DEVELOPMENT PLANNING UNIT

Women’s Access, Use and

Preference For
Microfinance in Ngarenaro
Ward, Arusha, Tanzania
Olive Cocoman
Charlotte Haggie
Melissa Johnson
Ramesh Perera
[June 2009]
 Declaration of Ownership

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what action should be taken in line with UCL’s regulations.
 Acknowledgements

The authors wish to extend wholehearted thanks to all those who have given their much appreciated time to assist us in
compiling this report. The people of Ngarenaro, the Ward Officials, Municipal and Regional Officials, and NGOs; in particular
Pathfinder and Women in Action For Development and all microfinance institutions and others who have assisted us greatly
and were so generous with their time and information.

Also, we would like to extend much gratitude to our colleagues at CDTI, Tengeru, whose input for this project was invaluable.
Further thanks to staff at MSTC-DC and to Justin and Nimrod for their hospitality and assistance in conducting our assignments.
Our SDP classmates deserve special mention for providing a memorable trip and a valuable learning experience.

Finally, and significantly, thanks to Patrice North for her organisation, guidance and support for the duration of the project.
List of Acronyms

AIDS Acquired Immune Deficiency Syndrome

AMC Arusha Municipal Council
BRAC Banking Resources Across Communities
BoT Bank of Tanzania
CDTI Community Development Training Institute
CDO Community Development Officer
CIDA Canadian International Development Association
DFID Department for International Development
DPU Development Planning Unit
HDI Human Development Index
HIV Human Immunodeficiency Virus
KI Key Informant
NGO Non-Governmental Organization
NMB National Microfinance Bank
PRA Participatory Rural Appraisal
PRIDE Promotion of Rural Initiative Development Enterprises
PRSP Poverty Reduction Strategy Paper
SACCOBA Savings and Credit Cooperative Bank
SACCOS Savings and Credit Cooperatives
SAP Structural Adjustment Programme
SDP Social Development Practice
SEDA Small Enterprise Development Agency
SHA Stakeholder Analysis
SLF Sustainable Livelihood Framework
TPB Tanzanian Postal Bank
UCL University College London
VICOBA Village Community Bank
WDF Women Development Fund
YDF Youth Development Fund
Contents
Declaration of Ownership ................................................................................................................3
Acknowledgements..........................................................................................................................4
List of Acronyms .............................................................................................................................5
List of Appendices ...........................................................................................................................7
Executive Summary .........................................................................................................................7
1. Background ..................................................................................................................................9
1.1 Study Area .................................................................................................................................9
2. Methodology .............................................................................................................................12
2.1 Research Methods Employed ..................................................................................................12
2.2 Constraints ...............................................................................................................................13
3. Findings......................................................................................................................................14
3.1 Access to microfinance ...........................................................................................................15
3.2 Use of microfinance as a livelihood strategy ..........................................................................17
3.3 Microfinance as a poverty eradication tool .............................................................................19
3.4 Preferences of microfinance options........................................................................................20
4. Recommendations......................................................................................................................24
A Developmental Microfinance Model for Ngarenaro..................................................................26
5.0 Conclusion ...............................................................................................................................29
List of Appendices
Introduction and context Appendix A
Summary of National Strategy for Economic Growth and Poverty Alleviation Appendix B
Terms of Reference Appendix C
Methodological Framework Appendix D
Sustainable Livelihoods Framework Appendix E
Stakeholder Analysis Appendix F
Interview Question Schedule Appendix G
Disaggregation of Interviewees Appendix H
Breakdown of Activities Appendix I
Interview Protocols Appendix J
Outline of Main Findings Appendix K
MFI conditions Appendix L
Explanation of VICOBA and SACCOs Appendix M
Implementation plan for proposed model Appendix N
SWOC Analysis for proposed model Appendix O
Logframe Analysis Appendix P
Preliminary Feedback Appendix Q
Bibliography Appendix R
Executive Summary

The provision of microfinance services to the poor has been widely accepted as an important element of poverty
alleviation, particularly for women. Governments of poor countries such as Tanzania have been keen to realise the
social and economic benefits which can accrue to poor women and men when they are able to effectively utilise
microfinance. As such, governments have committed to establishing the critical socio-economic support and
regulatory frameworks which enhance microfinance’s efficiency.

Nine students from the DPU, in collaboration with four students from CDTI, Tengeru, were invited by the AMC to
identify access to, usage of and preference for microfinance in Ngarenaro ward and to make recommendations for
a suitable microfinance model that incorporated the wants and needs of poor women.

Our research process utilised various methodologies, including:

 Review of literature contextual to the study,
 Primary data collection in Ngarenaro through semi structured interviews with women and men,
 Presentation of preliminary findings to key stakeholders in Arusha and to academic staff at the DPU.

The findings uncovered detailed the limited access that women and men in Ngarenaro had to microfinance
services. They also highlighted the incompatibility of many of the MFI’s products to meet the financial needs of
poor women, particularly those related to savings and use of loans for social expenditure.

Based on the findings, several recommendations to streamline access to and provision of microfinance have been
proposed. Their implementation requires significant collaboration between MFIs, officials at the ward, municipal,
regional and national levels, as well as the international donor community. A developmental microfinance model
which proposes an expansion and scaling up of the existing Pathfinder VICOBA programme have been suggested.
In addition to a proposed implementation agenda, the strengths and limitations of such a model have been
included.

It is hoped that this report highlights the need for key stakeholders in the microfinance process to collaborate in
the creation of the social, economic, political and regulatory environment required for microfinance to be a viable
and successful strategy for poor women, and men.
 1. Background

Microfinance
Microfinance ‘like the provision of any development resource, represents a range of possibilities, rather than a
predetermined set of outcomes. (The) possibilities realised in practice will be influenced by a host of factors,
including the philosophy that governs their delivery, the extent to which they are tailored to the needs and interests
of those they are intended to reach, the nature of the relationships which govern their delivery and the calibre and
commitment of the people who are responsible for their delivery’ (Kabeer, 2001).

