Microcredit in tanzania

microcredit in tanzania

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The Role of the Church in Microcredit Financing for Business Development in Tanzania

Aba Mpesha

Associate Professor of Business, Department of Economics & Business, Calvin College, 3201

Burton St. SE, Grand Rapids, MI 49546, E-mail: ampesha@calvin.edu, Phone: (616) 874 8852


The paper recognizes poverty as one of the major challenges to development in developing

countries in general and in Tanzania in particular, but one which can be alleviated by various

interventions, including micro credit financing of micro-enterprise activities. It acknowledges

the definition of the poor as characterized by spiritual poverty, very low family income,

powerlessness, physical weariness, isolation and vulnerability. The paper specifically examines

the role of microcredit financing supported by community-based organizations in the

alleviation of poverty in Tanzania. It further recognizes that the church has played major roles

A micro credit scheme involves the supply of micro loans, savings and other financial services

to the poor to directly increase their ability to provide income for themselves, their families,

and for those of their employees. The scheme operates on the premise that the poor will invest

loans in micro enterprises, repaying the loans out of profits, and the enterprise will grow,

potentially lifting large numbers of people out of poverty. Typically, the poor are involved as

vendors, keepers of small shops, and makers of crafts. The scheme provides various

combinations of financial and technical assistance, informal training and other services to the


This paper specifically examines the role of micro-credit financing supported by community-

based church organizations in the development of the poor in Tanzania. The objective was to

discover the styles of management policies and their achievement. It limits itself to Tanzania,

but a comparison of practices in six countries of Africa was made, to best understand and learn

from practices in those countries. It uses the empirical findings of three interrelated studies

spanning a period of thirteen years (1990 to 2003), a broad array of some theoretical analyses,

and materials of the best practices based on field experiences in four West African countries

and six Eastern and Southern African countries. The work included open-ended, semi-

structured interviews and questionnaires for data gathering but also recourse to anecdotal

experiences. An interactive approach was used when dealing with Tanzanian government and

church officials. Reviewing of documents, articles and reports on micro-enterprise were helpful

in understanding the socio-economic, political, cultural and environmental implications of

establishing micro credit programs. The review assisted in giving background information on

micro-enterprises and experiences of others in Africa and other parts of the world. The review

set out to determine the suitability of rural credit schemes as one of the necessary interventions

in addressing poverty and examining the role of micro credit financing supported by

community-based organizations in the development of the poor in Tanzania. Visits and

interviews with other organizations currently involved in microcredit financing programs were


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The findings indicate that micro credit funding is a necessary development intervention

especially for poor people who earn their living through self-employment and business

ownership, because it provides the needed inputs to undertake micro enterprises. Microcredit

succeeds mostly when administered by and through community based churches or church

organizations. Some of the reasons for success are conviction, integrity and commitment

integrity on the part of churches and church organizations on the one hand, as well as the full

commitment, involvement and training of beneficiaries on the other.

The study also identified some weaknesses on the part these organizations. They include the

following: 1) micro credits finance generally has served the poor people but not necessarily the

very poor who were the main focus of the program; 2) a lack of trained manpower to

administer the program; 3) ignorance on the part of beneficiaries; 4) lack of relevant courses at

Christian Colleges (where most of Churches would normally send their employees for

training); 5) dishonesty on the part of program administrators; and 6) lack of initial funds from

which microcredit would be given. Women are singled out as needing special consideration in

getting direct assistance because their programs have proved to be very successful.

The paper recommends that the Tanzanian government together with organizations, especially

international aid agencies wishing to work with the poor, should support a micro credit

scheme. It is one of most effective ways of alleviating poverty by empowering the majority of

(from where most of the Christian organizations draw their employees) should establish

courses in small business development including microcredit financing. Even though women

have undertaken more successful programs, most of them succeed with very little training. The

study recognizes that they would do even better if they were trained.

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1. Background and Rationale

Poverty is one of the major challenges developing countries in general and Tanzania in

particular. Across the world, many countries, including Tanzania, have used various

interventions to alleviate poverty. One of the strategies that has worked well in Tanzania is the

use of micro credit finance programs, whereby micro-enterprise activities are financed through

micro credit. This paper specifically examines the role of micro-credit financing supported by

community based church organizations in the development of the poor in Tanzania. It uses the

empirical findings of three interrelated studies spanning a period of thirteen years (1990 to

2003), a broad array of some theoretical analyses, and materials of one of the best practices

based on field experiences. The three studies are: 1) Fighting Poverty through Micro Finance

Credit Intervention in Tanzania (Mpesha, 1990); 2) Micro Project Rural Loan Scheme Study in

Tanzania (Mpesha, 1996); 3) The Role of Churches in Development in Tanzania (Mpesha,


Whereas the subject of micro credit finance programs has attracted many researchers and many

works have been written on this subject. hardly any studies exist that examine what the role of

churches has been in this area. Study one (Mpesha, 1990), conducted in 1990 for a leading

Christian NGO revealed among other things, that churches, working in partnership with this

NGO (with the NGO acting as a funding agency) were operating revolving funds programs.

