Assessing Microfinance Services in Agricultural Sector Development: A Case Study of Semi-Formal Financial Institutions in Tanzania

This research study is an assessment of the microfinance service support to agricultural sector development in rural Tanzania. The study assesses the provision of microfinance services by semi-formal financial institutions.

The paper analyzes the credit scheme operations in terms of:

• Loan performance;
• Lending transaction costs;
• Borrowing transaction costs;
• Key factors affecting transaction costs including:
  • Disbursement lag;
  • Opportunity cost of time.

The regression analysis of the data collected during the study showed that:

• Transaction cost is an important determinant of loan demand;
• Disbursement lag is a disincentive to farmers from borrowing.

Finally the paper makes recommendations towards improving performance of microfinance services in support for agricultural sector development in rural areas. These include:

• Need for government, donors, practitioners and research institutions to work closely to identify costs, benefits and future potential of emerging microfinance institutions in rural areas;
• Establishment of incentive structures so that all actors have a stake in the system;
• Reduction of the dependence of non-government agencies and microfinance institutions on subsidies;
• Simplification of lending procedures to ensure timely disbursement of loans to farmers.