The provision of microfinance has gained widespread acceptance as a viable, practical tool for alleviating poverty,
particularly for women. Microfinance refers to the provision of financial services such as savings, loans and social
security products to the poor and those who are unable to access mainstream banking services. It is not a recent
phenomenon. As far back as 1720, an Irish pastor and writer, Jonathan Swift, started the first Irish Loan Fund,
1
providing loans without collateral to the poor of Dublin. More recently Bangladesh’s Grameen Bank, founded in
1976, demonstrated the successful prospects of extending financial services to those deemed non-creditworthy. It
is this model that has been co-opted by major donor countries and international bodies such as the World Bank
currently purport that ‘increasing the access of the poor to sustainable financial services is an important part of the
World Bank Africa Region’s strategy for supporting the Millennium Development Goals for poverty reduction’
(Byam, 2003). This has been embraced by many countries throughout Sub-Saharan Africa, including Tanzania. Its
National Microfinance Policy, formally launched in 2001, is the collaborative outcome of a five-year partnership
between the Government and the international donor community. The Policy articulates the vision and strategy
for the development of a sustainable microfinance industry as an integral part of the financial sector, specifying
the respective roles of the key stakeholders – the Government and its principal agencies in policy formulation and
2
implementation, the different institutional providers of microfinance services, and the donor community.

1.1 Study Area

th
The United Republic of Tanzania is the 31st largest country in the world by land mass, and the 34 by population
3
size. Its estimated population of 41 million has tripled since attaining political independence in 1961 . It is one of
th 4
the poorest countries in Sub-Saharan Africa, ranking 159 out of 177 countries on the Human Development Index .
The Arusha region is one of the country’s 26 administrative divisions and has a population of approximately 2
5
million, an increase from 750,000 from 1988 . It is one of the wealthier regions of Tanzania, as its close proximity
to Mount Kilimanjaro, Serengeti National Park, and other international attractions makes it a significant hub for
the Tanzanian tourism industry. The town is subdivided into 17 administrative Wards of which the suburban

1
Source: http://www.gdrc.org/icm/not-new.html
2
Source: Byam, 2003, p.2
3
Source: Tanzanian Population Census 2002
4
Source: World Bank Human Development Report 2007/2008
5
Source: Tanzanian Population Census 2002
Ngarenaro, population of approximately 15,700, is the designated study region. Ngarenaro experiences significant
in-migration as well as population turnover, as people arrive looking for work and leave to pursue more promising
options. Conditions of poverty are quite apparent. Data collection for this exercise was conducted in two streets –
Kambi ya Fisi and National Housing. The former is described as an unplanned street, a collection of compact
residences branching from narrow alley ways. National Housing is categorised as a planned street, boasting
detached buildings used for housing and business. The streets are located opposite each other. A comparison of
the streets can be seen in Table 1.
*Information deemed correct in so far as observation and translation allowed for accuracy

Kambi Ya Fisi Street National Housing Street

Unplanned Planned
Cost for rent Average 5 000 – 15 000 Tsh/month Average 25 000/month
Land use Houses built close together Each house on one plot
No space to grow crops or keep livestock Individual plot space for growth of vegetables or
grazing of livestock
Standard of living Crowded housing in usually one to two rooms One family per house of numerous rooms
No bathroom or kitchen facilities Separate living, cooking and ablution facilities
Ablution facilities Many households sharing one toilet Each household with own toilet
Shop location Goods sold on the street or out of a house Goods sold out of a shop or off a stall on the
window street
Water access No piped water – one tap per courtyard Piped water to each house
Street conditions Narrow, inaccessible paths situated amongst Wide street with walled and gated access to
overflowing drainage individual housing. Vegetation and garden
Single file access only patches
Housing conditions Housing made of brick, mud and plastering or Indoor and outdoor walls painted and neatly
wooden slats finished
Tin roofs
Tenant status Rental properties* Owner occupancy
Resident employment status Unemployed/self-employed/seasonal work Employed by government/official
organisations/private companies/schools/self-
employed

Use of microfinance Meeting of basic needs and social Basic needs met by salary – microfinance seen as
expenditure petty business for additional income

*Information deemed correct in so far as observation and translation allowed for accuracy

Table 1 – Characteristics of Kambi ya Fisi and National Housing Streets

Women’s Poverty in the Ngarenaro Context
An understanding of how microfinance initiatives impact poverty eradication necessitates a definition of poverty
6
that corresponds to a local definition of wealth . AMC reported that earnings below 200,000 TZS per month
7
(151US ) for a family of six would classify them as impoverished. This represents 25US per month per person,
substantially below the World Bank reference line. Within the ward, we met and observed women whose income
was far below this figure. One of the questionnaire respondents, a single mother of two children, earned 40,000
TZS/30US per month for an 84 hour work week. In light of these realities, a clearer delineation was made by the
Community Development Officer, who considered poor women in the Ngarenaro context to be those who have
8
difficulty maintaining basic daily needs, such as food, shelter and clothing . There are many factors which
exacerbate women’s poverty in the study area. They include early cessation of schooling, and the prevalence of
women’s traditional roles which confine them to the domestic space. In addition it was observed that poor women
held few if any assets, had a low skill base and were vulnerable to shocks such as the falling tourist arrivals and the
prevalence of HIV/AIDS.

