 1830 Email: [email protected]; [email protected] Website: www.meda.org

Moshi University College for Cooperative & Business Studies (MUCCoBS)

The Principal Sokoine Road, PO Box 474, Moshi Tel: + 255 – 27 – 54401 or 54403 Email: Website: http://muccobs.ac.tz

Triodos Facet – consultants Ms. Marjan Duursma P.O. Box 79331 DSM or PO Box 55, 3700 AD Zeist Tel: + 255 – 22 – 2600054, Mobile: + 255 – 754 – 091 618 Email: [email protected]; [email protected] Website: www.triodosfacet.nl


Institution Contact Person Contact Details Other Service Providers

E-card Solutions Ltd. Ms. Moushumi Jani, Director Ms. Leena Kapadia, Business Analyst

Tel: +255 - 22 - 218 0625/35, Mobile: +255- 754 - 2444 454 Email: [email protected]

E-Felusi Africa (Mobipawa) Nadeem Juma, Managing Director

Chole Road, Masaki Tel: + 255 - 22 - 2602012 / 3/ 7, Mobile: + 255 - 773 - 665 222 Email: [email protected] Website: www.efelusi.cc

Umoja Switch Ms. Kineneko Mtei, Project Manager

Email: [email protected] Tel: + 255 – 22 - 212 1911, Mobile: + 255 - 784 - 466500

Donor Organisations and Projects

Embassy of the Kingdom of the Netherlands, EKN

Ms. Mirjam Tjassing, 2nd

Secretary Economic Affairs

Umoja House, 4th Floor, Garden Avenue, P.O Box 9534, DSM

Tel: + 255 – 22 – 211 0000 Email: [email protected] Website: http://tanzania.nlembassy.org

Cordaid Kor Voorzee, Programme Officer Tanzania (Entrepreneurship) Ms. Annemiek van der Leij,

PO Box 16440, 2500 BK Den Haag Lutherse Burgwal 10, 2512 CB Den Haag Tel: +31 - (0)70 - 3136 300; Fax: +31 – (0)70 - 3136 301 Email: [email protected]; [email protected]; Website: www.cordaid.nl

Financial Sector Deepening Trust (FSDT) Ian Robinson, Technical Director Sosthenes Kewe, Technical Manager

PPF Tower, Ohio Street, PO Box 4653, DSM Tel: + 255 – 22 – 2129060-2 Mobile: 0746 – 092 564 (Ian) and 0756 -776 336 (Sosthenes) Email: [email protected]; [email protected]

Hivos Mr. Pieter Bas Schrieken, Programme Officer

PO Box 85565, 2508 CG The Hague, The Netherlands Tel: +31 – (0)70 – 376 5500; Fax: +31 – (0)70 – 362 4600 Email: [email protected]; website: www.hivos.nl

ICCO ? P.O. Box 8190, 3503 RD Utrecht, The Netherlands Joseph Haydnlaan 2a, 3533 AE Utrecht, The Netherlands Tel: +31 - (0)30 - 692 7811; Fax: +31- (0)30 - 692 5614 Email: ; Website: www.icco.nl

MicroNed Ms. Resi Janssen, Executive Director

PO Box 85565, 2508 CG The Hague, The Netherlands Raamweg 16, 2596 HL The Hague, The Netherlands Tel: +31- (0)70 – 376 5516; Fax: +31 - (0)70 - 362 4600 Email: [email protected]; website: www.microned.org


Institution Contact Person Contact Details Oxfam Novib Thur de Kuijer, Programme

Officer East and Central Africa PO Box 30919, 2500 GX The Hague, the Netherlands Tel: +31 –(0)70 – 342 1621; Fax : +31 – (0)70 – 361 4461 Email: [email protected]; Website: www.oxfamnovib.nl

Rural Financial Services Project (RFSP) Attilio Mohele, Manager Bernard Ulaya, deputy Monitoring & Evaluation

P.O. Box 1982, Mbeya Tel: + 255–25–2504067, Mobile:+255-754 – 558824 (Mohele) +255-71–3604499 (Ulaya) Email: [email protected], [email protected], [email protected] (Ulaya)

Small Enterprise Loan Facility (SELF) Abia Kaaya, Project Manager Nyumba ya Maarifa, Ohio Street, PO Box 5380, DSM Tel: + 255 – 22 – 213 5321 Email: [email protected]

Tanzania Leasing Project, TANZALEP Moyo Ndonde, Operations Officer Joass Lyatuu, Financial analyst

