financial access: options for the poorest in tanzania

Je, unatumia taasisi yoyote ya kifedha iliyopo katika wilaya hii?

88%

12%

Hapana

Ndiyo

HOW POOR PEOPLE IN MOROGORO, DODOMA,

SINGIDA, AND SHINYANGA REGIONS OF TANZANIA

MANAGE THEIR FINANCES

A SURVEY AND STRATEGY FOR GREATER OUTREACH, JULY/AUGUST 2006

By Henry Oloo Oketch

Maarifa Consultants Limited,

Apartment B3, Lantana Gardens

Dennis Pritt/Maalim Juma Road

P.O. Box 45304 GPO 00100, NAIROBI Kenya

Rural Livelihoods Development Company

Limited, P.O Box 2978, Dodoma, Tanzania

Phone +255 26 232 1455

Fax +255 26 232 1457

E-mail: [email protected]

Access to Finance

Contents page

Summary of findings _____________________________________________________ 4

Chapter 1 _______________________________________________________________ 8

Background & Introduction ___________________________________________________ 8 1.1 Introduction ___________________________________________________________________ 8 1.2 Survey objectives _____________________________________________________________ 10 1.3 Definitions and conceptual framework ________________________________________ 11 1.4 Data Collection and Sampling ________________________________________________ 13 1.5 Data type and analysis _______________________________________________________ 15

1.5.1 Household demand survey ________________________________________________ 15 1.5.2 Supply-side inventory study ________________________________________________ 17

1.6 Baseline Context of surveyed Areas ____________________________________________ 20 1.6.1 Physical Infrastructure _____________________________________________________ 20

Morogoro Region ________________________________________________________________ 21 Dodoma Region _________________________________________________________________ 22 Singida Region __________________________________________________________________ 23 Shinyanga Region _______________________________________________________________ 23

Chapter 2 ______________________________________________________________ 25

General Baseline Results _____________________________________________________ 25 2.1 Residency and Age ________________________________________________________ 25 2.2 The People and Social capital _______________________________________________ 25

Chapter 3 ______________________________________________________________ 31

financial Access & Exclusion _________________________________________________ 31 3.1 Percentage with current access _______________________________________________ 31

3.1.1 Awareness of financial services ____________________________________________ 31 3.1.2 Financial Literacy _________________________________________________________ 32 3.1.3 From knowledge to use ___________________________________________________ 33 3.1.4 Proximity is no Guarantee of use ___________________________________________ 34

3.2 Patterns of Use of Available Services ___________________________________________ 36 3.2.1 Types of Accounts Held ___________________________________________________ 37

3.3 Perception of the intermediaries _______________________________________________ 38 3.4 Current methods of saving ____________________________________________________ 41 3.5 Current Access to Loans ______________________________________________________ 42 3.6 Conclusions __________________________________________________________________ 45

Chapter 4 ______________________________________________________________ 47

Barriers to Access ___________________________________________________________ 47 4.1 Financial services Infrastructure ________________________________________________ 47 4.2 households’ perspective on barriers ___________________________________________ 48 4.3 provider’s perspective on Barriers ______________________________________________ 50 4.4 a deeper understanding of Obstacles _________________________________________ 51 4.5 Opportunities for Greater Access ______________________________________________ 56

4.5.1 The Institutional side _______________________________________________________ 56 4.5.2 The consumer side ________________________________________________________ 57

4.6 Bridging the divide ___________________________________________________________ 58

Chapter 5 ______________________________________________________________ 59

A Strategy for Greater Access ________________________________________________ 59 5.1 Guiding principles ____________________________________________________________ 59 5.2 Collaboration with existing providers ___________________________________________ 60 5.3 Possible interventions __________________________________________________________ 2 5.4 Internal capacity and strategy formulation ______________________________________ 4 5.5 Conclusion ____________________________________________________________________ 5

Appendices _____________________________________________________________ 7 Annex 1.1 ________________________________________________________________________ 8 Annex 1.2 Main survey questionnaire _______________________________________________ 1 Annex 1.4 Supply-side survey instrument ____________________________________________ 1 Appendix 2 Endnotes & References ________________________________________________ 1

Access to Finance

Summary of findings In almost every part of the world, limited access to finance is a seriously binding

constraint to private sector growth. This is especially true of the poor people in

Tanzania, many of whom both have the urge and ideas to improve their livelihood

but is financially excluded from reliable service.

In the case of present RLDC survey, accessibility was defined as the ease with

which an individual can get services and facilities if he or she needed or desired to

do so and it reflects the ability of that person whether directly or through his/her close

associates to reach and use such services affordably.

With greater and better access to finance, even poor people can create their

own jobs, build decent homes, and educate their children to their capacity, thereby

securing their lifetime labor market mobility. Thus, RLDC considers access to

appropriate financial services by the poor and low-income families in the four regions

where it currently has development activities as one of the critical success factors in

creating jobs, improving incomes, and helping the communities manage various

social and economic shocks, i.e., three of the company’s main objectives. Hence,

results of the baseline survey commissioned in July and August 2006 to measure the

poor rural households’ access to financial services in the four regions of Morogoro,

Dodoma, Singida, and Shinyanga, as intended by RLDC, provides insight into defining

its priorities and strategies for widening and deepening access to financial services in

the said target areas.

The survey involved 2,568 randomly selected households and 14 local level

financial intermediaries. The results of the survey show that:

About 13.3 percent of the households presently use at least one of

the existing financial service providers within their district. Another

4.1 percent had another member also using the existing

intermediaries, thereby increasing the overall percentage of

households currently using the existing intermediaries to 17.4

percent of the population.

Of the households using the existing intermediaries within their

districts, 32 percent rely on National Microfinance Bank (NMB),

followed closely by savings and credit cooperative societies

(SACCOS); at 28.1 percent. Other intermediaries used are CRDB

Bank (8.1 percent), groups (6.8 percent), and two major financial

NGOs (5.7 percent).

In terms of services, less than nine percent of the households keep

an account with the intermediaries; with 57.4 percent of them

depending on various banks for services, 33.4 percent in SACCOS,

and a far smaller number (9.2 percent) with either non-bank

financial institutions or ROSCAS (Rotating Savings and Credit

Associations) groups.

The majority of households currently having accounts maintain a

savings bank account (88.6 percent); only 8.5 percent have a

business or current account (through which some receive salaries

and loans), 1.3 percent maintain term deposit accounts, and 1.7

percent group accounts.

Although a slightly higher number of the households have access

to credit; at 19 percent, this is largely accounted for by informal

credits (79.7 percent of all loans granted within 12 months prior to

the survey). Both SACCOS (six percent), financial NGOs (2.2

percent), and banks (2.1 percent), provide just about 10 percent

of the total credits granted to the poor rural households.

This low access to both savings and loans by the poor rural

households is caused by a myriad of factors and not just by the

absence of many conveniently located financial intermediaries

close by the population; which is of course also a major constraint.

Basically, the existing financial system is at odds with the

requirements of the poor and low income households; for

instance, despite the presence of some such institutions within the

districts where the households live, a whole 54.2 percent do not

know even of their presence.

Based on analysis of the situation, financial exclusion of the poor

rural households is caused by at least three related factors. Last in

the list is the population’s ignorance about the existence of these

institutions right within their midst –or alternatively, their ignorance

about the benefits of effectively using the services provided by

these institutions to improving their livelihood. The second; but just

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as likely the first major cause of financial exclusion, however, is high

cost of service, inconvenience, and the unsuitability or poor quality

of services provided by most financial intermediaries operating in

the four regions. In this conclusion, the RLDC survey presents

evidence that is very similar to those established by the Bank of

Tanzania Survey of 1997§ and the Vice President’s Office study in

June 2000.

In a process typical of a vicious cycle, this combination of greater

distances to nearest available financial institutions, high cost, poor

service, and poor information about potential benefits of using

various financial services, almost completely discourage formation

or use of appropriate and conveniently located financial

institutions in the concerned regions. Subsequently, without gaining

the necessary confidence of the local people in these institutions,

the much hoped for greater access is undermined by their lack of

credibility and intermediation capacity.

If the analyses of the survey results are correct, the first and primary

solution to increasing greater outreach for RLDC would seem to be

a two-pronged strategy that works simultaneously. These include

providing better, more comprehensive, and more focused

financial education to the target population, while at the same

time enabling a few of the better focused and more deserving

financial intermediaries closest to the people build their institutional

capacity and acquire other resources necessary to deliver timely

and suitable products and services.

The evidence from this baseline survey certainly shows a strong

local demand and capacity among the target population for

both using financial services effectively—if rightly and correctly

informed about their benefits—and contributing towards

establishing and further building the capacities of the institutions.

So, it is certainly a sound proposition for RLDC to pursue investing in

strategic alliances with carefully selected local level financial

intermediaries; mostly community-based savings and credit

cooperatives, providing detailed financial education on savings,

budgeting, managing credit, and their own responsibilities towards

building responsible financial intermediaries to the local people.

As there are handsome returns to investing in institutional capacity,

neither should RLDC shy away from providing budgetary support

to selected partners to undertake specific investments in building

financial services infrastructure, developing people’s capacity for

strong leadership and service delivery, and developing

appropriate management systems, undertaking relevant market

research, and even developing new and better products and

services. In this area, RLDC has much to learn from CRDB Bank

Limited, with which it has already made contacts and initiated

valuable discussions.

Finally, given its previous successes in mobilizing various

communities in the central corridor to undertake many livelihoods-

enhancing activities and excellent reputation, RLDC has both the

mandate and self-interest in establishing diverse financial services

activities that would create the momentum and support towards a

greater access to finance for the target population.

These might include facilitation of financial literacy training to the

public, formation of strategic alliances with financial institutions like

the CRDB Bank Limited; which seeks to increase poor households’

greater access to financial services through strategic linkages with

local financial intermediaries, funding of technical assistance and

appropriate management systems development for deserving

intermediaries, and even giving material support in badly needed

staff training, communication, and product development

challenges.

Copyright ©2006 Rural Livelihood Development Company

All rights reserved.

Access to Finance

Chapter 1

BACKGROUND & INTRODUCTION

1.1 INTRODUCTION

This report presents the results of a baseline survey carried out in July and August

2006 by the Rural Livelihood Development Company (RLDC). The overall purpose of

this combined baseline survey was to measure poor rural households’ access to

financial services in the four regions of Morogoro, Dodoma, Singida, and Shinyanga,

which are the areas where RLDC currently provides various development activities1.

The four regions where the survey was done are also collectively and officially

recognized as the ‘Central Corridor’ area, evidently based on their location right at

the heartland of mainland Tanzania. It is a corridor that begins with the Dar es

Salaam-to-Kigoma railway network (some 1,254 km in length), which connects the

1RLDC is a not-for-profit enterprise based in Dodoma, Tanzania whose purpose is to improve the livelihood of

rural communities in the central corridor by helping and supporting the generation of greater income and

employment opportunities through various interventions, including:

Promotion of skills improvement

Promotion and direct provision of business development services

Promotion of greater access to financial services

promotion greater access to markets

Encouraging and enabling the development of market infrastructure

Encouraging and enabling the development of a more conducive policy and regulatory environment

The organization envisions a time and situation in which poor rural households and communities have open

access to all markets relevant to enhancing their livelihood.

country with Bujumbura, Burundi, by boats on Lake Tanganyika, and further on to

Rwanda by road. The parallel road route also begins in Dar es Salaam via Dodoma,

Singida, Nzega and further on to Lusahunga into Rwanda and Burundi.

The study was to provide RLDC with the information it needed to formulate an

effective financial strategy, especially one with a focus on facilitating market

development for on-farm and off-farm livelihood activities within the corridor. Yet, to

intervene effectively in this market development process, RLDC needed to know the

demand for financial services, i.e. proportion of the target population that is in need

and able to pay for services if such service were made available, but are nonetheless

presently excluded.

Secondly, because RLDC prefers undertaking a facilitative rather than direct role

in development work itself; including the provision of financial services, it needed to

know a little more about the institutions or individuals with whom it could collaborate

in providing such services in the concerned area of intervention, i.e., their identity,

mandates, location, and capacity, etc, so it could correctly choose the right ones.

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1.2 SURVEY OBJECTIVES

RLDC considers the baseline survey as an important part of its 10-step process2

towards establishing viable, self-sustaining financial service organizations for

achieving greater access to finance, lack of which it currently considers a major

constraint to improving livelihoods in the four regions. Although considered a fully-

fledged intervention independent of the others by RLDC, the company sees greater

access to finance as a cross-cutting input that could make a critical difference in the

achievement of its other interventions. Partly because of this consideration—and

although presented and discussed separately in two parallel reports of equal depth,

the survey also explored the number of households currently engaged in micro- and

small-scale enterprise (SMEs) activities in the corridor, thereby specifically looking at

their present constraints that if properly harnessed could open up greater

opportunities for enhancing livelihoods in RLDC’s area of operation.