6
Source: United Nations http://www.un.org/esa/africa/microfinanceinafrica.pdf
7 th
Source: Exchange Rate Conversion 4 June 2009
8
Further contextual information can be found in Appendices A & C
Microfinance in Ngarenaro
Microfinance is highlighted as one of the key methods towards poverty alleviation for women in Arusha, in line
with the National Development Plan’s agenda towards ‘Gender equality and the empowerment of women in all
socio-economic and political relations and cultures’ (p.12) and (to) ‘ Reactivate the commitment to self-reliance,
and recultivate resourcefulness and savings culture in order to curb and overcome the donor dependency
9
syndrome which has led many Tanzanians into unprecedented apathy’ (p.27) . Microfinance providers, women
and men who have accessed or desire access to microfinance services, micro entrepreneurs and small business
owners as well as governmental officials and nongovernmental organisations are considered key stakeholders in
10
the deployment and success of the microfinance strategy .
The AMC supports microfinance initiatives for poor women, in particular through the Women’s Development Fund
loan groups. However funding is limited, and access remains restricted. There was some knowledge of
microfinance providers amongst respondents. However, much of it was erroneous or incomplete. There was no
aggregate baseline data to ascertain the number of women within Ngarenaro accessing microfinance services, nor
any evidence of market research on the part of the MFIs on the kinds of microfinance products which most
appealed to the women. The following continuum provides a pictorial depiction of the microfinance providers
found to operate a customer base in Ngarenaro. It spans the range of offerings from formal - official bank
providers - to informal – localised cooperative type collaborations such as EANOT - found to be organised by
teachers in a local primary school or WIA VICOBA organised by staff of a NGO for HIV patients and their carers.
Kibati is included as the most informal sourcing of finance in Ngarenaro, from which money may be sourced to
assist a petty business operation and interest paid however it is noted that this is a purely cash transfer and does
not involve any further support as inherent in some microfinance models.
Formal Microfinance Providers Informal Microfinance Providers

____________________________________________________________________________

SEDA Pathfinder VICOBA

Kibati

BRAC Women’s Development Fund EANOT

National Microfinance Bank

Tanzanian Postal Bank

AKIBA Women in Action VICOBA

Ergot VICOBA

SACCOS

Pride

Table 2: Continuum of Formal to Informal Microfinance providers found in Ngarenaro

9
Source: National Development Plan
10
Please see Appendix F
2. Methodology

The Terms of Reference of the project provide a comprehensive outline of the objectives of the research, and can
be found in Appendix B. They can be summarised as follows;

1. To ascertain poor women’s access to formal and informal microfinance institutions

2. To understand the reasons for requiring access to microfinance
3. To undertake a comparison of current formal and non-formal microfinance models
4. To propose a microfinance model that promotes livelihood sustainability for poor women and men

2.1 Research Methods Employed

The research process commenced in February 2009, and involved undertaking a significant literature review on key
aspects of the topic, as well as the preparation of various assessment tools. A full description of the
methodological framework is available in Appendix D. As earlier mentioned, data collection in Tanzania was done
in the National Housing and Kambi ya Fisi Streets. Both were chosen by the team after consultation with ward
officials. They represent the two main types of settlements – planned and unplanned, and were located in close
proximity to each other. This allowed for greater efficiency in building relationships with stakeholders and greatly
aided the interview process.

Key research activities include:

 Participation in briefing sessions with DPU Course Director, Patrice North
 Conducting research on key elements of Tanzania’s social, political, and economic climate, including
national policies on poverty alleviation and microfinance, and
 Compilation of a databank of articles on critical areas to the research topic, including microfinance,
poverty alleviation tools and women and poverty.

Upon arrival in Arusha in May 2009, and the beginning of the collaboration with CDTI counterparts, activities
focussed on primary data collection and the finalisation of various research and analytical methods. The
Sustainable Livelihoods Framework was determined to be the most suitable analytical tool for the project. A
sustainable livelihood comprises the capabilities, assets, both material and social resources, and activities required
for means of living. Assets or capital endowments are the building blocks, the capacity the people use in striving
for the objectives or the livelihood outcomes. Government and private sector structures, laws, policies,
institutions and culture influence the livelihood strategies people adopt to achieve livelihood outcomes (Soini,
2002-3).
  Finalising the Logical Framework Analysis (Appendix R )
 Finalising the Stakeholder Analysis (Appendix F )
 Conducting semi-structured interviews with key informants and other stakeholders. These were as
follows:

Stakeholder Type Details

Residents Total 54: 33 Interviewees: 23 Female, 10 Male

10 Group Interview (MF group): 10female
11 focus group participants: 7 female, 4 male

MFI provider Total 7: BRAC (1) SEDA (2), AKIBA (1) Tanzania Postal
(commercial) Bank (1), National Microfinance Bank (2)

MFI provider Total 4: Orgut-SEDIT VICOBA (2), Women In Action for

(NGO) Devvelopment (1), Pathfinder International (1)

Ward Officials Total 4: Ward Executive Officer (1), Education Officer

(1), Street Leader (1), Community Development Officer (1)

Municipal Officials Total 3: Head of Community Development and Gender (1),

Head Womens Development Fund (1), Community
Development Officer TASSAF (1),
Regional Officials Total 1: SACCOS Registrar (1)

Table 3 – Summary of interviews conducted with stakeholders and key informants

Interviews were conducted with every effort towards purposive sampling of women and men living in the streets
and the microfinance providers and other stakeholders the researchers deemed to be representative of the
population.

A complete list of the activities undertaken during the Tanzanian phase can be found in Appendix I. This report has
benefited immensely from the feedback provided by various stakeholder representatives in Arusha, and also from
critiques proffered by DPU staff members upon presentation of the findings.

2.2 Constraints

While the research process benefited from several advantages, including the willingness of stakeholders to
participate in the research activities, the project faced several constraints.

 The ten days allocated for undertaking the research in Ngarenaro was insufficient to speak with a more
representative cross section of stakeholders, particularly residents. In addition, more time was needed by
the research team to develop a better understanding of local governance structures, and explore less well
known microfinance offerings.

