The role of informal microfinance institutions in saving

and bank balances which have been over 30% for three years. Oketch et al (1997:29) one
could argue that this indicates poor investment decisions. Of course care must be taken on
deciding the type of current assets to invest. Treasury bills and time deposits are worthy
investments ventures for financial institutions although hardly in line with their prime
objectives.
Earnings Analysis
The earnings analysis for the 14 branches is highly affected by the huge provisions for doubtful
loans. Seven out of the nine National Bank of Commerce (NBC) branches had Return on
Assets (ROA) Total being zero or less respectively. The ROA among CRDB branches was
slightly better but less than ten percent. CRDB Hai was a new branch and by the end of 1996
was not breaking even. The ROA continued to worsen over three years on average among
the NGO’s. By 1996 only Gatsby had a positive ROA of 30% resulting from grant given. ROA
is also poor in SACCOs averaging less than 5%’’ (Oketch et al, 1997, p.31). Return on Assets
(ROA) measures returns on assets before interests and taxes. The higher positive percentage of
ROA reflects better, efficiency and effective utilization of capital. Less return on assets suggests
poor performance and possibly loss making institutions.
Moreover, ROA is not the only measure of earnings institutions performance. Oketch (1bid)
analysis would have been more useful if other financial performance ratios such as return on
equity, current ratio, debt-equity ratio and possibly Z-score could be applied.
However, it is important that most of micro finance financial institutions in Tanzania are not
utilizing assets effectively and efficiently. For financial institution zero and negative ROA
erodes customers’ confidence. Investors prefer to invest in institutions which can utilize their
resources better. CRDB seems to have done better in terms of ROA criteria. Probably, this is
because CRDB started earlier to reform its operations and structure.
Financial institutions in Tanzania must improve their performance in order to increase overall
efficiency and effectiveness of assets utilization. The action taken by different institutions
simply to close down loss making branches does not solve the cause of the problem.
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