The role of informal microfinance institutions in saving

ABSTRACT
Financial development is playing an important role in Tanzania’s economic progress. Financial
failures, particularly insufficient institutions and high transactions costs limit poor people’s
access to formal finance and prevent low income of people from borrowing, and saving. In
this essay the importance of mobilizing savings through providing low-income to people from
financial services in Tanzania is emphasized.
Last decade of microfinance practice, particularly in Tanzania, has neglected rural finance.
Support to the sector has concentrated on turning credit progammes into suitable microfinance
institutions (MFIs). This emphasis has produced a small number of MFIs that have either
achieved financial sustainability or are close to achieving this. In Tanzania this includes
organizations such as SELF, PRIDE, MEDA.
SACCOs, Savings and Credit Cooperative Societies as an alternative to formal banks are
discussed as a way to increase savings. Furthermore, SACCOs –Members preferences are
studied.
Developing and improving occupational SACCOs, saving and credit cooperatives, can be
effective alternative to formal banks. The safety-issue is the basic problem, where education
plays an important role to improve security. With improvements SACCOs could in the long
run function as a way to connect informal savings with the formal financial sector.
Finally, it is imperative for the formulation of an appropriate MFIs policy which should reflect
the views and aspirations of MFIs and also aim at improving business culture, promote trust,
transparency, accountability and good governance, considered as hallmarks for building a
strong MFIs sector.
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