 The majority of interviews were conducted in Kiswahili. Researchers from the DPU therefore had little
control over the wording of questions and had to rely on interpretation of responses.
 The limited availability of data on microfinance in Arusha, disaggregated by gender and residence, made it
difficult to validate the reports given by poor women in Ngarenaro about their access to microfinance
services.

 Ward officials assisted in selecting some of the interviewees, and were present during some of the
interviews. While helpful, this could have impacted on the responses given by those interviewees.
 3. Findings

The findings were organised under four main themes. There are:
o 1. Access to microfinance
o 2. Use of microfinance
o 3. Understanding of microfinance as a poverty eradication tool, and
o 4. Preferred microfinance options

Please see Appendix J for a full report on the findings.

The analytical framework yielded eleven indicators chosen to measure the extent to which research objectives had
been met. Table 4 outlines these indicators under the themes from which they were developed.

1. Access 1. Number of interviewees who know about microfinance and the

options provided
2. Number of interviewees who have attempted to access MF and
the outcomes of these attempts
3. Type of assets required for access to MFIs

4. Number of interviewees lacking assets in order to access

microfinance
2. Use 1. Positive change in women’s asset base as a result of MF

2. Adverse change in women’s asset base as a result of MF

3. Micro finance as a poverty
eradication tool
4. Preferences of microfinance options
1. Level of knowledge of microfinance policy and its use as a
poverty eradication tool
2. Level of evidenced usage of microfinance as a poverty
eradication tool
3. Adaptation of MFI products to target population of Mkukuta
strategy
1. Number of interviewees preferring non-formal/informal MFIs

2. Number of interviewees preferring formal MFIs

Table 4 – Summary of Indicators

The findings from the research were assessed using the sustainable livelihoods framework used as the analytical
base. This involved identifying the aspects of the framework deemed relevant to the conditions of poor women
and men in Ngarenaro

Theme 1: Access to microfinance

Access to microfinance in Ngarenaro was found to be limited by the inability of possible clients to meet the asset
requirements stipulated by MFIs.
Indicator 1.1: the number of people who know about microfinance and the options provided
By measuring how many people are aware of microfinance and the various options that are available to them, it is
possible to determine that a lack of information provided to primary stakeholders as customers of MFI's is a major
barrier to access. There was a distinct difference in level of information between the planned and unplanned
streets. Few of the women from Kambi Ya Fisi are aware of microfinance however most of the interviewees in
National Housing Street are aware of microfinance but only know of one or two models.

This is a lack of human capital, in terms of knowledge, and this appears to be a direct result of the vulnerability
context in which residents of Ngarenaro live. This vulnerability is due to limit physical, financial capital that assists
in providing for education and health and food supplies, that is to say poor women are primarily concerned with
meeting basic needs for human capital survival rather than human capital growth. The pressure to meet these
needs is a daily pressure among many of the poor women we interviewed. Beyond this, women have limited
access to political influence to voice their needs in the ward or local government initiatives and this was expressed
as being due to large division between government and the people.

Indicator 1.2: Number of people who have attempted to access MF and the outcomes of these attempts
Successful attempts to access MF services by poor women and men limited. The majority of those interviewed in
the unplanned street had had limited access to MFIs. They were also largely unaware of non formal options such
as VICOBA. Conversely, in the planned street, the majority of those interviewed were aware and had accessed
loans.
Those interviewees who have attempted to access microfinance have found that they have not been able to for
various reasons. These are highlighted in the findings below under indicator 1.4.
It was found that those who are able to access loans are making use of only one loan from one MFI and a very
small minority have taken out various loans from various institutions. The majority of poor women are accessing
from non-formal VICOBA while a number of salaried interviewees have been successful in accessing formal
institutions such as SACCOs and commercial banks.

Indicator 1.3: Type of assets required for access to MFIs

MFIs operate under various conditions for entry. Please see Appendix L for full details.

Physical and financial asset requirement:

Many sources require that borrowers are already running a business of some sort. If this is not the case, MFIs
request that borrowers have some sort of physical assets in order to access loans. These might include a house,
furniture, or tools such as a sewing machine, bicycle etc.
As well as the requirement for a physical asset as collateral, many institutions require clients to pay an entrance
fee either to buy the first set of shares or to set up an account.
Social:
Due to the inability of many individuals to meet the financial and physical asset requirements, MFIs have created
products reliant on social collateral, i.e., the formation of groups through which loans are disbursed. This allows
them to limit the risks of offering services to those without traditional collateral. Access to MFIs for poor women is
mostly available through this means. This is a social capital requiring relations of trust. The successful operation of
microfinance groups lead to the strengthening of this social capital as group relations strengthens as the group
progresses. However, on the other hand, the detrimental effects of social isolation due to problems that arise
within a group or a personal problem which inhibits the individual to fulfil their obligations to the group act as a
deterrent to groups of friends and neighbours who fear being reliant on others or being responsible for other loss
due to their action resulting in the repercussions of a loan default being spread among the group.

Indicator 1.4: Number of interviewees lacking assets in order to access microfinance

Physical and financial:

Many interviewees do not have the financial capital to pay the entrance fee to access formal MFIs. Furthermore,
if borrowers are in possession of a business or physical asset, formal institutions send loan officers to assess the
ability of borrowers to pay back the loan, and thus to determine the size of the loan. The use of physical assets as
a means to determine eligibility for loans may be misleading and can lead to corruption. This was found to be the
experience of many interviewees.
Due to lack of physical assets, it was also realised that high interest rates deter poor women from accessing
microcredit to fear of not being able to repay. The imposition of high interest rates, ostensibly due to the high risk
involved in disbursing loans to people with limited assets are a further deterrent to access. The inability of
potential clients to influence their repayment schedule further dissuades those for whom weekly repayments are
unfeasible. Many possible microcredit clients said they are dissuaded by the weekly repayment requirements as
they fear they will not be able to stick to this repayment pattern.

