REPORT__Evaluating_the_potential_of_microfinance_for_sanitation_in_Tanzania_May_2013

take business property, basic household items such as television and furniture. FINCA Tz
has been classifying their borrowers using the Standard Industry Coders (SIC) as is done
by banks. However, they have not used this to the highest potential.
Funding arrangements: FINCA borrows from commercial banks and also received donor
funding. Donor funding is usually directed to infrastructure development e.g. MIS
installations. While commercial funds are used as working capital (funds for on lending to
clients).
2. Interest in microfinance for sanitation
FINCA perceives sanitation sector as consumer lending business line. The director and
operations staffs feel that consumer lending is challenging since it is never clear the
source of income to service the loans advanced.
The NGO would consider lending to the sector if the operators commercialised sanitation
services. In their view, they have not received requests from sanitation entrepreneurs
hence have not explored this market. Groups are however registered as welfare groups
under the Ministry of Home Affairs. The individual loans are rather larger and borrowers do
not have to attend group meetings. The borrowers business must be legally registered
and loans attract lower interest rate of 3% per months since the risks are lowers.
3. Product development experience
FINCA Tanzania envisions that the market can be developed by having sanitations
entrepreneurs who have clear projected capital requirements and legally recognised
businesses. Currently, FINCA lends to a maximum of TZS 15 million (USD 10,000) for a
maximum of 2 years at an interest rate of 3% a month and application fee of TZS 15,000
(about USD 10). The loans are generally 60% collateralised with mandatory cash
collateral of 15% of the loan amount. The group loan borrowers’ businesses are not
necessarily legal entities though the business must be a legal activity.
FINCA Tz regularly develops products and conduct market surveys to extend their branch
network. They conduct market surveys to assess potential demand for new products or in
new markets. As such it they were to take up sanitation financing, FINCA Tz would first
conduct market survey to determine whether the sector could fit into their business model
and viability of engaging in the sector. At the same time, it is noted that few donors are
providing funding for working capital. Hence diverting funds from the enterprise loans
would need close consideration.
It appears that the products offered by FINCA Tz target both the low income and middle
income market segment. As such FINCA Tz is able to provide financial services for
sanitation services among its clients. However, FINCA Tz would need to develop an
appropriate product.
4. Overall assessment of the potential for sanitation microfinance
FINCA Tz plans to convert to deposit taking MFI. Though the regulations are perceived as
stringent, FINCA Tz management feels that the MFI has capacity to meet these
requirements. Subject to the conversion, FINCA Tz could provide savings accounts for
clients who want to save up to finance sanitation facilities or services.
FINCA Tz regularly conducts social performance assessments through the SMART
campaign (www.smartcampaign.org). This is an annual performance surveys including
customer service, satisfaction, transparency in lending disclosure of fees to clients,
measuring evolution of businesses, and clients and level of indebtedness. They do not
provide capacity building for other NGOs or CBOs. In such cases FINCA Tz engages
other partners to provide for example, health or financial education to FINCA Tz clients.
FINCA Tz has been considering developing a special department for agriculture financing
products But they don’t have an agricultural product yet. FINCA Uganda has a wide range
49