WB Country Office, 50 Mirambo Street 4th Floor, PO Box 2054, DSM

Email: [email protected]; [email protected] Telephone: +255 – 22 – 2163219 Website: www.ifc.org/ifcext/tanzalep.nsf

This directory only includes relevant actors on sector level. For additional information:

• Commercial Banks and Non-Bank Financial Institutions (BOT, 2007): http://www.bot-tz.org/BankingSupervision/registered_banks.htm

• Directory of Microfinance Practitioners (BOT, 2005) with SACCOs, MFIs, Banks: http://www.bot-tz.org/MFI/Default.asp?Menu=PRACT

• Directory of Development Organisations, Tanzania (2006): http://www.sarpn.org.za/documents/d0001795/Country_Dir_Tanzania_2006.pdf


ANNEX 3

List of Relevant Documents & Resources

Institution Relevant Documents Website Bank of Tanzania (BOT) - Monthly Economic Report

- Quarterly Economic Bulletin - Statistics of Macro-economic Indicators - Directory & contacts of BOT staff - Microfinance sub-web - Improving Operational Performance of SACCOs in Tanzania, BOT and Ministry of Marketing and Cooperatives, K-REP Advisory Services, June 2005

www.bot-tz.org

BOT Training Institute - Training programmes offered

www.bot-tz.org

CRDB Bank Ltd.

Greater Access to Finance for the Ordinary Tanzanian – a tale of microfinance technology developed by CRDB Bank Ltd., Sept. 2006

DFS-Kenya and FSDU Village Savings and Loan Associations: experience from Zanzibar, E. Anyaongo and others, 2006

FinMark Trust A literature Review on Housing Finance Development in Sub-Saharan Africa, Mary R. Tomlinson, May 2007

www.finmarktrust.org.za

FSDT Brochure on Finscope, statistics presented in FSDT FinScope workshops (May – June 2007)

http://dgroups.org/groups/FSDT-Tanzania

Government of Tanzania - National Microfinance Policy (2000) www.bot-tz.org/MFI

Hivos and Triodos-Facet Report and material for Seminar on ICT trends in Microfinance, Tanzania (June 2007)

Jazayeri, A. Member-Owned Financial Institutions: lessons from Uganda and Tanzania, 1997 - 2004

www.microfinancegateway.org

IMF Country Report Tanzania, Nr. 07/246, July 2007 Microinsurance Centre, J. Roth and others

The landscape of micro insurance in the world’s 100 poorest countries, April 2007

MicroNed - Annual Report 2006 - NMP Database December 2006

MicroSave, Millinga, A. Asessing the Demand for Microinsurance in Tanzania, 2002

www.microfinancegateway.org

TBA TBA Newsletter, June 2007 UNDP Human Development Report 2006 World Bank - Access Finance, bi-monthly newsletter

- Making Finance Work for Africa, S.M. Maimbo, T. Muller and L. Lang, 2007


ANNEX 6

Overview of Microfinance Providers in Tanzania

Type / Name of Institution

Microfinance Products Offered

Market/Area of Operations

Loans Outstanding

Amount Outstanding

1. Regulated & Licensed Providers of Microfinance Services

Commercial Banks Access Bank ltd. Main focus on SMEs. Various savings and

fixed deposit products, individual loan products.

Dar es Salaam, 1 branch

Not available (recently opened 1

st branch)

Not available (recently opened 1

st branch)

Akiba Commercial Bank Main focus on SMEs and microfinance. Various savings and fixed deposit products, individual loan products, group lending

DSM and Arusha, 5 branches

15,531 (Dec. 2006) Total: US$ 14.3 Milion (Dec. 2006). MF-portfolio unavailable

CRDB Part of portfolio in microfinance. Various savings and fixed deposit products, individual loan products, wholesale lending to SACCOs

National, 40 branches 270 SACCOs, with 140,000 members

Tsh. 25 Billion to SACCOs in 2006

NMB Part of portfolio in microfinance. Various savings and fixed deposit products, individual loan products, wholesale lending to MFIs/SACCOs

National, 120 branches MF clients: not available (n.a.)

MF-portfolio: not available

Plus: Various banks are down-scaling, expanding branch network and entering into SME and whole-sale lending to MFIs and SACCOs (incl. Barclays Bank, National Bank of Commerce, CitiBank, FBME Bank, Exim, Boa Bank etc.) Regional Unit Commercial Banks Dar es Salaam Community Bank Various savings and fixed deposit products,

individual loan products, incl. microloans Dar es Salaam region (since 2001)

n.a. Tsh. 10.8 Billion (Sept. 2005)

Kagera Farmers Cooperative Bank Various savings and fixed deposit products, individual loan products, incl. micro loans, wholesale lending to SACCOs

Kagera region n.a. n.a.

