Paper

Microfinance Regulation in Tanzania

Can regulation help in the development of microfinance in Tanzania?

This paper analyzes the effects of regulation on the microfinance industry in Tanzania. It identifies factors that may influence a regulated (licensed) financial intermediary to provide financial services to the poor:

  • Financial sector reforms;
  • Liberalization of interest rates;
  • Elimination of administered credit allocation;
  • Entry of private banks.

However, the access of regulated financial services to the poor remains limited because of the following reasons:

  • Limited banking network;
  • Concentration of most banks around Dar es Salam;
  • Low outreach of regional rural banks.

The paper finds that the primary providers of micro financial services are cooperatives and NGOs which precede microfinance regulation, and operate in the presence of several constraints:

  • Limited access to external funds;
  • Lack of skilled manpower with banking and financial competence.

Finally, the authors identify the following needs to help the evolution of microfinance:

  • Integrating cooperatives and NGOs in the emerging regulatory environment;
  • Assessing the impact of policy initiatives, particularly the reason why mainstream institutions do not provide microfinance;
  • Assessing factors which discourage MFIs from getting regulated (getting license), in spite of lower capital requirements for them;
  • Developing an understanding of skills and capacities required by MFIs and also regulators.

About this Publication

By Randhawa, B., Gallardo, J.
Published