RLDC, along with many other development organizations of its kind, now

recognizes SMEs to have become an increasingly important source of income for

many poor Tanzanian families and therefore should neither be neglected nor left un-

nurtured. Hence, the need during the survey to explore whether current access to

finance by concerned households is an obstacle to the growth potential of these

enterprises. Also investigated by the survey, but results similarly presented and

2 These 10 steps starts with (1) demand stimulation (2) processing of requests/applications received for

various inputs (3) rapid appraisal of requests and applications (4) project planning and presentation for

discussion and approval (5) board approval (6) contracting/engagement (7) implementation (8)

monitoring (9) evaluation (10) release of inputs/capitalization.

discussed separately in a parallel report, is the number of households presently

accessing relevant business development services (BDS), which are themselves also

considered critical to successfully enhancing livelihoods in the corridor by RLDC.

Among the BDS explored by the survey included current access to information by

type, source and provider and also whether they have received business training,

technical support, and linkages to markets, etc. The two separate reports—one on

SME constraints and opportunities, and the other on poor households’ access to

BDS—are available directly from RLDC on request.

1.3 DEFINITIONS AND CONCEPTUAL FRAMEWORK**

For purposes of the survey, a financial service was defined as any service that

enables an individual, household or firm to:

Send or receive money,

Store and retrieve any surplus income not immediately required for

consumption or investment,

Receive or make payments for goods and services supplied to or

received from a third party,

Sell or buy financial assets such as treasury bills, bonds, shares, and

insurance, etc

Transform future income into current income by giving loans (or by

facilitating current consumption against future income), and;

Exchange currencies.

Amongst the poor rural households studied, these services are provided by a very

diverse group, e.g., individuals or specialized institutions (such as commercial banks)

and non-bank financial institutions, financial cooperatives, financial NGOs, and

informal associations groups. Nonetheless, the survey recognized that each possible

provider has own unique attributes that could influence the range, quality, and

benefits provided to different segments of the target population. For this reason, the

survey sought to establish the share of households and small-scale firms presently

included or excluded by different providers.

Of these providers, the regulated and supervised group is known for taking

particularly nontrivial risks in intermediating third party deposits for a gain. Fortunately,

one category of the unregulated and unsupervised providers faced no such risks, as

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they deal almost exclusively with their shareholding customers only. Accordingly, the

survey treated commercial banks and non-bank financial institutions as a distinct

class under the ‘regulated service provider’ category. Yet, among the non-

regulated service providers, however, the survey created two sub-categories based

on their specialization, level of organization or formality of activities, as well as the

underlying motivation for business, which clearly have an influence on their conduct

and choices. In this regard, therefore, the survey distinguished between:

Specialized, non-regulated providers as a cluster comprising

financial NGOs, financial cooperatives, welfare funds, and village

banks, which may be small but relatively formalized in approach

to service provision, and;

Non-specialized, non-regulated providers, comprising Upatu-style

rotating savings and credit associations (ROSCAS).

Also in the category of non-specialized providers the survey included any

institution or person that provides supplier credit. Finally, the survey identified a large

group of individuals (precisely 1,711 or 70.1 percent of the households studied) that

were providing informal credits, but do not belong with either of the two categories

of providers discussed above. Finally, the survey also identified a few profit-motivated

moneylenders within the individuals that were giving credits in the corridor, but again

do not belong with either of the two categories of providers discussed above.

For exploring the extent of access, the survey looked at the different classes of

services or products provided and have, thus, distinguished the degree of

accessibility by households and firms in the central corridor area. This extent of access

is captured graphically by tracing the usage of a particular service or product as a

percentage of the eligible population across time and penetration (see following

illustration, a Market Map):

1.4 DATA COLLECTION AND SAMPLING

Three sets of data were collected using separate instruments: the first and primary

questionnaire was an all-open structured set of response items administered face to

face to a sample of 2,441 households (Appendices 1) randomly selected from 126

enumeration area clusters throughout the four survey regions (Table 1.1).

Region Districts Population

(2002

Census)

Number of

Households

(2002

Census)

Enumeration Areas Households

Urban Rural Total Urban Rural Total

Dodoma 5 1,698,996 376,530 3 23 26 87 563 650

Morogoro 6 1,759,809 385,260 7 19 26 173 477 650

Shinyanga 8 2,805,580 445,020 3 23 26 65 585 650

Singida 4 1,090,758 217,572 3 23 26 87 563 650

Total 23 7,355,143 1,424,382 16 88 104 412 2,188 2,600

TABLE 1.1: SURVEY SAMPLE DESIGN

These households were randomly selected from rural and urban cluster pools

established within the national sampling frame, which is based on the recent 2002

Tanzania Population and Housing Census. The optimal number of households to

interview per cluster was determined at 25 based on the minimum units established in

the national sampling frame, while the optimal number of enumeration sites was

determined at 26, also as determined in the said sampling frame.

Figure 1: Graphic Illustration of Market Penetration

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As planned, the households selected for interview from each cluster were picked

randomly at appropriate intervals representing a fixed proportion of its current

population size. Hence, the fact that Shinyanga region had slightly more households

did not affect the representation of the total households ultimately interviewed vis-à-

vis the other regions or overall sample size.

In addition, since the first stage of sampling process required the clustering of all

enumeration areas in the national sampling frame into urban and rural categories,

this procedure ensured that each household’s probability for selection was

proportional to their population size (Table 1.2).

District Households Location Total SME

Rural Urban

1 Kondoa 162 162

2 Mpwapwa 84 25 109

3 Kongwa 115 115

4 Dodoma rural 96 96

5 Dodoma urban 31 31

6 Dodoma urban 22 69 91

Dodoma region 112

7 Bukombe urban 15 15

8 Bariadi 122 122

9 Maswa 19 19

10 Shinyanga urban 31 19 50

11 Kahama 77 77

12 Bukombe rural 98 98

13 Meatu 20 20

14 Shinyanga rural 79 16 95

15 Kishapu 39 39

16 Iramba 248 248

17 Manyoni rural 94 94

Shinyanga Region 193

18 Kilosa urban 25 25

19 Morogoro rural 113 113

20 Kilombero urban 25 25

21 Morogoro urban 1 75 76

22 Kilosa rural 100 1 101

23 Mvomero 174 174

24 Kilombero urban 26 26

25 Ulanga 50 50

26 Kilombero rural 61 61

Mororogo Region 136

27 Singida rural 176 176

28 Singida urban 26 82 108

29 Manyoni urban 25 25

Singida Region 126

Grand total 2038 403 2441 567

TABLE 1.2: GEOGRAPHICAL DISTRIBUTION OF SAMPLE BY SPATIAL LOCATION

The survey obtained all relevant EA maps for sampled clusters from the National

Bureau of Statistics. However, all household listings were updated on site during field

work to incorporate changes in population size since the 2002 census. Once on site

(and with the aid of the EA maps and village scouts), the names of all household

heads within the clusters were first listed by the field supervisors (Appendices 6), after

which a random sample of 25 were selected and interviewed.

While systematically drawing random samples for interview from the household

listings, there were a few instances where those randomly selected initially following

the appropriate interval did not included enough SME-households to meet the

desired 25 interviews per cluster; of which 20% were to be SME-involved. Nonetheless;

in such circumstances, the sampling interval was again systematically adjusted to

yield the desired number of households for interview (Table 1.2), hence the overall

results of this survey as presented here in this report are unbiased and representative

of the 1.4 million households in the areas studied.

1.5 DATA TYPE AND ANALYSIS

1.5.1 Household demand survey

On the demand side, respondents gave views on 20 different broad issues: from

reporting on their age, highest level of education attained, and possession of any

occupational skills. They also gave information on the size of their households and

composition, participation in development group activities, and their families’ current

assets portfolio. Various aspects of their financial wellbeing and current access were

also explored (Appendices 2). Of particular interest for the formulation of an effective

financial services intervention by RLDC, were respondents baseline information on:

Current sources and levels of income and savings (if any).

Current means of storing excess income (if any) and their

satisfaction with the means chosen.

Current stock of debt (if any), by amount, source, and purpose.

Knowledge of financial service providers existing within their

district, regardless of their legal status, e.g. whether individuals,

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groups or institutions and their identity, location, and approximate

distance from where the respondents lived.

Views on available providers (if any is known within district),

products, and their perceived strengths or weaknesses.

Immediate and long-term personal plans for improving livelihoods,

alongside the underlying motivations for such plans and

suggestions on how to resolve hindrances.

Ability and willingness to pay for various financial services if these

were somehow available; along with preferences for terms and

conditions for service.

Lastly, since RLDC intended using the survey to establish baseline indicators for

measuring its financial services interventions, the following additional information

were, hence, also collected:

Current access to markets, advisory services, and inputs, e.g.,

market information through radio, TV, newspapers, or word of

mouth, etc.

Current use of market information.

Listening and reading habits.

Ability to pay for information services.

Media preferences, etc.

Listening

While the primary questionnaire explored the overall participation of the entire

sample in micro/small-scale enterprises, a detailed secondary questionnaire which

was part of it, was administered to 567 of the households that were then involved in

SMEs (Appendices 3) and critically examined the following aspects of the enterprises:

Type of economic activity

Ownership

Enterprise start date

Sources of start up capital

Total current workers in enterprise analyzed by their gender

Total paid workers in the enterprise

Total number of workers at start of enterprise; and

The major constraints to enterprise growth/expansion currently

Due to major oversight; undetected on the first three days of fieldwork, however,

the Kiswahili version of the instrument omitted very important items concerning the

annual inflow and outflow of enterprise income by source, periods when there is

excess income or shortage, and he specific needs or uses to which this income is

annually applied. Secondly, for each current source of income, the English version of

the questionnaire contained items on how the households were coping with income

shocks or emergencies and how these could be reduced or contained towards

improving livelihoods through SMEs that were again; regrettably, omitted during

translation. Consequently, there are many instances where a direct comparison of

the SME insights from this survey and a similar one conducted earlier by Swisscontact

East Africa in the Uhuru corridor is not possible. These shortcomings notwithstanding,

however, the current survey has produced some interesting facts about the growth

potential of SMEs in the areas studied –and particularly the negative consequences

of their financial exclusion.

1.5.2 Supply-side inventory study

The third survey instrument (Appendices 4) was administered to 14 randomly

selected financial intermediaries operating at the lowest level of intermediation in the

survey areas. This supply-side instrument collected information critical to RLDC’s

understanding of current obstacles faced by the local institutions in creating greater

access to finance for concerned population.

Thus, on the supply side, several intermediaries—actually numbering 110 –were

contacted on phone based on a 2005 Bank of Tanzania Directory of Microfinance

Institutions in Tanzania so that RLDC could get to know more about their activities and

if they would be interested in cooperating in widening and deepening access to the

poor rural households. Those successfully located from this directory were contacted

to provide information on the following aspects of their activities:

Name and principal place of business (if any), together with all

necessary contact addressed not previously published by the Bank

of Tanzania, e.g., email, phone, and fax numbers.

If organization was also providing services in other

regions/describe its geographical focus in greater detail

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Legal status and sources of funding for the provision of financial

services

Target customers eligibility criteria for access

Measures taken (if any) by the organization to reach greater

numbers of the poor rural households in target areas of operation

Service delivery processes and requirements

Products and services provided, especially if institution is dealing

with poor rural households in particular

The size of organization as measured by (a) number of staff, (b)

customers/shareholding-members, and (c) total assets/equity

base or savings

Immediate long-term organizational plans

Real and perceived opportunities and current obstacles in

expanding services, especially to the poor rural households

Size and volume of business presently handled in terms of (a)

deposits/savings or shares and (b) outstanding loan portfolio

Three-year historical record of growth and expansion of each

provider

The assessment of critical success factors that would definitely

facilitate the expansion of financial services to the presently

underserved or excluded population; and,

Indicative areas for possible collaboration with RLDC towards

expanding services to the presently excluded/underserved

population.

Because a very high number of the sampled households were ignorant of the

financial institutions existing within their districts, the Bank of Tanzania Directory of

Microfinance published in November 2005 was an important reference for sampling

intermediaries for interview. However, despite contacting many intermediaries for

interview from this directory3; just published in October 2005, no more than 22 were

reachable and ready for interview: 14 were interviewed on phone while 17 insisted

on face to face interviews. These 14 provided enough information to support

3From the list under various districts in Dodoma, 21 were unreachable or wrong contacts for

any appointment to be made for interview. In Shinyanga, 28 were unreachable or had wrong

contacts information for any appointment and in Singida, it was 32. Another 12; two in Dodoma,

four in Morogoro region, three in Shinyanga, and a similar number in Singida were successfully

contacted but declined participation off site. Lastly, five of the intermediaries in the Bank of

Tanzania directory declined outright any interview; including Hembeti Rural SACCOS—one of the

most commonly featured in the survey with households.

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important conclusions, recommendations (Appendices 4) and insight into the current

scale of outreach and constraints.

1.6 BASELINE CONTEXT OF SURVEYED AREAS

For a better appreciation of the access to finance baseline situation of the four

regions surveyed, it is first necessary to highlight the existing social and physical

infrastructure, for instance, the availability and distribution of roads and various types

of financial intermediaries in the area of survey, which has a bearing on accessibility

and cost of service. Moreover, for certain financial services that have become highly

information-dependent, lack of access to electricity and telecommunication

required by the intermediaries to operate effectively can rule out their provision and,

hence accessibility.