Human:
The lack of awareness mentioned in the above findings augments the limited access of the sample to microfinance.

Political:
The apparent disconnect between government representatives and ordinary people, exacerbated by a
bureaucratic and hierarchical political system prohibits many from accessing assets required to make use of
microfinance.
The bureaucratic nature of the political system prohibits many from accessing the assets required in order to make
use of microfinance. Individuals at street level are distant from their government. This is exacerbated by the ten
cell, ward level of bureaucracy that limits the power of each individual to one-tenth of a ten cell division and
appears to create further power levels rather than dilute power by creating an equalising structure as perhaps
Nyrere had envisaged.

The lack of political capital assisting close links between people and their governance structures, leads to greater
fear of corruption. Corruption within formal institutions discourages people from accessing MFIs. There is a lack of
political capital that allows for close links between the people and their governance structures; the fear of
corruption impedes poor women from attempting to access microfinance or from moving further along the access
process. As mentioned in 1.2, there is the presence of corruption within formal institutions, such as bribery for
loan access that discourages people from accessing MFIs.

Social:
Limited social capital inhibits access to broader awareness of formal institutions. Instead, negative stories of
repossession due to defaulting on loans spread through social networks. Limited residential tenure limits access
to loans as a result of the temporary resident status of some Ngarenaro inhabitants and thus limits their
development of social capital.
As mentioned at 1.3, there is fear among prospective MFI customers. This was expressed as being due to limited
residential tenure many interviewees are not able to access loans. This is as a result of the temporary resident
status of some Ngarenaro inhabitants. Residents are often new to the area having moved from rural areas outside
Arusha. This results in limited social capital and causes a lack of trust in Ngarenaro and many are not able to join an
informal VICOBA group or do not wish to access microfinance through group loans. Many of the interviewees not
yet accessing microfinance do not wish to work in a group because they fear that within this urban temporary
environment a group member might default on their loan, leave the group or that there will be conflict.

Summary
As can be determined from the above findings, many more poor people living in Ngarenaro lack rather than boast
the assets required in order to access a loan. The lack of substantive information on microfinance offerings, a
dearth of physical and financial capital and fear of default are the biggest barriers to looking for and accessing a
loan. Moreover, the lack of public awareness of microfinance means many do not even know that it is an option.
While many MFIs consider poor women to be their primary target markets, there was little evidence to suggest
that requirements for accessing services were attainable by these women. In reality, this access appears limited.
The lack of awareness of microfinance as an option limits people in terms of access however, physical and financial
capital and fear are the most significant barriers to looking for and accessing a loan. However, the products
offered by many of the private MFIs, while geared towards women, reflects little concern about their ability to
access these services.

Theme 2: Use of microfinance as a livelihood strategy

Those interviewees aware of microfinance as an option were only aware of one or two models from which they
had attempted to access or been successful in obtaining a loan. Table 2 illustrates the use of MFIs within the
sample in Ngarenaro.
 Usage of Microfinance in Ngarenaro

No provider

Kibati

Relatives

F
M EANOT
Frequency reported

VICOBA Pathfinder

VICOBA not
specified

WDF loan
Institution

SACCOS

National
Microfinance Bank

Tanzanian Postal
Bank

AKIBA

PRIDE

SEDA

BRAC

0 5 10 15 20

Number of Interviewees

Table 5 – Breakdown of interviewees usage of MFI

The use of microfinance as a livelihood strategy has led to both positive and adverse effects on
the asset base of poor women. ‘I use my loan to pay
for my children’s
Positive effects: school fees. I am
trying to get another
It was found that the top priority for women in terms of gaining further assets was that of loan to buy a mill. The
human capital. It is believed by the sample that the attainment of this form of capital would money I would use
lead to the attainment of further capitals. from my business
would be to pay for
 Many interviewees use their loans to pay for social expenditure such as school fees and the school fees and
health of my children.
access to health care (human assets)
If they are educated,
 Further usage includes increasing personal physical assets such as a toilet for the house or they will be able to
look after me’
building a new house. (female, 45)
 Other usage would be loans to start up or expand a business by buying fixed physical assets 'I would use my
loan to buy a
or variable physical assets such as stock or paying for human capital such as a new employee. sewing machine
and to employ a
new student to
help me with my
work' (female, 40)
 However, it was expressed that all profits are primarily used for social expenditure e.g. school fees and health
(human capital). Thus, many interviewees believe they have gained confidence in their ability to meet their
basic needs.

Social capital:
Expanded social networks as a result of group loans means poor women’s networks are positively enhanced,
possibly leading to further enhancement of human capital through discussion and sharing of information. In terms
of the priorities under which poor women place their assets in Ngarenaro, it is possible to observe that human
capital is the most important, with physical capital coming in second. In this way, one might determine that
microfinance is having a positive effect on the asset base of poor women.

Indicator 2.2. Adverse change in women’s asset base as a result of MF

Human capital
Limited provision of training and a specific lack of business training often lead to failed businesses or purely
subsistence business. Firstly, MFIs do not carry out R and D into new businesses. As a result, borrowers who
are starting up businesses do similar activities to their neighbours and there is saturation of the market. Thus
there is little opportunity for a prominent increase in financial capital and consequently an increase in further
capitals wished to be purchased with profit made through the business.
Secondly, there is a severe lack of training provided to borrowers. Each MFI has a level of training for the
most part on how to look after money and how to pay back the loan. What is lacking in this area is extensive
business training regarding start up or expansion.
 This is further supplemented by the deficit of monitoring or support of businesses once they have been
started, limiting human capital. This lack of human capital enhancement often leads to failed businesses or
purely subsistence businesses for borrowers. This is further supplemented by the deficit of monitoring or
support of businesses once they have been started. Once again, this lack of support leads to a limitation on
human capital and the possibility of failed business.

