Monday, January 16, 2012

Passport Series: Tanzania: Part 2: Microfinance

This month’s Passport Series is all about Tanzania. Tanzania is home to Africa’s highest mountain, some of the world’s most ecologically significant wildlife reserves and its own unique style of hip hop! Follow us throughout the month of January as we learn about Tanzania, its microfinance sector, and the work that Kiva does there.

The Microfinance Sector of Tanzania

The microfinance sector in Tanzania is growing, but remains relatively untapped compared to several of its neighbors in East Africa. Both Kenya and Uganda have similar population sizes yet much larger and more developed microfinance sectors. According to Microfinance Information Exchange (MIX), in 2010 there were thirteen reporting microfinance institutions (MFIs) from Tanzania with a total loan portfolio of USD $63.7 million. In that same year there were twenty-seven MFIs reporting to MIX from Kenya and twenty-five from Uganda with total loan portfolios of USD $1.2 billion and USD $256 million respectively. In Tanzania there were about 222,000 active borrowers in 2010 and almost 239,000 depositors, saving about USD $53 million. In contrast Kenya had over one million active borrowers and over seven million depositors, saving about USD $1.5 billion in the same year.

Poverty in Tanzania is highly concentrated in hard to access rural regions making it especially difficult for microfinance and other forms of poverty alleviation to reach a large percentage of the population. Several of the influential players in the microfinance sector are looking to overcome this rural obstacle by expanding the reach of mobile banking to a greater portion of the population.1 Mobile banking allows microfinance clients to receive loan disbursements and make payments through their cell phones, reducing the need for costly trips to MFI branches.

The Tanzanian financial sector is overseen and regulated by the Bank of Tanzania (BOT), which presides over commercial banks, non-bank financial institutions, regional banks and rural unit banks. The BOT issues licenses which determine the services these organizations are allowed to provide, in which geographic areas they can operate, and their required minimum capitalization. As a result the microfinance industry is dominated by non-deposit taking institutions such as Savings and Credit Cooperatives (SACCOs) and Non-Governmental Organizations (NGOs), which do not fall under the BOT’s authority. Most of the largest microfinance providers in Tanzania operate out of the major city of Dar es Salaam, and lack the capacity for extensive rural outreach to microfinance clients.

An Innovative Solution for Rural Farmers

As access to rural farmers increases in Tanzania, organizations like the International Fund for Agricultural Development (IFAD) are funding projects to create innovative solutions to common rural credit problems. The Agricultural Marketing Systems Development Programme (AMSDP) and the Rural Financial Services Programme, two IFAD funded projects, have combined to create a warehousing receipt system that allows local farmers to store their crops during the harvest season in order to sell them at a later date for higher prices. This not only often results in the doubling and sometimes tripling of profits by selling their product when the supply is much lower, it also allows farmers to receive credit against their stored crops at generally reasonable interest rates. By using their harvest as collateral farmers can obtain a loan, they otherwise may not have qualified for, to help with business expansion, household improvements, education or a variety of other expenses.2

The microfinance institution Mbinga, a Kiva Field Partner, is also working to provide innovative solutions for rural Tanzanian farmers through specialized products specifically designed for their clientele. (More on Mbinga in the following section)

Kiva Field Partner in Tanzania

Based out of Dar es Salaam, Tujijenge Tanzania Ltd was founded in 2006 to provide credit, savings, life and medical insurance products to under-served people in Tanzania. Tujijenge has recently expanded their reach to several regions including rural areas. Tujijenge offers a variety of products to serve a diverse clientele operating businesses such as restaurants, second-hand clothing stores charcoal sales, kiosks, and hair salons. Tujijenge typically loans to groups of fifteen to thirty-five business men and women and requires a mandatory savings of twenty percent of the expected loan amount. Tujijenge has earned three social performance badges from Kiva for the products and services they provide to their clients in addition to their traditional financial services. The badges they have earned are: client voice, entrepreneurial support, and innovation.

Mbinga Community Bank Ltd (MCB) opened its doors in July of 2003. The bank is licensed by the BOT as a regional unity bank with its headquarters in Mbinga town. The mission of MCB is to provide financial services for the promotion of economic prosperity and self-reliance among the rural and urban disadvantaged communities in Ruvuma region. Kiva chose to partner with MCB because they operate in a coffee-growing region of Tanzania and disburse agricultural input loans to coffee farmers. These loans will have a bullet repayment at the end of the term, meaning repayment is not due generally until farmers are able to harvest and sell their products. This specialized repayment system is a very innovative and client-focused loan product. MCB faces high operating costs due to their concentrated rural operations as well as higher risk from significant portfolio exposure in agriculture. Because Kiva offers 0% interest loan, our funding will be channeled into expanding agricultural lending in order to cover more rural villages which MCB would not be able to do otherwise. As a result of the Ruvuma region’s distance from Dar es Salaam and rural nature, as well as the Tanzanian microfinance market’s general immaturity, MFI competition for clients in this are is virtually non-existent. Mbinga has earned five social performance badges from Kiva for the products and services they provide to their clients in addition to their traditional financial services. The badges they have earned are: anti-poverty focus, vulnerable group focus, entrepreneurial support, facilitation of savings, and innovation.

Click on here to make a loan to a borrower in Tanzania!

Stay tuned for Part 3 of our Passport Series to read about the work that Kiva is doing in Tanzania.