In this regard, this section of the report presents some basic information about the

four study regions that will help highlight the emerging pattern of access to finance

as well as potential challenges in trying to improve the situation. Secondly, the mode

of production and consumption can often dictate the presence or absence of

financial services, hence, access or exclusion of households. Accordingly, an

understanding of the people’s current livelihood systems, household composition,

and levels of income, all have an influence on their demand for services and were,

thus, thoroughly investigated.

1.6.1 Physical Infrastructure

The area covered by the survey was vast, measuring approximately 212, 232

square kilometers in size, and involved a population of nearly 8 million people (Table

1.3). Hence, the use of a two-stage random sampling process in identifying the 2,568

households interviewed was important in ensuring that both sample and baseline

indicators were robust and representative; as earlier discussed.

Region Land area

(Sq. km)

Population Households Districts Sample

sites

Sample

size

Morogoro 70 799 1 759 809 385 260 7 26 670

Dodoma 41 311 1 698 996 376 530 6 26 672

Singida 49 341 1 090 758 217 572 4 26 664

Shinyanga 50 781 2 805 580 445 020 8 26 562

Total 212 232 7 355 143 1 424 382 25 104 2 568

TABLE 1.3: SAMPLE SIZE AND DISTRIBUTION

In any case, the baseline survey as a process was an important part of RLDC’s 10-

step project cycle, as it seeks to establish viable, self-sustaining financial service that

could provide greater access to finance. Although a fully-fledged intervention and

independent of the others, yet an improved access to finance can catalyze many

other aspects of RLDC’s interventions.

A brief discussion of the survey areas should present a clearer picture of the

development challenge faced by RLDC:

MOROGORO REGION

Morogoro is the largest of the four areas surveyed, with wonderfully fertile soils,

beautiful mountains, and a vast area surface, which is nearly twice that of Dodoma

or 1.5 times Singida’s total surface area. However, apart from a single trunk road,

most of the region has seasonal roads of very poor condition. In addition to this trunk

road, there is similarly a single railway line running parallel to the said trunk road and

also connecting the region to the same adjacent areas (Figure 2).

Figure 2: Central Corridor’s Rail and Road Network

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During the survey, there were four banks operating in Morogoro with 14

branches—most of them at district administrative centers. There were also four non-

government organizations providing financial services, mostly credit. The four

included World Vision International, FINCA Tanzania, PRIDE Tanzania, and SEDA (Small

Enterprise Development Agency). Unlike, the banks however, all the NGOs were

operating in Morogoro town only and, therefore, had no presence further a field in

the districts.

Surprising, given its size and rich endowment with good rainfall, beautiful scenery,

and fertile soils, Morogoro has relatively few SACCOS, numbering just 45 as at the

time, compared to, for instance, Dodoma, which receives much less annual rainfall

and has poorer soils.

One community development organization (CBO), TASAF, although not

mandated or specialized in the provision of financial services, was widely treated as

a financial intermediary by the local communities throughout the 104 cluster areas

covered by survey. In addition, TASAF seems highly regarded as a financial

intermediary.

DODOMA REGION

The smallest of the four regions covered by the survey, Dodoma, has a total land

area of 41,311 square kilometers. Nonetheless, with a population of 376,530

households, it has nearly as many people as Morogoro, which is almost twice its size in

area. Much of the region is a plateau, with Bahi swamps found lying at 830 meters

above the sea level at the lowest points of region, and the highest point lying at

some 2000 meters above the sea level, is in the highlands north of Kondoa district.

The whole of Dodoma is similarly linked to Morogoro and Dar es Salaam to the

east by a single trunk road and railway line. And despite being the national capital

and lying almost at the center of Tanzania mainland, the region has no good road

connections to any of the adjacent regions to the west, northwards or south.

At the time of survey, there were four banks and eight branches operating in the

entire Dodoma region. Other financial institutions operating in the area included two

NGOs and a CBO, as well as 89 Savings and Credit Cooperatives; many of them

listed in the 2005 Bank of Tanzania Directory of Microfinance Institutions, but were

hard to locate on the ground. Unlike the SACCOS, however, both banks and NGOs

operating in Dodoma concentrate their services at just three of the major district

towns, i.e., Dodoma municipality itself and nearby Mpwapwa and Kondoa district

headquarters.

A random sampling and study of three of these 89 SACCOS during the baseline

survey shows that, except for a handful, most are moribund. More insight into the

capacity of the SACCOS in providing access to finance to poor rural households,

alongside their institutional constraints, is presented later in Chapter 3.

SINGIDA REGION

The entire Singida region with a surface area of 49,341 square kilometers has a

mere total road network of 3,238 kilometers and likewise a single railway line running

across northwards to Shinyanga and Mwanza regions from Dodoma in the south.

Technically, it means that for every 15 square kilometers of land area surface, there is

just about a kilometer of road in the entire region (Table 1.4).

District Main road Region road District road Rural road Total km

Singida

rural

21 0 270 0 291

Singida

urban

161 295 325 430 1211

Manyoni 343 279 104 123 849

Iramba 85 271 147 384 887

Total 610 845 846 937 3238

TABLE 1.4: EXAMPLE OF INFRASTRUCTURE NETWORK IN SURVEY AREAS

This scarcity of roads is most visible if one compares the total length of road

available by district and type of road, as in the table above. In addition to poor road

infrastructure, Singida region also lacks many financial intermediaries. Although the

region had four different banks and six branches, five of all six were located either in

Singida municipality itself or in Manyoni. The lone NBC branch in Kiomboi was the only

branch operating from a relatively remoter and smaller town. Secondly, all of the

only two non-bank financial institutions in the region that were offering services, i.e.,

TASAF and Community Development Trust Fund of Tanzania, too, were also based in

the regional municipal town or Manyoni. In addition, there were 46 SACCOS

operating in the region. A random sample of three of these SACCOS studied during

the baseline survey also show the majority to be equally moribund as in Dodoma and

Morogoro.

SHINYANGA REGION

The last region studied, which is located at the extreme upper end of the central

corridor, is Shinyanga. With an area surface of nearly 51,000 square kilometers, it is

second largest amongst the regions of central corridor and the most populated;

Access to Finance

having nearly three times more people than Singida, about twice as many people as

Dodoma, and almost the same population as Morogoro (which has a much larger

area, see Table 1.3 above).

Figure 3: Je Chanzo kipi kikuu kinacho kuingizia kipato?

81%

4%

14%1%

kilimo na ufugaji

aj ira au vibarua

biashara

none / msaada au penseni

Chapter 2

GENERAL BASELINE RESULTS

2.1 Residency and Age

The total age of respondents averaged 45.3 years, while residency tenure at their

current location ranged from 19.4 years in Shinyanga to 28.9 years in Singida (Table

7.5).

Kwa muda gani umeishi hapa?

Means

years of

residency

Age

Region N

Dodoma 605 24.7 42.5

Morogoro 644 28.4 44.5

Singida 643 28.9 51.9

Shinyanga 534 19.4 41.5

Total 2426 25.6 45.3

TABLE 2.1: AGE AND RESIDENCY TENURE BY DISTRICT

2.2 The People and Social capital

In all of the four surveyed areas, agriculture remains the major source of livelihood

for nearly 400,000 households, accounting for nearly 81 percent of reported sources

(Figure 3).

The second main source of livelihood in the areas surveyed is self-employment in

micro and small-scale enterprise activities, which accounts for 14 percent of all

Access to Finance

Figure 4: Je, kuna biashara yoyote unayofanya kwa sasa?

0.0 20.0 40.0 60.0 80.0 100.0 120.0

buko mbe urbanmanyo ni urbando do ma urbanshingida urban

kishapukilo mbero urban

manyo ni ruralshinyanga rural

meatumaswa

shinyanga urbankilo sa urban

kilo mbero urbansingida rural

kahamairamba

mo ro go ro urbanmpwapwa

buko mbe ruraldo do ma urban

ko ngwaulanga

kilo mbero ruralbariadi

ko ndo ado do ma rural

kilo sa ruralmvo mero

mo ro go ro ruralT o tal

Ndiyo Hapana

reported livelihood systems. Current participation in SMEs among the surveyed

households ranged from seven percent in Maswa district to 85 percent of the sample

in Iramba, which again underscores importance of small businesses as a source of

livelihood in the target area (Figure 4).

Apart from the head of household (the main respondent), 12.4 percent of other

household members were reportedly also self-employed in SMEs; hence bringing the

total current participation of entire sample in SME to nearly a half of surveyed

population. Yet another 8.2 percent of the households were previously self-employed

in an SME activity, but have since closed for some reason. The mean annual incomes

for the entire sample varied greatly by level of education; those with tertiary level of

education earned almost six times the annual income earned by households with no

education, 5.5 times of those with primary education, 0.6 times of those with

secondary education, and 4.7 times of the sample average (Table 8).

Education level Mean Median Maximum N

No education 491,103 220,000 1,510,000 220

Primary education 534,136 258,000 24,080,000 1247

Secondary

education

1,764,194 800,000 11,700,000 79

Tertiary 2,932,462 2,800,000 8,800,000 13

Adult education 3,765,000 4,500,000 8,000,000 5

Total 620,479 260,000 24,080,000 1,564

TABLE 2.2: HOUSEHOLDS ANNUAL INCOME BY EDUCATION

Similarly—and surprisingly, those with adult education level of education were

earning 6.1 times more the average annual sample income and 1.3 times more the

annual incomes earned by those with tertiary level of education.

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

Mean

inco

me (

TZ

S)

rural urban total

Location

Figure 5: Mean income by Location

mean income

Figure 6: Current Asset Holdings by Item (Percent of Households)

0.00.00.00.00.10.10.10.10.30.30.30.30.50.61.01.21.4

2.93.0

4.64.6

9.49.6

14.020.8

24.8

0.0 5.0 10.0 15.0 20.0 25.0 30.0

tractor

O ther

Solar

Motor vehicle

Poulty

Sheep

Nyumba

This seemingly odd phenomenon, in which adult education graduates were

earning more than the ones with tertiary level education, is likely the outcome of a

history where the elderly have continued to dominate corporate and public

leadership in Tanzania. Among the rural-based households, annual incomes were

also very different (Figure 3); with the urban incomes more than triple the rural ones.

However—probably because of the shared livelihoods base, i.e., agriculture and

SMEs—the gender of male- and female-headed households evidently had little

influence on their annual incomes; at Tshs 664,399 for female-headed households

and Tshs 603,260 for male-headed ones, there would seem to be some parity of sorts.

Yet, the median annual incomes for male-headed households (at Tshs 280,000) were

Access to Finance

evidently slightly higher than for the female-headed households (Tshs 225,000).

Besides current sources of income, the majority of the households also had

accumulated some savings and assets of varying value, ranging from owning land

(24.8 percent of mentions), commercially and non-commercially tradable shelter

(20.8 percent of mentions), and an equal assortment of livestock (27.2 percent of

mentions).

The size and composition of surveyed households was also considered an

important factor in understanding their access to finance. Generally, the survey

shows that most households are very large, averaging 6.4 persons each (Table 2.3),

and a sizeable number of the members are relatively young or jobless.

TABLE 2.3: SIZE AND COMPOSITION OF SURVEYED HOUSEHOLDS

In addition to their level of education, nearly 30 percent of the female-headed

and 34% of male-headed households had some valuable occupational skills in

various fields (Table 2.4). Secondly, besides the heads of household, almost 14% of

other members (13.7 percent) had various occupational skills.

Je, una ujuzi wowote wa kiufundi

Frequency Percent

Hapana 1697 69.5

Ndiyo 744 30.5

Indicator Total Shinyanga Singida Morogoro Dodoma

#av. household

members

6.4 8.2 6.3 5.3 5.9

#av. under 18 years 3 4 3 2 3

#av. Children out of

school

0.2 0.3 0.1 0.1 0.2

#av. Unemployed

adults

1 2 0.3 1 2

Av. Annual income 620,584 718,819 366,980 895,677 610,265

Av. Savings amount

Tshs

at home 44,061 73,758 45,528 36,386 24,812

in account 54,980 40,647 29,243 125,100 19,584

Total 2441 100

TABLE 2.4: POSSESSION OF OCCUPATIONAL SKILLS BY HOUSEHOLDS

Carpentry (21.2 percent), masonry (19 percent), and tailoring (15.8 percent) were

by far the most common occupational skills amongst the surveyed households (Table

2.5).

Occupation N Percent

Carpenter/wood worker 181 21.2

Mason 162 19.0

Tailor/tie-dye specialist 135 15.8

Arts and crafts/Photographer 76 8.9

Bicycle repair 60 7.0

Mechanic 46 5.4

Other 50 6.1

Blacksmith/welder 20 2.3

Technician 19 2.2

Electrician 19 2.2

Driver 19 2.2

Brick maker 19 2.2

Hair dresser/barber 18 2.1

Lumber jack 12 1.4

Shoe repair 10 1.2

Plumber 6 0.7

Total 852 100.0

TABLE 2.5: OCCUPATIONAL SKILLS AMONGST POOR HOUSEHOLDS

Moreover, an average 19 percent of surveyed households were involved in

various development group activities per district, a fact pointing towards good

prospects for RLCD in mobilizing the people to improve their access to finance (Table

2.6).

It is significant that amongst this group, the access needs for financial services

seems the single strongest force for self-help initiatives (at 33% percent) of current self-

Access to Finance

help activities, followed by the households’ interest in improving livelihoods generally

(44.2 percent).