Physical and Financial capital

 Failed business may lead to the loss of the existing or developed asset base including the repossession of
physical assets.
 Limited variation in businesses has led to market saturation in petty trading resulting in market
‘Our policy is to
saturation. Thus there is little opportunity for a prominent increase in financial capital and provide loans only.
There is a concern
subsequent increase in further capitals.
that business
Social capital counseling would
have repercussions
 Failed business and/or loss of assets can mean the loss of social respect or trust.
in the event of a
failed business’
(Zone Manager,
SEDA)
Summary:
The positive changes made to a poor woman’s asset base as a result of microfinance are a step towards a better
livelihood in terms of her ability to purchase or attain assets such as physical, financial and human. However, the
lack of provision of further human capital to support the business operation and/or expansion accompanying the
provision of financial capital results in the possibility of business failure or worse misuse of loan for basic needs or
long term human asset building. As result, users may ultimately find their assets to be depleted rather than
enhanced by the microfinance strategy. Experiences such as these aggravate the fear barrier mentioned above.
The offer of loans is not paralleled with support in the use of these loans and thus the ability for poor women to
use the existing microfinance infrastructure as a livelihood strategy is not feasible.

Theme 3: Level of knowledge of microfinance and its use as a poverty eradication tool

The Mkukuta policy is known of by all MFIs interviewed in this study. However, these MFIs are not aware of how
each one works under this policy and there is a lack of linkage between them in terms of their role under Mkukuta.
This lack is described under the headings Structures and processes and Institutional vulnerability as follows:

3.1 Indicator 1: Structures and processes:

The implementation of microfinance as a poverty eradication tool is weak within the Arusha context.
 In Arusha, we found no evidence of an industry regulatory body for MFIs. In addition, there was no local
umbrella body for MFIs to monitor or support them in their role in meeting the objectives of MKUKUTA.
 There are few links between ministries, policies and structures required to implement MKUKUTA and little
monitoring and evaluation of government funds put aside for the strategy.
 MKUKUTA does not appear to be mainstreamed into social policy, leading to a compounding in vulnerabilities
for women gaining loans but vulnerable due to the loss of their asset base if business should fail or they
default on repayment.
 Additionally, the national governance structure supports a centralised and top down policy approach so that
the participation of poor women in influencing the provision of MFI products suitable for them is limited.
 The limited success of policies designed to generate economic growth with employment creation can result in
a negative return on investment for those utilising microfinance for social investments such as education. This
is due to the difficulty in securing viable employment in Arusha and further afield.
 It is a widely accepted belief that corruption is inescapable and is pervasive throughout governance structures.
This negatively impacts on microfinance’s ability to provide stable and sustainable livelihood outcomes for
those unwilling or unable to patronise corrupt officials influencing the microfinance process.

Indicator 2: Institutional vulnerability:

 Although microfinance’s role is highlighted strongly in Tanzania’s PRSP and in MKUKUTA, MFIs know of the
MKUKUTA strategy but are not aware of their role or their colleagues’ role in implementing this policy.
 Poor women are not the target market of most commercial and private MFIs and thus product offerings are
not designed with their ease of access in mind. The loan conditions identified as barriers support this claim.
 Commercial and some NGO affiliated MFIs expressed need to extend loans to clients who were capable of
repayment based on demonstrated possession of physical and/or financial assets.
 Providers of microfinance expressed the belief that corruption is inescapable and admit that it occurs in their
organisation. As such the administration of microfinance has little chance of positively affecting the
governance structures and processes which promote its viability.

Indicator 3 Adaptation of MFI products to target population of Mkukuta strategy

The main target market of commercial and private MFIs is not poor women and products introduced under
microfinance are not aimed at poor women or adapted in order to allow access for poor women. This is readily
illustrated in the operation of barriers to accessing these institutions as mentioned under indicator 1.3.

In addition, the bureaucratic and hierarchical nature of the national political structure leads to a centralised and
top down policy approach so that participation by poor women in determining MFI products suitable for them is
limited.

Summary:
Microfinance’s ability to provide stable and sustainable livelihood outcomes is impeded due to structures and
processes and institutional vulnerability. The goal of MKUKUTA as a policy to promote microfinance as a tool for
poverty eradication tool and economic growth has not been fulfilled due to a lack of coordinated action between
the ministries, policies and structures responsible for its operationalisation. The inadequate structures and
processes that govern microfinance and its mainstreaming into social policy lead to further vulnerabilities when
women gain loans yet lose their asset base due to a deficit in training and future planning. The majority of poor
women use loans to pay for social expenditure including education in the hope that their children will have greater
career options and will be able to support them in the future. However, due to the lack of jobs in Arusha and
further afield, one particular benefactor of education via microfinance has been unable to find employment even
with a qualification from a reputable college.

When tackled with the issue of corruption, many of the providers of microfinance believe that corruption is
inescapable and admit that it occurs in their organisation. Thus, microfinance has little chance of having an effect
on the structures and processes in which it exists therefore impeding its ability to provide stable and sustainable
livelihood outcomes. The product requirements of the poorest people are not in line with those offered by MFIs,
which are predominantly profit driven. Inadequate provisioning for the practical implementation of MKUKUTA by
central government significantly constrains the ability of those operating at the level of provision to adequately
deliver the goods and services required for poor women to achieve a sustainable livelihood.
Theme 4 - Preferences of microfinance options

As a part of the research, respondents were asked to identify the microfinance models they preferred, as well as
share their desired microfinance services and terms of access.
‘I like VICOBA
In discussing these different models with interviewees and realising the limitations of them as a because we
sustainable livelihoods strategy, they were given the opportunity to choose the model that they most decide the
preferred as well as conditions that they would like the ideal model to profess. interest rates
and the rules
VICOBA emerged as the model most preferred by interviewees, closely followed by SACCOS. and we can
Indicator 4.1 Indicator Number of interviewees preferring non-formal/informal MFIs earn money
Residents of Kambi ya Fisi Street prefer the VICOBA model of microfinance as they feel that it is one that from the
11
they might be able to join without too many requirements. They also prefer this model due to the interest and
democratic system in which members choose interest rates as well as the bylaws and governance from fines on
system of the model. It is evident from graph one above that most poor women accessing microfinance rules we have
are doing so through VICOBA and this particular model was championed by municipal and ward agreed on’
executives.

