The role of informal microfinance institutions in saving

Unfortunately, from the findings of this study loans made available to SACCOs by the
financial institutions are mainly short-term rather than long-term loans. However, loans to
SACCOs for capital investment should be long-term in order to mitigate on loan maturity.
It is observed from this study that financial institutions are less motivated to compete for
SACCOs clients under tight monetary policies and government deficit finance as well as
profitable short term lending opportunities. Consequently, lines of credit targeted at SACCOs
are unlikely to be successful especially term loans that involves substantial transaction costs to
evaluate. The appropriate support programmes that would offer training of financial
institutions staff to evaluate small borrowers quickly and monitor them in addition to training
entrepreneurs to keep good financial accounts are needed to put in place. These findings from the
study revealed that there is currently a considerable gap in the funding of SACCOs which
development finance institutions have to fill. The development finance institutions which are
major financiers of SACCOs with the cheapest and most competitive funds will be strengthened.
In order to encourage banking system lending to the industrial sector especially SACCOs the
United Republic of Tanzania in collaboration with the Bank of Tanzania established the Credit
Guarantee Scheme to the small and medium enterprises to provide credit to the Tanzanian
nationals that are operated in Tanzania and engaged in production and export of goods and
services from Tanzania. The Credit Guarantee Scheme offers risk-mitigating services to banks
for loans granted to Sacco’s operators.
4.1.8: Legal framework.
The importance of a good framework in the conduct of businesses can not be over
emphasized. In order to determine the perception of entrepreneurs of the nature of existing
legal framework for conduct of businesses, the respondents were asked to comment on
whether the existing legal framework is efficient or not.
The majority of Microfinance institutions surveyed (86.7%) were of the view that the existing
legal framework was inefficient compared to those who believed that it is efficient (13.3%).
Furthermore, it has been observed that the judicial system suffers from long delays in
processing claims and is very discretionary in this regard. The study therefore attempted to
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