Group activities

N Percent

1 Financial associations/groups 161 33

2 Agriculture and Livestock 129 26

3 Joint enterprise/association 88 18

4 Social action 56 11

5 Welfare 34 6.9

6 Other, e.g. village security 15 3.1

7 Craft, arts 8 1.6

Total 491 100

TABLE 2.6: PARTICIPATION IN DEVELOPMENT GROUP ACTIVITIES

It is significant that almost 90 percent of the households’ surveyed were already

organized for self-help in at least one such group activity, and another 10 percent

participating more than one such activity (Figure 7).

1470 218

658 88

0 500 1000 1500 2000

Households

Male

Female

Usi

ng v

s N

ot

usi

ng

Figure 8: Je, kwa sasa unatumia taasisi yoyote ya kifedha iliyopo

katika wilayani hii?

No

Yes

Chapter 3

FINANCIAL ACCESS & EXCLUSION

A major finding of this survey, though, is that lack of access by the poor rural

households may be a choice; and not necessarily due to a lack of intermediaries or

their knowledge of their presence. This chapter looks more closely at the current

extent of access and present details on other factors that hinder the poor rural

households’ access to financial services.

3.1 PERCENTAGE WITH CURRENT ACCESS

Of the 2,670 households interviewed during the survey, 12.6% were using at least

one of the intermediaries existing within their district, in addition to another 4.1

percent of the other members who were similarly using these intermediaries.

Furthermore, both male and female-headed households were similarly inclined to

using the intermediaries; with 11.8% of the female-headed households reporting use

of at least one intermediary, as compared to 12.9% by the male-headed households

(Figure 8).

However, just 8.9 percent of all households surveyed had a bank account and

about 19 percent a current loan.

3.1.1 Awareness of financial services

More than a half of the population surveyed (54.2 percent) did not know of any

financial intermediary existing within their district (Table 3.1), yet they have lived here

long enough to know at least one or the nearest to their homes (Tables 3.2 to 3.5).

Access to Finance

Providers Known Closest Distance kms Overall Household Use

(mentions, Percent) (Mentions,

Percent)

(Mentions,

Percent)

(Average) (Furthest)

1 SACCOS 29.1 38.9 16 150 28.1

2 NMB 25.8 22.0 32.3 180 32.0

3 Public, TASAF 9.8 9.9 39 110 7.6

4 CRDB 7.3 2.4 22 80 8.1

5 NBC 7.2 4.6 32.5 500 4.1

6 PRIDE TZ 4.6 2.8 15.8 200 2.2

7 Post bank 5.0 2.0 27 85 1.7

8 SEDA/WVI 4.1 1.8 38.8 70 2.6

9 FINCA TZ 3.1 1.9 25.5 150 0.9

10 Public, other 0.9 0.4 39.5 78 0.2

11 Banks, other 1.3 1.2 18 37 1.1

12 NGOs, other 1.6 1.1 0 3.5

13 Group 0.2 0.4 3.2 5 1.1

Undisclosed 6.8

TOTAL 100.0 100.0 25.9 126.5 100.0

TABLE 3.1: AWARENESS, PROXIMITY, AND USE OF INTERMEDIARIES

3.1.2 Financial Literacy

The fact that slightly more than a half of surveyed households (54.1 percent) did

not know about any existing financial intermediaries within their district –despite

having lived there long enough (mean residency of 26 years), suggests several facts:

firstly, this could reflect the great distances between where the providers are located

and where the rural population lives. Secondly, it might reflect the low-levels of

operation at which these intermediaries currently interact with the public, hence their

low visibility and near-obscurity. Thirdly, this might reflect hopelessness among the

population for ever getting any access to services from sources other than their own

self-help initiatives, hence a widespread lack of interest about these institutions.

Incidentally, and not surprisingly; by extension from the third argument for little

knowledge of intermediaries within the districts surveyed, the most widely known

providers in the corridor were member-owned and member-managed SACCOS,

which was mentioned 29.1 percent of the time). Probably because of its relatively

extensive network; by December 2006 numbering 118 branches countrywide, NMB

was also widely known to surveyed households (25.8 percent of the mentions).

Providers Which intermediaries

do you know of in

your district?

Which ones is nearest

to your home

Distance kms

Mentions Percent Mentions Percent Average Furthest

SACCOS 654 29.1 439 38.9 16 150

NMB 580 25.8 248 22 32.3 180

Public, TASAF 221 9.8 112 9.9 39 110

CRDB 165 7.3 27 2.4 22 80

NBC 162 7.2 52 4.6 32.5 500

PRIDE TZ 104 4.6 32 2.8 15.8 200

Benki ya Posta 112 5 23 2 27 85

SEDA/WVI 92 4.1 20 1.8 38.8 70

FINCA TZ 69 3.1 21 1.9 25.5 150

Public, other 20 0.9 4 0.4 39.5 78

Benki zinginezo 30 1.3 13 1.2 18 37

CBOs/NGOs,

other

37 1.6 12 1.1 0

ROSCAS 5 0.2 4 0.4 3.2 5

TOTAL 2251 100 1128 100

TABLE 3.2: HOUSEHOLD’S KNOWLEDGE OF AVAILABLE SERVICE PROVIDERS AND PROXIMITY

Another widely known intermediary in survey areas is the Tanzania Postal Bank

(mentioned almost five percent of the time). And, among the financial NGOs, the

most widely known ones are PRIDE Tanzania (4.6 percent of mentions), SEDA/WVI (4.1

percent), and FINCA Tanzania (3.1 percent); all combined representing 11.8 percent

of the mentions (Table 3.2).

Surprisingly, the publicly-funded TASAF, which is really a social-action fund, seems

highly visible (mentioned 9.8 percent of the time) and is widely considered as one of

the many present financial intermediaries in all surveyed areas.

3.1.3 From knowledge to use

Regarding the use and choice of provider, it seems clear from this survey that not

knowing where to get a service is the first major hindrance to access. Not surprisingly,

the most widely used intermediaries by households in the surveyed areas were,

coincidentally, also the most well-known. Altogether as a group, the formal financial

institutions were the second most well known intermediaries in surveyed areas after

SACCOS. Likewise, as a group, these formal institutions were also the most widely

Access to Finance

Figure 9: Which one of the providers in your district are you using

currently

0

10

20

30

40

50

60

bank SACCO S Financial NGO s O ther

used intermediaries by the poor rural households; 52.4% amongst households using

various savings instruments (Figure 9), followed by financial cooperatives (30.5%), and

lastly NGOs (17.1%).

This observation notwithstanding, the survey also showed some significant

differences in the types of financial services offered on the one hand and overall

depth of access by the households from different providers on the other hand.

Typically, the survey show formal financial intermediaries leading in providing largely

banking services to the poor households. However, with regard to access to credit,

cost, and quality of services to poor rural households, it is the SACCOS leading.

3.1.4 Proximity is no Guarantee of use

To be able to get services, about 51.4 percent of the households would have had

to walk for at least three hours to reach the nearest intermediary (Table 3.3), while

slightly over 40 percent would have had to walk a minimum five hours to the nearest

service provider.

Je ni umbali gani kwa kilometa?

Range (in kms) Range (in hrs walking

time)

N Percent Cumulative Percent

1 Within 5 1.3 452 39.3 39.3

2 5.01 -10.00 2.5 107 9.3 48.6

3 10.01 - 19.99 4.8 126 10.9 59.5

4 20.00- 24.99 6.3 66 5.7 65.2

5 25.00 - 50.00 12.5 233 20.2 85.5

6 50.01 - 99.99 25.0 123 10.7 96.2

7 beyond 100 25.0 44 3.8 100.0

#answering 1151 100.0

#not answering/do not know of the

distance

1290 52.8

TABLE 3.3: TYPICAL DISTANCES TO NEAREST FINANCIAL SERVICE PROVIDER

Clearly, the table above shows that lack of intermediaries closer to the

households is a hindrance to greater access to finance in areas studied. However,

while distance is key influence, it also does not seem to be the only one determining

the use or non-use of a specific provider by the households. For instance (Table 3.4),

the survey shows many providers that are close enough to the target population, and

yet are not necessarily the ones frequented.

Je, ni taasisi gani kati ya hizo ipo karibu na wewe?

Provider Mentions Percent

1 SACCOS 439 38.9

2 Benki ya NMB 248 22.0

3 Public, TASAF 112 9.9

4 Benki ya NBC 52 4.6

5 Benki ya CRDB 27 2.4

6 Benki ya Posta 23 2.0

7 Zote ziko Karibu 59 5.2

8 Zote ziko Wilayani/mbali 61 5.4

9 PRIDE TZ 33 2.9

10 FINCA TZ 21 1.9

11 SEDA/WVI 20 1.8

12 Other banks 13 1.2

13 Other NGOs 12 1.1

14 Public, other 4 0.4

15 ROSCA/Upatu group 4 0.4

Total 1128 100.0

TABLE 3.4: PROXIMITY OF VARIOUS INTERMEDIARIES TO HOUSEHOLDS

In fact, within every range of distance, there were half as many providers that

were not being used as there were being used by the population (Table 3.5). For

instance, about four percent of the providers that were then used by the population

were located beyond 100 kms, which was almost identical to the number unused by

the concerned population. Similarly, there were 10 percent more providers closer to

the population, but were not being used for one reason or another.

Distances in kms USED NOT USED

N Percent N Percent

beyond 100 12 4.4 32 4.1

51 – 100 32 11.8 100 13

21 – 49 30 11.1 179 23.2

11 to 20 57 21 143 18.5

6 to 10 16 5.9 42 5.4

Within 5 124 45.8 276 35.8

Total 271 100 772 100

Access to Finance

Figure 10: How Households with Current Access are using

Providers

01020304050

nah

ifad

hi

fedha

zangu

kupat

a/kupok

ea

na

mar

ajesh

o y

a

mik

opo

kupokea

msh

ara

au

pense

ni

kupokea

msa

ada

za

hudum

a za

jam

ii

kusa

firi

sha

hela

au k

ulip

ia

bili

mbal

imbal

i

nap

ata

faid

a

za

riba/

nin

atum

ia

kununua

his

a

Use

Perc

ent

of

House

hold

s

wit

h A

ccess

TABLE 3.5: DISTANCE VERSUS USE OR NON-USE OF PROVIDER

3.2 PATTERNS OF USE OF AVAILABLE SERVICES

In terms of specific services, 91 percent of surveyed households had no banking

accounts or receiving account-related services of any kind. Secondly, of the

households (12 percent) currently using existing intermediaries within their districts, just

nine percent have bank accounts.

But among these households, as shown in Figure 10 above, most were using the

bank accounts mainly to receive loans and make loan repayments (38.5 percent),

followed by the demand for safe and secure facility for storing personal savings. Yet

another 17.9 percent of the households were using their accounts to receive monthly

salaries and/or pensions. In addition to the heads of households, 4.1% of the surveyed

families also have one or more members holding an account, thereby increasing the

number of households with accounts to just 16.7 percent of studied population. This

number is very close indeed to the overall percentage of households holding bank

accounts nationally, as reported in the 2002 Household Budget Survey.

The significance of this point is that there has been no improvement in outreach

since then; despite the noticeable increase in number of financial institutions in

Tanzania. Furthermore, about four percent of the households currently not having

any bank account were previously banked, but have since become excluded for

some reasons (explored at length in later sections of this report). Yet it is significant

again that one percent of the households maintained bank accounts to earn some

decent returns on their deposits, and equally noteworthy is that a similar number

maintain bank accounts for making payments or money transfers regularly. In many

ways, therefore, the current widespread notion that poor people also have diverse

financial needs just like their wealthier counterparts is a fact to consider whenever

expanding or improving access to finance for this population. What is perhaps

unusual, as previously shown by Figure 10 above, is the relatively high number of the

poor rural households (7%) willing to hold bank account once the benefits of doing

so, e.g., automatic access to various individual or community-focused development

services—such as those offered conditionally by TASAF, are made clear and

understood by the households.

3.2.1 Types of Accounts Held

The most popular bank account among the surveyed households currently using

intermediaries existing in their districts (by 81.4 percent) is the ordinary savings

account (Table 3.6), followed by a current account (6.4 percent) or loan accounts

(6.8 percent).

Kama ndio, je, ni akaunti za aina gani (a)?

N Percent

1 Akaunti ya akiba 192 81.4

2 Kuweka na kopa/akaunti ya mikopo 17 7.2

3 Akaunti ya kuweka na kuchukua/akaunti ya biashara 21 8.9

5 Akaunti ya vikundi 4 1.7

6 Akaunti ya muda maalumu 3 1.3

Total 236 100

Access to Finance

Figure 12: Katika taasisi za kifedha zinazofahamika wilayani,

zipi zina huduma bora?

170

132

39

28

19

21

24

5

11

SACCO S

NMB Bank

CRDB Bank

TASAF

NBC Bank

O ther banks

NGO s

None

O ther

Mentions

TABLE 3.6: ACCOUNTS HELD BY POOR RURAL HOUSEHOLDS

With nearly a half of the households (49.1 percent) reporting using their accounts

for at least once a month, there is a real demand for these services by the poor rural

households. As indicated in Figure 11 below, a very large number of the households

(63.4 percent) were banking with NMB, followed by CRDB (12.8 percent) and

SACCOS (12.3 percent).

