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The concept of microcredit risks loosing bloom
2005-11-30 09:27:10
By mireny john
A Solid year has passed since the United Nations launched the International Year of Microcredit in an effort to build support for making financial services more accessible to poor and low-income people.
Throughout the period, various activities have been carried out at national, regional and global levels with an aim to raise public awareness about microcredit and microfinance, and promote innovative partnerships among governments, donors, international organizations, non-governmental organizations, the private sector, academia and microfinance clients.
The overarching goal was to provide greater access to credit, savings, insurance, transfer remittances and other financial services for poor and low-income households in order to move towards more secure livelihoods and prosperous futures.
Stock exchanges around the world were opened on 18th November last year in recognition of the essential role they have in efficiently allocating capital in national economies and globally. The UN would wish the world’s stock markets are focusing on the people to whom this year was dedicated: ’microfinance clients.’
Although microcredit and microfinance have already had a positive impact on the household income and quality of life of thousand of poor people in both urban and rural areas in Tanzania, many still lack access to financial services that could raise their standard of living and protect them against economic setbacks.
Billions of people could benefit from financial services, although today only a tiny fraction of this demand is being met. To meet this huge gap in services, the year calls for constructing inclusive financial sectors that strengthen the powerful, but often untapped, entrepreneurial spirit that exists all over the world.
Fortunately, Tanzania has a microfinance policy and law which view poor people as vital contributors to their local and national economies, supported by guidelines which seek to unleash a new wave of microentrepreneurship — the powerful assets which can give poor and low-income people a chance to build better lives.
While the Bank of Tanzania (BoT) deserves kudos for relaxing some operational rules to allow microfinance institutions to accept deposits, supervision needs to be seriously enhanced.
Concerns are mounting over the mushrooming of bogus MFIs which seem more intent to cash in on ignorance and the passion of the poor people for enrichment.
Even before BoT had provisionally allowed MFIs to take on deposits, there were ample coveted instances of clever persons who set MFIs but operated as banks, taking deposits other than those for microloan repayments.
Complaints abound about some people who were lured into making deposits as part of the condition for securing loans from dubious MFIs, but ended obtaining none and found it difficult to withdraw their deposits.
Though the law is very clear about measures which govern the sector overall, lack of public awareness about them is one of the reasons which make dubious financial institutions thrive.
And this can be achieved through well-focused social marketing campaigns to be undertaken by BoT or its agents.
At least people should be made to know that any MFI must have an office, meets start-up capital requirements, and most importantly, a genuine licence from BoT which permits someone to run money-lending business.
The law precludes any institution not licensed from soliciting deposits.
These precautions are being raised because the primary aim of the UN is to increase public awareness about the reliability of microfinance clients, especially women, in repaying loans, managing household incomes, building assets and enterprises and contributing to the economy.
Moreover, Tanzania has set an ambitious course to alleviate poverty through the National Strategy for Growth and Poverty Reduction (Mkukuta) in line with the UN’s Millennium Development Goal of cutting in half, by 2015, the proportion of people living on less than one dollar a day. Microfinance is a powerful tool to help us get there.
Some of the licensed MFIs have commendably provided valuable service to the poorest of the poor, men and women whose lack of any collateral makes banks shun away from them.
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