The role of informal microfinance institutions in saving

The Gross Domestic product (GDP) has been increasing by 5% since early 2000, resulting in a
small increase in per capita income while inflation declined from 30% during 1990s to below
5%. The economic improvements accomplished are primarily explained by the economic
reforms that were initiated in 1980s, which involved the transformation of a centralized
economy (economy controlled and governed by the state) towards free market economy
mode(economy in which the production and distribution of goods and services take place
through the mechanism of free markets guided by free price system).
Despite the economic and financial reforms, Tanzania’s economy still remains unsustainable,
poverty is extensive and growth has been constrained by structural obstacles, governance
related problems, rigidities in the financial sector and serious capacity constraints.
Poor performance in income growth for countries like Tanzania is frequently attributed partly
to low savings, as a result of the economic reforms which have been geared towards increase
of savings and easy the mobilization of savings, this has caused the Government of Tanzania to
create an effective and implementable financial system where people have access to secure
financial services which facilitates economic development/transactions, stimulates savings and
channels savings to productive investment activities by mobilizing resources and improving
their allocation.
Tanzania has poorly developed financial sectors, which according to its financial structure are
described as dualistic with a formal and informal sector. Very few people, especially those
living in the urban centers, have access to the financial services offered by the formal financial
sector to a small wealthier part of the population. Hence, the great majority of the population
has to turn to the informal sector for saving and /or borrowing.
Currently the informal sector is a vital part of Tanzania’s economy (financial development as
an instrument for economic development reaches the majority of the population with a lower
income, often residing in the rural areas).
An interesting alternative to formal banking that has emerged within the semi-formal sector is
the saving and Credit Cooperative Societies (SACCOs) which have a wide outreach in most
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