3.3 PERCEPTION OF THE INTERMEDIARIES

While a majority of the rural population currently with bank accounts are

maintaining these with the more formal providers; as clearly reflected in Figure 11

above, these intermediaries are not necessarily the most liked. In fact, the poor rural

households prefer banking with SACCOS (mentioned as the more liked in nearly 38

percent of mentions) due to many factors (explored in Figure 13), followed far behind

by NMB (mentioned as the more liked intermediary 29.4 percent of the time) and

CRDB (mentioned 8.7 percent of the time).

Figure 11: Je, akaunt i yako/ zako zipo kat ika taasisi au benki gani?

0

5

10

15

20

25

30

35

40

saccos nmb tasaf crdb nbc NGO s f inca O ther

banks

upatu

hapa

mtaani

Provider

Perc

enta

ge o

f H

ouse

hold

s usi

ng

Figure 14: Mentions of Poor Service Providers

0

10

20

30

40

50

60

NM

B

SA

CC

OS

FIN

CA

PR

IDE

SED

A

CR

DB

Ban

k

TA

SA

F/o

ther

govern

ment

NB

C

Oth

er

ban

k

Oth

er

NG

Os

Adversly Ment ioned Provider

Perc

ent

of

tim

e a

dvers

ely

menti

oned

Figure 13: Attractiveness of Current Provider

0

1020

3040

50

Loan

s p

eople

like m

e

Saf

e a

nd s

ecu

re

savin

gs

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to

one’s

sav

ings:

Good/q

uic

k

serv

ice

Car

es/

contr

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es

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Reas

onab

le/e

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loan

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Low

/reas

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y

Reas

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ly

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ced loan

s

Str

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er

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to h

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relia

ble

, fl

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ism

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ctiv

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no

Most attractive attribute

Perc

ent

of

Menti

ons

Altogether, the financial NGOs, which as a group; at 42.7 percent of the

mentions, are the least liked providers due to poorly regarded products. In all the

regions surveyed, the intermediaries offering access to loans on suitable terms were

seemingly the most liked the households. Also liked by the poor rural households are

the intermediaries able to offer safe and secure storage for one’s savings, which is

mentioned nearly 11 percent of the time as a definite strength (Figure 13).

The other factors that users consider in their satisfaction with services are ease of

access to one’s funds on demand without any undue restriction (mentioned about

eight percent of the time), quick service (7.2 percent of mentions), and the level of

corporate citizenship demonstrated by a provider (6.7 percent of the mentions).

Access to Finance

In this regard, NMB with whom a relatively large number of the households bank

with is also the least liked, largely because of its congested banking halls, and

bureaucracy (Figure 13), while the NGOs in particular are least liked because of

poorly designed products. Among the leading defects of the NGOs’ products (Table

3.7) are what the poor households themselves deem unreasonable terms and

conditions (mentioned nearly 28 percent of the times), overly priced services

(mentioned nearly 14 percent of the times), and inordinate delays in loan

disbursement (mentioned 11 percent of the time).

Je, ni kwa nini haina huduma bora?

Major defect N Percent

1 Unsuitable terms and conditions 70 28

2 Interest on loans too high, while there too little or no interest at all on

deposits

35 14

3 Inefficient and delay disbursement of loans especially 28 11

4 Undependable and unresponsive to customers needs 25 9.8

5 Very high entry requirements 20 7.8

6 Poor service 14 5.5

7 corruption and intrigue 12 4.7

8 Charges are much too high and too many 10 3.9

9 Selectiveness of clientele 8 3.1

10 Secretiveness about rules, procedures, and (even) intent 7 2.7

11 Too aggressive in collecting loans/closing idle bank accounts 6 2.4

12 Has no ATM/access to account restricted to specific branch 6 2.4

13 Too far from home or has no local presence 5 2

14 organization is poorly managed or unsafe for storing savings 4 1.6

15 Does not give loans 3 1.2

16 Unreasonable delays in transmitting/credit accounts 2 0.8

Total 255 100

TABLE 3.7: HOUSEHOLD’S ASSESSMENT OF POOR SERVICE PROVIDERS

Due to all these factors combined, most poor rural households resort to many

primitive ways of saving, as discussed in the next section. But it was show earlier in the

report that just 13.1 percent of the households had bank accounts (about nine

percent of these through the head of household and 4.1 percent another member or

members of the household). So, how do these many people who are without access

to banking services managing their financial affairs?

3.4 CURRENT METHODS OF SAVING

The survey looked at this matter and found the majority of poor households

currently without bank account resort to storing their precious savings themselves at

home (mentioned 35.6 percent of the time) in desperation or ignorance of the risks.

However, because these savings are locked in a suitcase somewhere in the house

(mentioned 22.7 percent of the times), or hidden under a mattress or buried beneath

the floor, these precious resources risk being lost, stolen, or altogether put to

unproductive and unplanned uses (Table 3.8). So much local liquidity is locked or

kept out of circulation through these primitive instruments though.

Kama huna akaunti yoyote ya benki kwa sasa je, unahifadhi vipi fedha zako?

Means of saving N Percent

1 Hide in an undisclosed place within home 729 35.6

2 Keep in locked suitcase or wooden box along with clothes 465 22.7

3 Keep inside shirt or trouser pocket or wrapped in a corner of

dress

163 8.0

4 Hide under mattress/pillow or bed 113 5.5

5 All spent on immediate needs 100 4.9

6 Hide in the cupboard or bed drawer 86 4.2

7 Dug up within or outside the house 83 4.1

8 Entrust with wife or another trusted person, mostly shop owner 72 3.5

9 Store in form of cereals grain 58 2.8

10 Place in tin, bottle, or inside a water pot 54 2.6

11 Reinvesting in business/farming activity 54 2.6

12 Store in form of cattle 40 2.0

13 Hide under the carpet/table top cloth 12 0.6

14 Hide in other place (cattle shed, inside granary, or holes dug

up in the farm)

11 0.5

15 Hide inside the pages of a book 5 0.2

Total 2045 100

Access to Finance

Figure 17: Je, kwa sasa, kuna mtu yoyote au taasisi unayoidai

ndio

25%

hapana

75%

TABLE 3.8: MEANS OF SAVING AMONG POOR HOUSEHOLDS WITHOUT CURRENT ACCESS

Clearly, with the exception of about five percent of the population studied that

lack adequate income for all their basic needs; there is a big segment of the poor

rural households with a strong demand for savings. The actual saving varies

significantly from household to household, but nearly half of the funds exceed Tshs

100,000, while the mean savings for all households surveyed was Tshs 54,980. The

different ways in which the surveyed households currently save their fortunes, instead

of the more efficient instruments from formal financial institutions, are next discussed

in Chapter 4.

3.5 CURRENT ACCESS TO LOANS

Compared to the number of households with bank accounts, there seems to be

slightly more families with access to credit, i.e., 19.3 percent (Figure 16) against 13.1

percent.

In reality, however, the fact is that much of the lending reported by the

households is by informal sources. For instance, nearly one in every four of the

surveyed heads of households (24.5%) was as at the time of survey owed or owing

some informal credit to another person or several persons (Figure 17).

Figure 16: Je, una dani kutoka kwa mtu au taasisi yoyote kwa sasa?

ndio

19%

hapana

81%

Similarly, nearly one in every five of the poor rural households (19.3 percent) had

a current loan. The fact that nearly 90 percent of the rural households have provided

credit to at least four people within the last 12 months prior to the survey (Figure 17),

and that nearly one third (26.3 percent) reported having a current loan from more

than one source (Table 3.9), shows just how widespread informal lending is amongst

the population group.

Je, ni watu au taasisi ngapi unazozidai?

# credits supplied

by households


1 279 47.4 47.4

2 127 21.6 69

3 71 12.1 81.1

4 34 5.8 86.9

5 26 4.4 91.3

6 13 2.2 93.5

7 8 1.4 94.9

8 3 0.5 95.4

9 1 0.2 95.6

10 14 2.4 98

> 10 12 2 100

Total 588 100

TABLE 3.9 (A): NUMBER OF CURRENT CREDITS TO POOR RURAL HOUSEHOLDS

Je, ni watu au taasisi ngapi zinazokudai?


# active loans

1 345 73.6 73.6

2 85 18.1 91.7

3 23 4.9 96.6

4 11 2.3 98.9

> 4 5 1.1 100

Total 469 100

Access to Finance

TABLE 3.9 (B): NUMBER OF CURRENT LOANS TO POOR RURAL HOUSEHOLDS

The fact that there are as many poor rural households providing as well as

receiving informal credit is clearly evident from the current sources of credits to the

households (Table 3.10).

Source of credit N Percent

Family and friends 372 80.2

SACCOS 28 6.0

Not disclosed 19 4.1

NMB Bank 9 1.9

NGOs 15 3.2

Supplier credit 7 1.5

Serikali ya mtaa 7 1.5

Upatu 4 0.9

Other 2 0.4

Employer 1 0.2

Total 464 100

TABLE 3.10: CURRENT SOURCES OF CREDIT TO POOR RURAL HOUSEHOLDS

Table 3.10 shows that 80.2 percent of the current loans to poor rural households in

surveyed areas are informal, from friends and relatives. It also shows a complete

reversal of roles whereby the banks, which were providing more access to banking

services to the poor rural households than SACCOS, are now almost the least

important in the provision of loans, i.e., the latter providing about six percent of the

current loans while the banks well under two percent. It is noteworthy that local

governments are also playing an active role in credit provision (accounting for 1.5

percent of the current loans held by the poor rural households), while employers play

the least role (providing 0.2 percent).

Furthermore, the fact that current loan amounts are generally small; with up to

nearly 70 percent of the amounts owing being within Tshs 50,000 (Figure 6), also

underscores the predominance of informal sources in lending to poor rural

households rather than the more established financial intermediaries. What is perhaps

more significant is that a fairly large number of the informal credits (nearly one in

every five or 20 percent) are also quite sizeable, above Tshs 100,000), with about as

high as 4.4 percent being above Tshs 400,000.

Figure 18: Size Distribution of Informal Credits

23%

30%

30%

13%

4%Tshs below 10,000

Between Tshs 10,000 to

Tshs 50,000


Tshs 100,000


Tshs 400,000

Above Tshs 400,000

Figure 19: Obstacles to Credit

05

101520253035

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In addition to the nearly 20 percent of the households currently with loans as at

the time of survey, another 14.3 percent had tried to obtain credit within the last 12

months of survey but failed to obtain any due to many factors (Figure 19).

A leading obstacle to loans is what the poor rural households consider to be too

demanding terms and conditions, which they find hard to fulfill (27 percent). Other

hindrances to access include not knowing the requirements or procedures to follow

to get what they want (22 percent), being perceived unfairly as not having the ability

to repay (19 percent), and being treated unfairly in assessment and demand for

collateral (13 percent).

3.6 CONCLUSIONS

This survey has shown low access to finance by the poor rural households in the

central corridor where RLDC is involved in development activities. Firstly, the number

of households currently with access to existing financial intermediaries in their districts

is approximately 170,926 out of the 1.4 million households. In terms of access to bank

Access to Finance

accounts and loans, the corresponding number of households in surveyed areas is

128,194 and 270,633, respectively. However, if access to informal credit is excluded

from this analysis, the number of poor rural households able to get loans they need

on demand is perhaps at par with those currently banked as at the time of survey.

In retrospect, there has hardly been much improvement in the access to finance

situation for the poor rural households of central corridor; just as it has been in the rest

of Tanzania for the last five years (Table 3.11).

Overall

Access

Access status 1999/1992 2000/2001 RLDC Survey

1 Households with bank account 18 6.4 16.7

2 Households with bank loan 1.2 0.6 1.9

3 With an informal savings group 5.1 5.7 31.0

Rural

1 Has account 12.9 3.8

2 Has bank loan 0.5 0.4

3 Has Upatu/informal credits 3.6 4.1

Other urban

1 Has account 35 14.4

2 Has bank loan 2.6 1

3 Has Upatu/informal credits 10 10.3

Dar es Salaam

1 Has account 43.1 18.9 na

2 Has bank loan 6.7 1.1 na

3 Has Upatu/informal credits 12.4 13.1 na

TABLE 3.11: COMPARATIVE ACCESS DATA; 1991/1992, 2000/2001, AND 2006 SURVEYS

The fact that majority of poor rural households still depend on SACCOS, which are

typically undercapitalized, for as much as 30 percent of current access to banking

services and up to six percent of total access to credit, clearly indicates a kind of

market failure that cannot be self-correcting. In contrast, the regulated financial

institutions, which are the better capitalized and have greater organizational

capacity and resource base, were all presently serving just slightly more than a half of

the households with savings accounts, and well under two percent of current access

to credit.

Of all the rural financial intermediaries, the financial NGOs were the least liked

due to their unpopular product design.

Chapter 4

BARRIERS TO ACCESS

4.1 FINANCIAL SERVICES INFRASTRUCTURE

Of the four regions studied, Shinyanga had the most number of financial

intermediaries (Table 4.1); instead of the usual number, it had all the four major banks

(NBC, NMB, CRDB, and Tanzania Postal Bank) operating there –and as many as 82

SACCOS. This is probably due to its having many natural resources, including

Diamonds, Gold, and also growing other major cash crops like Tobacco, and Cotton.