Kilimanjaro Cooperative Bank Various savings and fixed deposit products, individual loan products, incl. micro loans

Kilimanjaro region n.a. n.a.

Mbinga Community Bank Various savings and fixed deposit products, individual loan products, incl. micro loans, wholesale lending to SACCOs

Ruvuma region (since 2003)

5,382 (Dec. 2005) $ 699,729 (Dec. 2005)

Uchumi Commercial Bank Various savings and fixed deposit accounts, individual loan products, incl. micro loans, wholesale lending to SACCOs

Kilimanjaro region (since 2005)

63 SACCOs by end 2006 n.a.





Loans Outstanding

Amount Outstanding

Regional Non-Bank Financial Institutions Mufindi Community Bank Various savings and fixed deposit products,

individual loan products incl. micro loans Iringa region (since 1999)

n.a. Tsh. 1 Billion (Dec. 2003)

Mwanga Community Bank Various savings and fixed deposit products, individual loan products incl. micro loans

Kilimanjaro region (since 2000)

n.a. n.a.

Non-Bank Financial Institutions Tanzania Postal Bank Variety of savings savings accounts and

fixed deposits, some individual micro-lending

National, over 100 outlets

> 1 million account holders n.a.

2. Registered but Non-Regulated Providers of Microfinance Services

Financial NGOs PRIDE Tanzania Group solidarity lending, individual loans.

Mandatory savings. National, semi-urban 89,783 (Dec. 2006) $ 16.4 Milion (Dec. 2006)

FINCA Tanzania Group solidarity lending, individual loans. Mandatory savings.

National, semi-urban 42,785 (Aug. 2006) $ 5 Million (Aug. 2006)

SEDA Group solidarity lending Semi-urban 17,577 (Dec. 2006) $2.3 Million (Dec. 2006) BRAC Tanzania Group solidarity lending National (7 locations,

40 branches, incl. Zbar), semi-urban

52,788 (in 2116 groups), Nov. 2007

$ 6.2 Million (Nov. 2007)

Presidential Trust Fund Group solidarity lending? Semi-urban 10,064 (June 2006) $ 1.9 Million (June 2006) SEF Group solidarity lending, individual loans DSM, Mbeya region,

semi-urban + rural 2,000 (Nov. 2007) $ 263,569 (Dec. 2005)

Faulu Tanzania Group solidarity lending, individual loans Semi-urban 2,250 (Dec. 2006) $199,899 (Dec. 2006) WEDAC Group solidarity lending, individual loans Kilimanjaro region,

semi-urban 2,000 (est.) n.a.

FAIDERS Bilaramungo / Kagera Region, rural

2,000 (est.) n.a.

Tujijenge Tanzania Individual and group lending DSM, semi-urban 2,000 (est.) n.a. SELFINA Micro leasing National 3,382 (March 2007) $1.8 Million (March 2007) GroFin Tanzania SME lending + business advice DSM 7 SMEs n.a. Registered SACCO Networks Dunduliza Limited Savings and fixed deposits, individual micro

loans, pilot housing loans (for members only)

DSM, Lake Zone, Ruvuma region, semi-urban + rural

34 SACCOs, total 52,000 members (2007)

USAWA Limited Savings and fixed deposits, individual micro loans including agriculture, leasing (for members only)

Kilimanjaro region, mainly rural

15 SACCOs, total >3,000 members (2006)





Loans Outstanding

Amount Outstanding

Other SACCOs Total 3,500 SACCOs (incl. networks above)

Savings and fixed deposits, individual micro loans (members only)

National, urban (40%) and rural (60%)

Total 420,000 members (Dec. 2006)

n.a.

3. Unregistered and Non-Regulated Providers of Microfinance Services

Village Savings and Loans Associations (VSLA)

Time-bound, accumulated savings and credit assocations, 15-30 people.

Zanzibar 4,552 (70% women) n.a.

Village Community Banks (VICOBA)

Informal, village based savings and credit groups

various n.a. n.a.

Financial Service Associations Informal savings and credit associations (may be registered at local level)

Lake Zone 4,412 (52% women), 2006 n.a.

Sources: Mix market, TriodosFacet and estimates.