Weaknesses inherent in Tanzania’s leading microfinance institution (MFIs), contribute to the failure by the organisations to perform well regardless of the government’s efforts to provide means that to ease financial access to the poor.
A research paper released by Repoa and made available to The Guardian states that only a small percentage of the poor has access to financial services leaving a huge chunk still untouched.
It is said that although the MFIs deal with provision of loans and other financial services to the low-income people, their ability to impact on poverty as well as their economic efficiency are subject to debate.
Conducted jointly by Neema Mori and Donath Olomi, the study points out that the way such institutions are governed, is likely to affect their efficiency, sustainability, outreach to the poor and impact on poverty alleviation.
The researchers cite that some board members do not have the necessary qualifications or experience, while some sit on many different boards, which may limit their full participation and contribute to the MFIs’ poor outreach performance.
They therefore argue that it is appropriate to investigate the extent to which board characteristics in the country’s MFIs affect poor people’s access to financial services that could potentially contribute to the alleviation of poverty.
Driven by the financial performance objective as well as their limited institutional and human capital capabilities, some MFIs may limit their outreach to a few relatively well-off customers around urban areas, or offer a one-size fits all product rather than customising their offerings to the needy and characteristics of different socio-economic groups of customers, the study notes.
The researchers acknowledge the fact that the government has recognized the importance of providing financial services to the poor and have introduced several rules and regulations to support the industry.
The cite that one of the provision introduced by the government, include the wholesale financial providers, which aim at availing wholesale finance to MFIs so that they can lend on a retail basis to poor customers.
However, more efforts should be made by MFIs managements as the impact on the poor may therefore be connected to how the institutions are organised and governed.
The study indicates that only 12.4 percent of Tanzanians access financial services through formally established institutions such as banks, while Savings and Credit Cooperatives (Saccos) and other (MFIs) reach 4.3 per cent of the population.
It also points out that the county’s informal lending which includes groups, individuals and money lenders, only reaches 27.3 of the Tanzania population.
The researchers interviewed 20 MFIs board members and chief executive officers in Dar es Salaam and Arusha focusing on how the respondents came to be members and what motivates them to remain members and their backgrounds
Other focal points by the interviews were how respondents’ backgrounds influence their contributions to MFIs, what they perceive to be their roles, whether they have written terms of reference (TORs), whether they are guided by some form of manual or policy, and whether they feel that they have an influence on key decisions and performance of their organisations.
Furthermore, Mori and Olomi inquired about how decisions regarding financial objectives and outreach to the poor are made, the kind of board members who are most influential in such decisions, and how differences between members are resolved.
The study established that although MFI board members are largely aware of their role, a few are either not aware or assertive enough, and this impacts the extent of their influence.
Contrary to expectations, less educated and local directors bring about superior financial and social performance of MFIs, the study says.
In a bid to reach the poor, last year, the government requested International Fund for Agricultural Development (IFAD) to provide continued support for rural finance and agricultural marketing.