Shinyanga also has more livestock than any other region of Tanzania.

Provider Shinyanga Morogoro Singida Dodoma Total

Total 99 81 54 101 335

SACCOS 82 75 46 89 262

NBC 5 7 3 3 18

NMB 4 5 1 3 13

Other 3 1 0 2 6

TASAF 1 1 2 1 5

CRDB 0 1 1 1 3

TPB 0 1 1 1 3

WVI 1 1 0 1 3

FINCA 1 1 0 0 2

PRIDE 1 0 0 0 1

SEDA 1 0 0 0 1

TABLE 4.1: FINANCIAL INSTITUTIONS MENTIONED BY HOUSEHOLDS

In fact, Shinyanga is also the only region in the central corridor where nearly all

major financial NGOs in Tanzania have a presence; for instance, FINCA Tanzania,

PRIDE Tanzania, and SEDA, etc. Moreover, unlike the other regions, the four banks

have more branches outside the regional town (and some in even smaller rural

towns, e.g., Kiomboi (Table 4.2).

Region Outreach Shareholding-member customers

Below 100 100-250 251-500 Over 500 Total

Dodoma 42 34 17 7 98

Morogoro 39 15 11 10 75

Singida 34 11 4 0 49

Shinyanga 26 10 4 2 42

Total 141 70 36 19 192

Access to Finance

TABLE 4.2: SIZE DISTRIBUTION OF SACCOS IN SURVEY AREAS

Besides their regional geographical distribution within the corridor, one first unique

aspect of the intermediaries is their rather limited outreach each individually.

Secondly, many of the intermediaries are also inactive. Thus, while the overall number

of intermediaries within the corridor looks numerous, very few are active in all of the

areas surveyed. Yet another unique aspect of intermediaries in the four regions is their

domination by savings and credit cooperatives, i.e., in absolute number, proximity to

the poor rural households, and the overall percentage of population currently using

the SACCOS vis-à-vis financial NGOs, banks, and non-bank financial institutions. In all,

the SACCOS represent slightly more than 83 percent of all financial intermediaries in

the regions (Table 4.1).

Nonetheless, as already mentioned, many of the SACCOS are very small (53.4%

served less than 100 customers, as of 31 December 2005, while under 10 percent

served more than 500 customers each).

Yet still another unique aspect of SACCOS in the regions in spite of their impressive

numbers is their selective targeting and marketing; majority target either teachers or

local government workers. Only a few trade or community-based intermediaries

have emerged in the recent past to cater for a more diverse clientele consistent with

the diversity of local communities’ livelihoods. In addition to their restriction of

common bond definition, majority of the SACCOS also operate strictly within specific

districts, thereby limiting access to finance within their own territory. The most severely

excluded population from access to finance by existing intermediaries are also the

more numerous, e.g., pastoralists, small-scale farmers, and the “wanabiashara”.

4.2 HOUSEHOLDS’ PERSPECTIVE ON BARRIERS

Widening and deepening access to the poor rural households is a Herculean

task, given the current narrow base of financial services infrastructure and the fact

that nearly 97 percent of the households have no bank accounts. However, the

greater constraint in expanding access is not just dearth of reliable and capable

service providers, but also a huge cultural gap between the providers on the one

hand and the target population itself on the other (Figure 20).

About 33% of the households explain their reason for currently or never using any

of the existing financial institutions within their district as their lack of adequate

income. Nonetheless, excluding the 1.1 percent of households who feel financially

adequate (and thus do not need any financial services), the number of poor rural

Figure 20: Je, ni sababu gani zinakufanya usitumie taasisi za kifedha

zilizopo katika wilaya hii?other (e.g., I fear

default ing, does not

have a need, I am

too old, etc)

5%

products/ services

are inappropriate

12%

I do not know the

benef its or available

services

28%

dif f icult

condit ions/ requirem

ents

5%

non exists/ is close

enough

17%

my income is too

liit le

33%

households currently excluded but only because they do not know enough about

the benefits (28 percent), or providers being too far from their homes (17 percent), is

huge. Then there are also those among the excluded who simply lack access

because they do not have enough confidence in themselves ever being accepted

or considered eligible by the existing intermediaries (17 percent).

It seems therefore that the first option in improving greater access to finance for

this population is, not just increasing the number of service providers available, but

first eliminating the following inefficiencies of the existing financial system:

Encouraging and supporting existing financial institutions to

improve or add products more suitable to the needs of the poor

households

Educating the poor rural households about the existing financial

institutions, various products that exists, and the benefits/potential

benefits vis-à-vis costs of using these services

Building the capacity of financial institutions within the rural

communities or with the potential to extend services to rural

communities with the technology and knowledge to serve poor

rural households

Mobilizing and encouraging the poor rural households to establish

their own appropriate or effectively take advantage of the existing

financial institutions to meet their financial needs

Access to Finance

Increasing and improving the quality of physical infrastructure

available within the rural communities

Creating new means and enhancing the existing livelihood

systems of the poor rural households within the target areas

4.3 PROVIDER’S PERSPECTIVE ON BARRIERS

This section is based on interviews with a random sample of 14 financial service

providers concerning their own views on the current obstacles to poor rural

households’ access to finance. From the providers’ own list of their current constraints

(Table 4.2), lack of adequate capitalization (mentioned nearly 44 percent of the time

and ranked most frequently in the first three priority list), is the leading obstacle to

widening and deepening access to finance for the poor rural households.

Obstacle Number (%) of times ranked in order Total

times

% of

total

mentions Ranked

1

Ranked

2

Ranked

3

Ranked

4

Ranked

5

Ranked

6

Ranked

7

1 Lack of adequate

capital

4 6 4 4 0 0 0 18 43.9

2 Lack of adequate

communication

system/transport

problems

3 2 2 0 0 0 7 17.1

3 Low/poor

awareness or

limited knowledge

about financial

services, benefits,

and institutions

2 0 2 1 0 0 5 12.2

4 Delays in

remittance of loan

deductions

2 1 0 0 0 0 3 7.3

5 Lack of fulltime

staff/internal

capacity

1 2 0 0 0 0 0 3 7.3

6 Loan

arrears/delinquency

0 1 0 0 0 0 0 1 2.4

7 Limited

service/product

offerings

(undiversified

income base)

0 0 0 0 0 1 1 2 4.9

8 Low income

base/poor savings

by members

0 0 0 0 1 1 2 4.9

Total 12 12 8 4 1 2 2 41 100

TABLE 4.2: CURRENT LEADING OBSTACLES TO GREATER OUTREACH

Poor infrastructure and lack of basic communication equipment, including lack

of permanent office premises and fulltime staff, is also a major obstacle to expanding

access to the poor rural households (mentioned nearly 30 percent of the time).

Other obstacles are the low/poor awareness or limited knowledge about

financial services, related benefits, and how the financial institutions operate by the

households themselves (mentioned 12.2 percent of the time; and ranked as the third

overall constraint by providers). Another common and prominent constraint to

expanding access to poor households is unjustified and unnecessarily long delays in

remittance of monthly loan deductions and savings/share contributions by employers

to the SACCOS, a problem mentioned nearly eight percent of the times and which

also contributes significantly to the lack of adequate capital among the employee-

based SACCOS especially.

Understandably, the low-income base and poor savings habits of poor rural

households is also perceived by the providers as a major constraint (mentioned

nearly five percent of the time). All the constraints mentioned above by service

providers are, in fact, almost identical to the ones identified in other surveys (Oketch,

2006; SEEP Network, 2006; and FINMARK, 2006), which also cite physical barriers and

economic barriers, as well as perceived or real cultural barriers between the service

providers on the one hand and the poor rural households on the other as

constraining greater outreach. On the surface, these barriers would seem wide

ranging and unrelated, but on closer scrutiny simply fold into a handful of deeply

embedded underlying barriers, as discussed in the next section of report.

4.4 A DEEPER UNDERSTANDING OF OBSTACLES

To begin with, while low incomes is a reality for many poor rural households (with

the annual average from the survey at Tshs 465,563), this fact on its own is certainly

not the primary cause of poor savings, low-participation in savings activities, or the

general failure of financial intermediation at the local level. In this first regard, Oketch

(2006) presents convincing evidence that distance and low incomes are not the

primary obstacles either from the provider or consumer perspective. For instance, this

recent publication shows the workings of a vicious circle which combines low or lack

of confidence in the local financial intermediaries that is itself in turn primarily caused

by historical failure of these institutions to provide services on demand (see Table 4.2

above). Indeed, Oketch notes how…

Access to Finance

…”the local financial intermediaries technically and financially assisted by

CRDB Bank Limited to upgrade their capacity and meet members needs on

demand were reaching four times more customers than the non-assisted

intermediaries of same age and operating in similar environments”…In financial

intermediation, they also attracted 5.2 times more deposits than the non-bank

assisted intermediaries and disbursed 14.5 times more loans annually. More

remarkably, the bank-assisted intermediaries had 9.5 times more assets than the

non-bank assisted intermediaries, which definitely gives them a greater

outreach capacity…, p.28.

A more complete picture of this argument, also cited from the author, is based on

real-life case experiences of 200 once un-employed youth in one of the regions

covered by this RLDC survey (Shinyanga). Here, although once without income the

youth are transformed into active savers through mobilization, education, and

access to start-up capital by the then only local financial intermediary within

Bukombe district. He notes exactly, thus:

… Ushirombo SACCOS Limited is one of the fastest growing intermediaries in

the Shinyanga area and even nationally in Tanzania. The history of this

intermediary’s establishment in April 2006 goes back to the split of Kahama

District into two districts, namely: Kahama and Bukombe districts in the late

1990s. Following the split of the original district into two, the newly established

district emerged without any single financial institution left within its borders. But

upon establishment, the intermediary immediately launched two products: a

salary payment account into which the employees of a local government

authority could receive their monthly salaries-this account could also entitle

them to a personal consumer loan.

The second loan product, which is of more direct interest for this publication,

was one targeting poor young men without any assets of their own whatsoever,

and were actually working for low-wages by riding bicycle taxis. Each day the

rider would collect and return his/her allocated bicycle to the intermediary

alongside a much better minimum daily take of Tshs 1,500 as part payment for

the eventual ownership of the asset. With the help of CRDB Bank, the subject of

Oketch’s 2006 publication, Ushirombo successfully mobilized the youth into

smaller groups of five to access this product, (evidently using the solidarity

group logic and process).

Starting with 20 groups of five each, the intermediary provided every one a

bicycle with a wholesale loan obtained from the bank. Each day, for six days a

week—with the exception of Sundays when they retained all amount earned,

each group pays in a minimum of Tshs 5,000 to the intermediary towards the

future purchase and ownership of a bicycle. However, if any of the five group

members fail to raise the Tshs 1,000 expected of each one, the other members

help to raise the amount. If the same person does not raise the sum in three

consecutive days, he automatically loses the bicycle allotted, together with any

savings he may have accumulated towards its purchase. Each youth is able to

payoff the bicycle and in addition accumulate Tshs 80,000 within 90 days. At this

point, each youth not only owns an asset previously unavailable, but also would

have accumulated enough savings to purchase shares in the intermediary and

be able to access finance under the normal terms for shareholding customers...

p.24.

At once, this case example demonstrates how local financial intermediaries can

easily overcome lack of adequate capital by simply crafting more suitable products,

being able to provide services on demand, and especially that low-incomes need

not be an obstacle to financial intermediation if both the consumer and provider

share similar aspirations and decide to collaborate. An important point from this case

experience is that even households without regular incomes can gradually build

enough confidence to approach the closest providers for service, provided they get

financial education about the benefits and encouraged to participate. The SEEP

Access to Finance

Network4 argues about why this lack of confidence among the poor rural households

is not one to be underestimated:

… what sets the organizations that have succeeded in reaching extremely

poor households with access to finance apart from “mainstream” microfinance

providers is that they offer non-financial services in addition to financial products

… including education, skill training, and confidence building … p.3

Even when very poor people are not actively excluded from access to

finance by a particular intermediary, they often opt out because of felt

intimidation, wrongly believing that the services offered by such a provider is not

suited to their needs or for people of their kind …living in absolute poverty for a

prolonged time strongly affects people’s dignity and hope for the future, as well

as their ability to take initiative and overcome stigma… and being dependent

on highly unpredictable livelihood systems such as subsistence farming strongly

discourage the very poor people from taking the slightest risks towards

improving their current economic and social situation… p.3

In light of SEEP’s observation cited above, some of the households’ views on

obstacles to access; for instance, factor 13 and 16 presented in Table 3.7, seems

credible enough not to be ignored while designing a strategy for widening and

deepening financial services for this target group. Hence, by simply educating the

households more on how the various financial institutions actually operate, or about

4 The SEEP NETWORK, 2006, Microfinance and Non-Financial Services for Very Poor People: Digging

deeper to find Keys to Success, Preliminary research, Poverty Outreach Working Group, October.

available services and benefits, it is possible to encourage greater access without

undertaking major investments.

However, since lack of adequate capital is one of the primary constraints to

better and more reliable incomes in the four regions covered by the survey, it seems

that finding creative means of making access to finance possible to this poor rural

population is the first logical step towards building their confidence in these

institutions.