Indicator 4.2 Number of interviewees preferring formal MFIs

Those with access to more formal models are mostly accessing or would like to access SACCOs. This is due to its
ease of access if one has the physical or financial capital, and its ease of use as it is regulated but still owned by the
12
members who determine the bylaws and operation of the SACCOs.
Overall, many interviewees indicated a strong interest in savings products, which are rarely offered by formal and
non formal MFIs alike. Among the preferred conditions were;

o Saving options
o More provisions for training (including business training)
o Increased provision for accessing loans for social expenditure, such as education and healthcare
o Lower interest rates for loans
o Flexible repayment terms, including monthly repayment options
o Access to individual loans
o Accessing larger loan amounts
o Less bureaucracy to access microfinance services
o Less room for corruption.

Preference of non-formal models:

 Residents of Kambi ya Fisi Street prefer the VICOBA model due to its limited yet viable requirements.
Please see Appendix M for an operational outline of VICOBA.
 Particular preference was expressed of its democratic system in which members choose interest rates as
well as the bylaws and governance system of the model.

11
Please refer to Appendix L
12
See Appendix L
Preference of formal models:
 Those with access to more formal models are mostly accessing or would like to access SACCOs.
 This is due to its ease of access if one has the physical or financial capital required to meet the entrance
fee and loan conditions. The ease pertains to the fact that the SACCOS is owned by members who
determine the bylaws and operation of the SACCOs though it is a regulated entity under banking
legislation (see Appendix K for an operational outline of SACCOs).

Summary:
The use of the non-formal VICOBA by those living in the poorer area of research highlights the need for non-formal
options that appear most accessible to these people. VICOBA represents an accessible option for the poor women
to access a broader selection of microfinance offerings than those offered by commercial MFIs, including a social
welfare fund and dividend payments. There is a much expressed desire to use microfinance as a strategy towards
gaining livelihood outcomes such as improved income earning opportunities, poverty, vulnerability and risk
reduction and the improvement of well-being and capabilities for all in Ngarenaro.

Policy implications as a result of preferences:

- Fiscal policy needs to regulate interest rates: there needs to be a special concession to ensure
microfinance funding can be distributed at low interest rates to the targeted group of poor women
- Collateral requirements lowered for those with no formal collateral
- Further training and education needs to be provided through the mainstreaming of microfinance into
education and job creation policy
- A governing body needs to be set up to enforce regulation of NGOs/MFIs
- Women need to be included in policy design and implementation
 4. Recommendations

Microfinance is widely recognised as a viable solution for reducing livelihood vulnerabilities and is a proven
strategy for reducing poverty, particularly that of women. However, it must be stressed that microfinance is
complementary to other strategies, primarily investments in social services design and provision. According to
Robinson (2001), the provision of microfinance services is of very little benefit to the poorest of the poor, who
require significant and sustained investments in accessible basic services in order to improve their meagre capital
base and attain some element of self sustainability. The example of South East Asian economies in the 1970s and
1980s best demonstrates the effectiveness of this approach in improving the ability of the poor to acquire financial
assets and the subsequent domino effect on industrial expansion, economic growth, and sustained improvement
in human development. Successful use of microfinance as a livelihood strategy must be based upon this social
infrastructure which facilitates the increase in national savings. This domestic savings can then be used to invest in
industry, and propel national economic growth. Thus microfinance is best understood not as a ‘panacea for
poverty and related development challenges, but rather [as] an important tool in the mission of poverty
eradication’ (UN, 2005).

Various reports of microfinance throughout Sub Saharan Africa stress the importance of using traditional
cooperative structures to promote savings amongst the poor. The economic prospects of Sub Saharan Africa have
long been stifled by the traditionally low savings rate, estimated to be averaging 8% in the 1980s, with little
improvements since then (UN, 2005). Savings amongst the poor has been particularly hampered by their inability
to access formal financial services. However, it has been demonstrated that traditional financial schemes have the
ability to fill the provision gap, once appropriate governance and operational frameworks are instituted. Our
findings suggest that such operations exist within Arusha, and that there is a need to make them more accessible
to poor women and men. Several steps can be taken at the ward, municipal, regional and national levels towards
promoting a savings culture and facilitate the transition of microfinance from a ‘survivalist to sustainable’
livelihood strategy for the poor.

Improving the access of Ngarenaro residents to microfinance

There is widespread lack of knowledge about the range of microfinance offerings available to residents of
Ngarenaro. Thus information dissemination represents the first major task in situating microfinance as an
accessible strategy for the poor. The following recommendations represent a starting point for MFIs, regional,
municipal and ward level officials and NGOs to formalise their relationships with each other, and to situate
themselves within the wider microfinance agenda.
a. Encourage microfinance institutions operating in Arusha to establish a local chapter of the Tanzania
Association of Microfinance Institutions, TAMFI. This umbrella institution was established with
governmental and international donor support with the principal aim of promoting good governance
 13
within the industry , and can provide a forum for sharing best practices and innovative strategies for
improving microfinance.

b. Create a directory of microfinance institutions, their products and requirements for Arusha. Currently the
Bank of Tanzania compiles such a directory; however, it is not widely circulated, and is not specific to
Arusha. This compilation can be done by TAMFI, and circulated amongst regional and municipal level
officials for dissemination throughout the wards.

c. Institute reporting requirements for MFIs directly to regional and municipal authorities. Currently, little
information is available about the numbers of Ngarenaro residents accessing microfinance services, the
reasons for access, or the total amounts being disbursed. This data is key in aligning the work of MFIs with
the National Microfinance Policy, as well as ascertaining the impact of microfinance in supporting the
objectives of MKUKUTA. This information can be channelled through TAMFI, for delivery to the regional
cooperative officers responsible for monitoring.