They administered micro credit loans to poor people in rural areas of Tanzania. It further

revealed that the demand of this service was on the increase because of the negative

consequences of the closure of rural bank branches and cooperative unions that directed credit

schemes for the rural poor. The findings of this study were

communicated to the Government

of Tanzania (GOT) and other development NGOs. Many church-based NGOs were

encouraged by these findings and stepped in with their resources to incorporate micro credit

financing for income-generating activities in their development program. They designed them

in such a way that they could provide capital to the poor in the form of micro-credit. GOT on

the other hand was challenged by such findings and responded by looking into ways of

pursuing this model of development through a micro finance scheme for the rural poor. This

led to the study, Micro Project Rural Loan Scheme, which was commissioned by GOT.

The second study (Mpesha, 1996), was a major research project conducted in1996, which

provided a springboard for current micro credit finance policy of GOT. The study had five

objectives, which included determining an appropriate model of supporting a micro finance

program in rural areas of Tanzania. One of the profound findings, which confirmed the

findings of the study “Fighting Poverty through Micro Finance Credit Intervention in

Tanzania”, was the deep involvement of churches in micro credit financing to rural poor. The

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central organization has made it possible for them to subscribe to a common philosophy upon

which the churches involved themselves in development. The study found that the churches

are subscribing to the notion that the church should be involved in and are actually helping

community members improve their lives.

The churches see themselves as being part of the society. They believe that they risk becoming

irrelevant if they do not deal with things that concern the larger community. The involvement

of the churches in micro credit finance is seen in the light of their mission of creativity - by

leading the way with new approaches and style of development work. This includes supporting

income-generating activities for families and communities as a whole through micro credit

finance to the poor. The study findings show that churches have played a major role by using

community based micro credit financing in the development of the poor in Tanzania. This is

the main subject of this paper.

1.1 State of Development in Tanzania

According to the World Bank (World Bank, 2000), Tanzania, situated on the east coast of

Africa, is one of the poorest countries in the world with approximately 60 per cent of the

population living at below USD 2 per day. Tanzania is a country with an estimated

population of 34.5 million (World Bank, 2003), and a per capita income of USD 270. The

economy depends heavily on agriculture, which accounts for half of GDP (estimated at

$20.42 billion in 2002), provides 85% of exports, and employs 80% of the work force.

About 80% of the country's population lives in rural areas where 70% of Tanzania's

national output is produced. The rural sector, like in many other African countries, has

largely remained underdeveloped. It is estimated that 90% of the country's poor live in

rural areas. Development of the rural sector is therefore central in Tanzania's strategy to

increase national output and employment, and in its fight against poverty. The challenge

in Tanzania's rural development remains that of identifying sustainable ways of enabling

the main sectors of the rural economy, agriculture and micro enterprises, to achieve their

growth potential. Topography and climatic conditions, however, limit cultivated crops to

only 4% of the land area. Industry traditionally features the processing of agricultural

products and light consumer goods. Recently the World Bank, the International Monetary

Fund, and bilateral donors have provided funds to rehabilitate Tanzania's out-of-date

economic infrastructure and to alleviate poverty. Growth between 1991and 2002 featured

a pickup in industrial production (in the areas of agricultural processing of sugar, beer,

cigarettes, sisal twine) and a substantial increase in output of minerals, led by gold and

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opportunities, entitlement and guarantees. He stressed that development is about people

(Heinrich Boll Foundation, 2002).

Recent banking reforms have helped increase private sector growth and investment,

stimulating an average economic growth of 3.1 percent in 1990-2001 (World Bank,

2003). Continued donor support and solid macroeconomic policies should support

continued real GDP growth of between 5% and 6% in 2004.

Experience from around the world (Kopp, D.A. 1995) shows that well designed micro finance

programs can make a significant impact on the living conditions of the poor by increasing

family income. The living conditions of the poor in Tanzania are recognized as characterized

by material and spiritual poverty, very low family income, powerlessness, physical weariness,

isolation and vulnerability. Therefore, support to the rural financial services sector in Tanzania

is considered an essential and critical ingredient in addressing some of these poverty

characteristics especially in the rural areas where most of the poor people live. The reforms in

the financial sector initiated by the Government of Tanzania since 1991 were aimed at creating

an effective and efficient financial system. However, they also had some negative

consequences such as the closure of many rural bank branches during the restructuring

programs and the closing down of most credit schemes. As a result, there has been a significant

reduction in financial services to low-income people, both in urban and rural areas. In short,

the reforms have resulted in a "financial services gap" which needs to be addressed.

One of the strategies of addressing this financial services gap is to avail credit. This gives

people opportunities, rights and entitlement to capital. The main avenue for credit in

Tanzania was through the cooperative movement represented by Cooperative Unions

providing its members with a range of services including credit marketing. People who

had no collateral to offer in order to get loans from the banks could secure credit from

their cooperatives. This was particularly useful to most of the rural small-scale farmers.

Tanzania has had different initiatives and schemes aimed at establishing a credit delivery

system particularly for small-scale farmers. The degree of success of these initiatives and

schemes can be attributed to the socio-economic policies and strategies pursued by the


The cooperatives and the nationalized banks were the two major actors in providing

formal credit. First, the cooperatives were successfully serving their members until the

Government started to interfere with their operations in 1978. They were providing credit

facilities for production purposes to the farmers who would repay the loans after selling

their produce. Some like Bukoba Native Cooperative Union (BNCU), Nyanza

Cooperative Union (NCU) and Kilimanjaro Native Cooperative Union (KNCU) were

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