On a point of fact emerging from the survey, at Tshs 101,239 and Tshs 105, 712

respectively; mean annual savings for both male and female respondents in the rural

areas were considerable vis-à-vis Tanzania’s per capita incomes, while the urban

female and male respondents had even much higher accumulated savings, at Tshs

410,982 and Tshs 206,140. What this finding underscores is the underlying spirit of thrift

that could easily blossom once the right opportunity and encouragement is

introduced—as demonstrated in the case of intermediaries being assisted by CRDB

Bank.

Next we return to examine the scarcity of suitable financial intermediaries in the

four survey areas, as in the rest of Tanzania countrywide, as major obstacle to

expanding access to the poor rural households. There is no doubt that poor

infrastructure and lack of basic facilities and communication system is a factor in this

regard. As noted by Oketch (2006):

… Poor infrastructure: like many other parts of rural Tanzania, Bukombe

district does not have good infrastructure facilities despite the Isaka-Benaco

highway passing through the district. Besides the highway, there are no other

good roads. Similarly, access to telecommunications facilities is also very

problematic; in case of need to make a phone call, and if one has no mobile

phone handset, she/he has to go all the way to Geita, some 250 kilometers

away to do so, at very high cost.

Because of these three constraints, however, residents have had to travel all

the way to Kahama, the administrative center of adjacent district where there

are bank branches, to access financial services, obviously at a high cost in

terms of money, time, and their personal security... p.46.

The nature of economic activities: In the district, the vast majority of

residents are farmers engaged in cotton, paddy, potatoes, and maize

production. For this reason, business cycles are highly seasonal and involve few

small and medium-sized firms. This makes the district unattractive to the big

financial institutions to establish themselves there.

Access to Finance

Lack of power: up to now, Bukombe district is one of the few areas without

power, yet the technological advancements make access to power essential to

the business. Hence, lack of electricity is one of the hindrances for the financial

institutions, especially commercial banks, to open up business in the District.

Thus, a last re-examination of the true obstacles to greater outreach of the rural

population lies deeply neither with the reputedly high costs of delivering such services

nor with the risks of serving this group††. Again, the first evidence that undermines

these long-held and highly popular excuses for limited outreach of poor rural

households is well argued by SEEP (2006) and Oketch (2006).

Firstly, through many emerging microfinance methodologies; like the CRDB

wholesale model, the costs of serving very poor rural households can be greatly

reduced—as has indeed happened in the last decade (see Table 4.3 below). Even in

Africa where poor infrastructure, a widely dispersed population, and bad

communication systems or lack of basic facilities had made serving this group

prohibitive, there are powerful institutional and technological innovations that

increasing push the cost frontiers.

4.5 OPPORTUNITIES FOR GREATER ACCESS

4.5.1 The Institutional side

Although distance and poor infrastructure remains a formidable obstacle to

greater access to finance for poor rural households in the four central corridor regions

targeted by RLDC, many opportunities to improving the situation exists. The first of

these chances would seem to rest on the upgrading the capacity and supporting

deserving savings and credit cooperative societies to becoming more credible

intermediaries in the eyes of the general population. Banks such as CRDB Bank in

Tanzania (who have adopted a similar strategy for promoting greater outreach) are

demonstrating the kind of transformation and scale achievable by these more

numerous but modest institutions if assisted. As illustrated in the experiences of this

bank (Oketch, 2006; FAO, 2005), greater numbers of the poor rural households can

build the trust and gain their confidence in using these intermediaries, once they are

able to deliver services on demand and become adequately accountable. Yet, this

is a costly process that requires a committed facilitator (very much like RLDC) to start

off. Therefore, in the foreseeable feature, while the physical constraints remain

unchanged, it is the chance of transforming these smaller –but conveniently located

financial intermediaries that are likely to expand outreach in areas like the ones

targeted by RLDC. Accordingly, a primary conclusion of this survey is that

collaborating with these SACCOS that RLDC should adopt and promote.

4.5.2 The consumer side‡‡

On the demand side, there is not only a gap in the supply of services, but also a

huge financially excluded population desiring some urgent solution. The first

evidence for this conclusion is the large numbers of poor households seeking credit in

the last 12 months of survey but failing to get any access. A more direct evidence for

this conclusion is, however, the number of households that if given the chance would

readily borrow funds to realize one or another of their immediate financial needs; a

whole 98 percent of surveyed households. For instance, with the exception of a few,

most of the households participating in the RLDC survey has exact ideas of investing

funds immediately if these were somehow available (Table 4.4).

Application of loan Mentions Percent

Expand/modernize farming 934 28.7

Start a new business 741 22.7

Build a house 435 13.3

Expand existing enterprise 406 12.5

Buy cattle 212 6.5

Capital investment 176 5.4

Invest in own/children's education 99 3.0

Purchase land 78 2.4

Meet basic needs 75 2.3

Save 28 0.9

Invest somehow 21 0.6

Purchase Household appliances and furniture 17 0.5

Buy bicycle or motorbike 12 0.4

Hire farm labour 8 0.2

Plant trees 5 0.2

Introduce irrigation farming 5 0.2

Buy iron sheet for roofing 3 0.1

Buy fishnet 2 0.1

Other 2 0.1

Total 3259 100

TABLE 4.4: IMMEDIATE AND LONG TERM HOUSEHOLDS INVESTMENT PLANS

But this critically needed access is lacking, thereby crippling innovation,

expansion, and growth in rural livelihoods.

Access to Finance

As shown in table, it is significant that the first three investment priorities of the

households if they had better access to finance would be investing in measures

enhancing their current livelihoods; nearly 29 percent to modernize or expand

current agricultural activities, about 23 percent to start up new micro/small-scale

enterprises in diversifying their current income bases, and a similar number to expand

their existing businesses. Another relatively significant number (13.4 percent) of the

poor households would build a better family house if they could successfully raise the

funds. Altogether, as shown in Table 4.4, well under four percent of the poor rural

households are so deprived that if they had a chance of getting borrowed funds

would instead first use it to meet their basic needs, or not know how to invest it wisely.

TABLE 14: LOAN AMOUNT FOR IMMEDIATE INVESTMENT BY HOUSEHOLDS

A closer look at Table 14 also reveals a greater diversity in the credit needs

among the rural households; these range from production to consumption and from

consumption to leisurely financial requirements. This diversity in financial needs is even

clearer by looking at the various amounts of loans that households would have liked

to borrow given the chance (Table 14).

4.6 BRIDGING THE DIVIDE

The next and last chapter of this report explores the exact measures that RLDC

can implement to help in improving the poor rural households’ access to finance.

These proposed strategies are premised on RLDC remaining a facilitator, rather than

a director provider of services, and also that the target population would be actively

involved in building the basic financial services infrastructure itself.

Kwa dhumuni hilo uliolitaja; je, ni kiasi gani cha pesa ungehitaji?

N 2,273

Mean 2,715,193

Sum 6,171,634,540

Std. Deviation 63,673,586

Median 400,000

Chapter 5

A STRATEGY FOR GREATER ACCESS

5.1 GUIDING PRINCIPLES

Clearly, the intention of RLDC in considering contributing, participating, or

promoting the provision of financial services in the four central corridor regions is

ultimately to promote the economic development of the given community, sectors,

or commodity chains. In any case, the poor rural households in these regions

themselves need the financial services to carry on specific economic activities, either

in production, marketing, or consumption, but are simply hampered by lack of

access to financial services; as evidenced in this baseline survey. Thus, the use to

which greater access to finance to which RLDC and the people themselves aspire

must be applied to viable economic activities strictly; not to mention the need of

service providers, too, to both sustain and expand their services into the longer term.

Hence, the first principle that RLDC should consider while engaging with any partner,

is that no service ought to be given for its sake. Should the organization decide to

invest in a partner organization, this should be to enhance its ability to sustain and

expand services cost-effectively, to help improve businesses, or to help improve the

livelihood of certain households in its operational territory.

Secondly, in line with RLDC’s existing principles and approaches to development

and community engagement in general (i.e., its 10-step project cycle), its promotion

of financial services as suggested in this chapter recognizes the need for the

organization to balance both its social and economic objectives well. And to have

these two potentially conflicting objectives coordinated in such a manner that the

outputs from one set of interventions can catalyze conditions favorable to the

realization of the other inputs, i.e., each objective to be the target of separate

actions that are somehow connected.

Thirdly—and particularly considering RLDC’s corporate inclination for strategic

partnerships and collaboration development model, it is a tactic proposed to be

similarly applied in financial services promotion. However, as an important principal,

there ought to be a competitive selection of institutions and communities with whom

RLDC ultimately collaborates. These ought to be areas where important livelihoods-

enhancing activities are already being undertaken by RLDC and where the

community is also responding positively and strongly to the incentives. Nonetheless, in

Access to Finance

all this there ought to be a recognition by RLDC that microfinance was born of a

need to offer financial services to the less privileged or financially excluded), a

clientele that is not only less educated and less-informed, but is also located too far

from where services presently exist. So, there is this enormous first-step for RLDC to

take as a catalyst in ensuring that all people and communities that could potentially

benefit are adequately informed of the opportunities and services through various

forums, meetings, and even tailored seminars for community-nominated leadership.

This is the first action that RLDC should take towards improving greater access to

finance.

The second action that RLDC could take towards expanding access to finance

is building the necessary strategic alliances with deserving institutions that are equally

interested and have comparative strength in the direct provision of financial services

to poor rural households, but either lack the capacity or adequate capital. In this

regard, therefore, RLDC could undertake to link such deserving providers with the

more established financial intermediaries, which in turn could provide the additional

loan capital, technology, and banking knowledge required by these providers to

modernize services.

5.2 COLLABORATION WITH EXISTING PROVIDERS

Evidence from across Africa and globally show that greater success in expanding

access to finance for the poor rural households is through linkages between locally-

based financial intermediaries and the better organized and more capitalized ones,

like CRDB Bank, than through the direct provision by the latter. However, as noted by

WSBI (2004):

...While alliances are important opportunities to expand scale and scope,

they must be nurtured… and work best when both partners see advantage and

benefits in courting the relationship§§.

While explaining the apparent successes of CRDB Bank Limited in expanding

access to finance for the ordinary Tanzanian in certain parts of the country, Oketch

(2006) mentions several forces that work in favor of collaboration, which any direct

provision by a commercialized entity cannot surpass in an environment as

underdeveloped as the four regions studied, thus:

… By entering into partnership with the smaller financial intermediaries to do

microfinance, what motivates the bank most is the knowledge that these

institutions are more numerous in the countryside and have much comparative

strength exactly in the areas where the bank is weakest. For example, as

compared to the bigger intermediaries, the smaller ones are closer to majority

of the ordinary people who are also the ones excluded from the financial

system.

Secondly, because of their local ownership—and often, management—the

smaller intermediaries tend to be more responsive to the needs of the excluded

population than the bigger ones. Thirdly, because of their institutional design, the

smaller intermediaries tend to have lower overheads and offer more affordable

services than the bigger ones. Lastly, the smaller financial intermediaries, being

closer to the majority of people excluded from the main financial system, often

have better information about their credit worthiness, capacity for debt, and the

risk profiles of investment opportunities at the local level. Hence, they are not

only better at screening the various risks involved in banking this market niche

than the bigger intermediaries, but also are the ones with more suitable

approaches to contract enforcement. Their proximity to and better knowledge

of the local population enables them to accept alternative securities and

handle very small transactions that the bigger ones would find costly and too

risky.

In dramatic contrast, the bigger financial intermediaries have much

comparative strength in exactly the same areas where the smaller ones are

lacking. For instance, unlike the smaller ones, which tend to be service-driven,

the bigger intermediaries are better organized and tend to operate in a more

businesses-like manner, with better approaches to goal-setting, tracking results,

and achieving better performance. Thirdly, because they are licensed to

accept public deposits, the bigger intermediaries are often better capitalized.

Whereas the smaller intermediaries operate in highly localized markets, the

bigger ones usually have branches covering the entire length of a country,

which gives intermediaries like CRDB distinct advantages in offering services like

money transfer or payments services that relies on wider geographic

infrastructure for success. In designing its model of microfinance, therefore,

CRDB Bank recognized that incorporating various incentives for cooperation

with the smaller intermediaries and building upon each partner’s comparative

strengths would create the strong synergies required to overcome the many

barriers denying the greater Tanzanian population access to finance.

In any case, these celebrated synergies are real, not just imagined –as evidence

from The Mix Market African 2005 Benchmarking data (Table 16), also illustrates:

Provider N

(2005)

Mean

age

Deposit

rate

(Percent)

Inflation

rate

(Percent)

Average

savings

account

balance

(USD)

Profit

margin

(Percent)

Financial

Revenue

ratio

(Percent)

Deposits/Loans

ratio

Deposits/Total

assets

Total

expense

ratio

Operating

expense

ratio

Operating

expense/loan

portfolio

Return

on

Assets

Return

on

Equity

Banks 51 8 5.8 7.9 663 8.7 20.7 54.1 37.4 34.8 21 37.5 1.2 7.9

Cooperatives[i] 30 10 3.5 3.3 317 4 19.2 75.8 58.9 18.4 11.8 16.5 0.4 4.4

NGOs 198 10 5.6 7.6 14 4.8 31.8 0 44.3 35.5 55 1.1 4.1

NBFIs 140 8 3.6 5.6 419 7.3 25.3 0 25.2 15.1 24.3 1.1 4.1

Rural bank 26 31 5.6 7.6 185 -6 20.4 91.7 65.5 21.6 12.1 19.5 -1.7 -10.6

See more evidence for financial cooperative strength or comparative advantage in: Couture M-F, D. Faber, M. Levin, and Nippierd, A-B.,(eds.), 2002, “Transition to Cooperative

Entrepreneurship; Case Studies from Armenia, China, Ethiopia, Ghana, Poland, Russia, Uganda and Vietnam, Geneva: International Labour Office, ISBN 92-2-112775-3.