Encourage development of MF products of greater relevance to the needs of Ngarenaro residents

Based on the findings, there was significant demand for savings and loan products connected to consumption
smoothing. Under the VICOBA model, women were consistent in their weekly share purchase, indicating the
feasibility of saving. However, most microfinance offerings are loans geared towards funding business ventures.
Thus, there is an underserved segment of the loan market which MFIs can engage with. In addition, many MFIs had
no savings products, as they were not registered as deposit taking institutions. Savings represents the best
sustainable source of funding the expansion and delivery of microfinance services, and is most appropriate for
meeting the needs of the poor without compounding their vulnerabilities.
a. Encourage MFIs to develop special deposit taking arrangements with banks. Given the existing
institutional constraints in registering MFIs as deposit taking institutions, as well as the financial costs
associated with such a move, forging partnerships represents the most feasible solution. Thus MFI clients
will be able to save with their entity of choice, rather than be restricted to approaching them for loans.

b. Encourage MFIs to design and promote special savings products for recurrent expenditure. Planned
expenditure such as school fees and home improvements are key to the poor. By offering savings geared
at funding this expenditure, MFIs can reduce their credit risks, while still assisting clients to meet their
recurrent obligations. The gradual building of a savings culture among poor women assists them in
accomplishing major life objectives, such as land and/ or house purchase. MFIs also stand to benefit from
the increased funds under their management, allowing them to offer more lucrative loan products to
enterprises poised for expansion.

13
http://www.bot-tz.org/MFI/Default.asp?Menu=TAMFI. Accessed June 6, 2009
A Developmental Microfinance Model for Ngarenaro

Poor women and men face many challenges to their ability to successfully utilise microfinance beyond subsistence.
Their lack of assets and the small scale nature of their activities may mean accessing microfinance loans
compounds, rather than reduces their vulnerabilities. As such, they need a microfinance solution with amenable
terms, continuous training on financial awareness and one which provides the services they require. As uncovered
in our findings, these services include
 financial and business training,
 products facilitating social expenditure, such as healthcare and education,
 assistance with business start up,
 provisions for savings, and
 Reasonable interest rates.

Based on these conditions, VICOBA represents the best incubator programme for poor women and men in
Ngarenaro. However, in its present non formal state, there are several constraints in its ability to provide the
breadth of support essential. They include;

 the lack of security for deposits,

 the inability to acquire large loans, due to limited capital accumulation within small groups,

 the lack of recognition as a formal institution,

 a heavy emphasis on loans

SACCOs, as an established and regulated institution with a variety of channels for accessing external funding and
support, represents the second step in designing a developmental microfinance model for Arusha’s poor. By
establishing a SACCOS to cater to the needs of VICOBA members, the scope exists for addressing VICOBA’s
constraints, while providing an enhanced level of services for individuals able to move beyond the VICOBA space.
The provision of business loan services will be directed towards more mature microenterprises, particularly those
geared towards the productive sector, and generating employment creation. The SACCOs will also administer
special savings schemes for recurrent expenditure for their VICOBA members. These savings can be utilised as
funds for its credit portfolio.

The amalgamation of VICOBA and SACCOs, henceforth referred to as SACCOBA, seeks to address the
challenges of scaling up community based microfinance institutions such as VICOBA, which are most accessible to
14
the poor, while supporting individuals through various stages of asset ownership and financial literacy .
Harmonisation of various policy and programme elements of MKUKUTA features heavily in this model, and

14
See Appendix N
incorporates a significant monitoring and evaluation component towards establishing a baseline for evaluating
microfinance as a poverty alleviation strategy, a major national objective. It seeks to harness the resources
available at the municipal, regional, national and international levels to propel a programme focused on and driven
by the needs and desires of the poor, who constitute the majority of the population. VICOBA is the most significant
element of this model, as its success hinges on the maintenance of transparent governance and accountability that
has come to characterise this indigenous non formal microfinance offering.

Among the key functions of SACCOBA are;

 Promotion of VICOBA formation and expansion throughout Arusha

 Oversight of the establishment of a SACCOs for VICOBAs

 Provision of the support arm which coordinates accredited business training for members, as well as
clients of other MFI providers

 Negotiation for external loans facilities, as required

 Coordination of special funding arrangements through the Financial Sector Deepening Trust Initiative, the
Women’s Development Fund, and the Youth Development Fund for expanding the model throughout
Arusha

 Facilitate the formalisation of mature microenterprises ready for operation within the small and medium
enterprise sphere through strategic partnerships with parastatal organisations such as SIDO

 Conduct industry research and development throughout Arusha, promoting development of new and
emerging industries

 Represent the interests of VICOBAs in TAMFI

 Utilise economies of scale to negotiate the provision of key social services for its members at reduced
costs.

 Manage corporate promotion and public relations

Development and implementation of SACCOBA is proposed as a phased process, with three major stages reflecting
a gradual expansion. A detailed implementation plan, including proposed timeframes can be found in Appendix N
 5.0 Conclusion

Microfinance can prove a valuable tool in alleviating poverty, and can play a significant role in fuelling the
socioeconomic development of women. However, it must be complemented by pro- poor, socially sensitive
policies and adequately resourced social safety nets for those unable to meet even the most basic of needs. There
is much scope for microfinance to become a sustainable livelihoods strategy within the Arusha context, through
the provision of savings and social security options for the very poor, and a strong emphasis on promoting financial
literacy and other specialist skills training. This can be realised by better synchronization of policies related to
microfinance, poverty alleviation and women’s empowerment.