TABLE 4.3: LOCAL FINANCIAL INTERMEDIARIES VS BANKS, NGOS, & NBFIS, 2005

Strikingly, it is the same strengths noted by Oketch that are also credited to the

relative success of local financial intermediaries in reaching out to the poor rural

households by The Mix Market, thus:

…both cooperatives and banks have similar volumes of deposits, but it is

the cooperative structure which draws the greater client numbers who demand

security and liquidity in savings services in urban and rural areas a like…p.2

…Cooperatives have long been able to manage costs and they now display

the lower expenses in all categories. Most importantly, financial expenses

remain at record-low levels (less than two percent of assets in 2005), since many

cooperatives; although savings-led, offer low interest rate deposits to their

clients and benefit from this cheap source of funding.. p.5

The same viewpoint is shared by SEEP Network (2006)***, which was an earlier

proponent of unbridled commercialization and transformation of microfinance. One

significant element of the strategic alliances now supported by SEEP and others

concerned with greater access for the poor rural households (e.g., ING Bank Group;

2006, Rabobank; 2005)†††, etc, is the need for close monitoring and continuous

capacity building of the smaller, closer-to-the-people intermediaries, since

institutional development occur in dynamic environments. On this matter, SEEP’s own

words goes thus:

… [O]ther microfinance programs, realizing that they are not reaching very

poor people, are interested in finding new approaches. To date, there has not

been adequate exploration of financial products and low-cost service delivery

mechanisms that would allow MFIs to serve extremely poor households without

compromising their commercial interest‡‡‡ (emphasis mine)… p.3

The spirited thrust to commercialize and transform microfinance in the turn of the

century either by commercial banks downscaling, financial NGOs scaling up, or

financial cooperatives modernizing, has been a monumental failure, as examined

critically by various authors (INAFI Africa; 2006, Oketch; 2005)§§§. A notable example

of this market failure right here in Tanzania is the case of NMB, which has succeeded

extremely well in reaching over 800,000 customers with savings accounts and

disbursing nearly 300,000 loans within its first four years of operation. But the bank has

been unable to grant loans to more than 1.9 percent of the ordinary Tanzanian

without a regular job or pension who does not maintain a salary account nor qualify

for a consumer loan****. Again, quoting directly from Kouffmann (2005) to emphasize

Access to Finance

the now clearly recognized need for market intervention to successfully expand

services, she notes thus:

… In the UMOA area, credit unions have increased more than 244 percent,

credit-only institutions by 13%, and donor-funded credit projects with

microfinance declined by 56% between December 1997 and end of 2000.

Virtually, deposit accounts of the largest microfinance institutions in banks were

the only link these regulated financial intermediaries had with the poor rural

households in 2000, loans by commercial banks to a few microfinance

organizations represented up to 43% of their total loan portfolio…

Hence, RLDC cannot hope that the invisible hand of market somehow will on its

own work out ways to help the poor households get greater access to finance simply

by encouraging more financial sector liberalization or intensified competition. The

company evidently must work hard at three possible fronts at once to fulfill its own

plans and mandate:

5.3 POSSIBLE INTERVENTIONS

Tanzania and RLDC in particular, can learn much from the experience of CRDB

Bank Limited, or even the United Kingdom’s Financial Services Authority (FSA)†††† in

opening greater access to finance for its target population.

Providing financial education, for example; especially if delivered jointly by social

development organizations with high reputation such as TASAF, in conjunction with

private sector organizations like CRDB Bank Limited, could help change the financial

behavior of both providers and consumers at large, particularly the 35 percent or so

of the low-income households already actively organized into financial groups.

Similarly, in industrialized nations like the United Kingdom and the United States of

America, where the provision of financial education‡‡‡‡ has enabled more poor

people to understand better how to use their financial resources to improve the

quality of their lives, all have had dramatic success in increasing greater outreach.

Drawing from CRDB Bank’s own experience here locally, financial education can

greatly increase participation of the less privileged members of the community in

savings plans and increasing savings levels, and is therefore an option to be pursued

seriously.

Concerning the provision of this financial education, RLDC can specifically

provide budget support to a lead partner; for instance, TASAF or CRDB Bank, or

directly engage experts to develop appropriate curriculum for use in creating

financial services awareness and education, and perhaps establishing a key function

within its organizational structure that could take lead coordinating and providing

leadership in this area of strategic objectives.

Apart from budget support and investment in developing relevant capacity

building systems for deserving local intermediaries, RLDC can also provide a link and

information between deserving intermediaries, on the one hand, and the more

established financial institutions, through which they can leverage their loan capital,

on the other hand. In this regard, RLDC has much to learn from the strategic

partnership between DANIDA and CRDB Bank that so far has enabled a very

successfully model of intermediation to develop locally.

Lastly, but not least, RLDC can provide budget support to deserving local

intermediaries that merely wish to consolidate and expand their operations, but lack

some simple facilities. The budget for this otherwise worthy cause need not be high: in

the first five years while developing its now successful microfinance methodology,

DANIDA and CRDB Bank jointly invested an average of nearly Tshs 180 million per

year in building the capacity of deserving partners, amongst them including 30

percent developed from scratch. Yet:

…the increases in investment capacity each year were matched by even

bigger increases in total funds mobilized and total loans disbursed by the bank-

assisted intermediaries: in 2002 for instance; when average investments in

capacity was Tshs 4.9 million, the average total funds mobilized by each partner

was Tshs 36.3 million… In 2003, an average of Tshs 2.7 million was invested in

capacity, but average funds mobilized by each intermediary in voluntary

deposits and shares had climbed to Tshs 130.5 million…p.38.

In conclusion, investment in community mobilization, financial education, and

budgetary support to carefully selected partner organizations should be a good

investment proposition to RLDC as the main plank of its financial assistance strategy

for central corridor regions of Morogoro, Dodoma, Singida, and Shinyanga. These

proposals discussed above need to be presented and reviewed jointly with RLDC

management to further explore various implications concerning their practical

implementation. Once agreed upon, the company would need another forum with

some initial potential partners to review their priorities and various opportunities for

cooperation, and to lay the ground rules in a demand-driven process.

Access to Finance

In terms of process, the first step should begin with the individuals, groups, and

communities that RLDC has already organized along various value chains, but lack of

finance is recognized as a missing input. In this regard, the role of RLDC can be

twofold: informing the target group of the existing financial service providers and

their requirements or terms of services, including their education about the benefits of

using these services. Secondly, identifying relevant financial service providers that

could serve the target clientele and entering into strategic relationship with them

towards the provision of services. On the basis of this strategic relationship, RLDC

could provide technical support and other resources lacking to the financial service

provider so that it can deliver appropriate services to the target clientele.

However, where no financial service provider exists on the ground where RLDC is

already facilitating market development along a given value chain, it may have to

get involved in creating awareness and getting the target clientele involved in

establishing appropriate service provider close by the population. Alternatively, RLDC

could work closely with strategic financial service providers to open new outlets

where it is already facilitating market development but there is lack of a financial

service provider.

Since RLDC has made much progress in developing various markets in the central

corridor, its financial strategy should build upon this success and therefore begin from

where there is already an established capacity for income generation and demand

for savings and credit.

5.4 INTERNAL CAPACITY AND STRATEGY FORMULATION

Functionally, to evolve these propositions into a concrete plan of action, RLDC

would need to establish proper oversight for its financial services initiative within its

organizational structure, especially a technical lead person in this area that could

provide leadership during the discussions and negotiations with strategic partners.

This lead expert should be someone that can also provide leadership in contracting

and supervising consultants engaged to provide various services in delivering desired

results. Subsequently, this is someone that will in future closely monitor, report, and

periodically review the progress made by RLDC towards increasing greater access to

finance for the ordinary Tanzania within its operational territory.

If someone with this expertise in financial services provision does not already exists

within RLDC, the company should consider hiring one with relevant banking

background. But since the company does not plan to go into direct lending, she/he

Figure 21: Obstacles to SME Expansion

27.122

11.310.1

9.77.5

4.43.7

2.62

1.71.21.11.1111

0.50.50.5

0 5 10 15 20 25 30

Lack of adequate capital

Few customers, compet it ion is st if f , demand is seasonal

Delays in payment for goods or services sold on credit

Low prof it margins, cost ly inputs, or high cost of fuel

Lacks tools

Lacks good business premises, rent is too high

Lacks safe storage for perishable goods

O ther (e.g., poor health, too big a family to support , etc)

Frequent breakdown of equipment/ lack of parts and spares

Not having license, harassment by local councils

should ideally be someone with a double combination of banking and microfinance

experience from a reputable provider, preferably at a senior Relationship Banking

level entry. In addition, she/he should have first degree in banking, commerce,

marketing, finance, economics or social sciences background.

5.5 CONCLUSION

Although more than four years have elapsed since Michael Barr said these words,

they remain as true today for Tanzania as they were for America:

… banking the poor is unlikely to be seen as sufficiently profitable for most

banks to incur the up-front costs for entering this market [the hype by the likes of

CGAP notwithstanding], particularly if banking organizations are not

institutionally organized to focus on this market segment§§§§ … p.2

The results of this baseline survey show that lack of access to finance is a binding

constraint, hence choosing financial intervention as one of the instruments for

developing livelihoods and communities of the central corridor is a wise decision. A

final illustration of this reality is captured in Figure 21:

Thus, in conclusion, RLDC is strongly encouraged to invest in financial education,

community mobilization, and institutional development of deserving and

Access to Finance

competitively identified local partners as an effective mechanism for increasing

access to finance to the poor rural households.

Appendices

Access to Finance

ANNEX 1.1

ANNEX 1.2 MAIN SURVEY QUESTIONNAIRE

Access to Finance

Annex 1.3 Secondary survey instrument

Access to Finance

ANNEX 1.4 SUPPLY-SIDE SURVEY INSTRUMENT

APPENDIX 2 ENDNOTES & REFERENCES

§ See Oketch Henry, Nyagetera Bartholomew, and John Ndulu, 1997, “A Survey of Rural/Micro Financial

Institutions in Tanzania, Dar es Salaam; Bank of Tanzania and ESRF, 2000, “Optimal Modalities Towards

Increasing The Access of The Poor to Micro-Credit Activities”, The Office of the Vice President, United

Republic of Tanzania, 25 January. ** The World Bank, 2005, “Indicators of Financial Access: Household-Level Surveys, Financial Sector

Vice-Presidency, Washington, D.C.: World Bank. †† CGAP’s misguided belief that markets can solve the poor people’s financial exclusion has come to

represent the typical wrong-headedness of the capitalist world. See Brigit Helms, 2006, Access for ALL:

Building Inclusive Financial Systems, Capturing 10 years of CGAP Experience, CGAP and the critique by

INAFI Africa, 2006 cited below. ‡‡ See for example, Economist Intelligence Unit, 2005, “Business 2010; Financial Services: Embracing the

Challenge of Change, The Economist, April. §§ http://www.themix.org/and commercial bank returns as reported in Bankscope, Schneider-Moretto, 2005.

*** The SEEP Network, 2006, “Microfinance and Non-Financial Services for Very Poor People: Digging

Deeper to Find Keys to Success”, Preliminary Research, Poverty Outreach Working Group, October. ††† Rabobank Nederland, 2005, “Access to Financial Services in Developing Countries: The Rabobank

View”, Economic Research Department, September. ‡‡‡ See Paul Mosley and Hulme, D., 1998, “Microenterprise Finance: Is there a Conflict between Growth

and Poverty Alleviation”, World Development, 26 (5), pp: 783-790 for a seminal exposition of the

dilemma. §§§ Henry Oketch O. and Mirero Stephem M., Capitalizing on the Gains: A fresh look at Microfinance 7

Poverty Eradication in Africa, INAFI Africa Global Conference, Johannesburg: South Africa, September. **** Celine Kauffmann, 2005, Financing SMES in Africa”, Washington, D.C.: World Bank. †††† Financial Services Authority, 2000, “In or Out? Financial exclusion: a Literature and Research

Review”, Consumer Research #3, London: United Kingdom, esp. Chapter #7—Overcoming financial

exclusion, pp.79-91. ‡‡‡‡ PFRC, 2000, “Access to Financial services in the U.K, Strategies Towards Equitable Provision”,

Goteborrg, 22-23 September. §§§§ Michael S. Barr, 2004, “Banking the Poor, Yale Journal on Regulation”, The Brookings Institution

Center on Urban and Metropolitan Policy.

http://www.themix.org/and

financial access: options for the poorest in tanzania

Economy & Finance