The role of informal microfinance institutions in saving

parts of Tanzania. They are member driven and democratically organized. SACCOs have
developed and become a tool for mobilizing and increasing savings in Tanzania which can be
improved to become a sustainable part of Tanzania financial development.
Although the Government formulated the SACCOs as a basis of poverty reduction in the
rural/urban areas having low income households, and they have encountered various
problems such as: SACCOs face short of funds for necessary investments in education and
technological resources such as computers, building offices, knowledge in operation the
SACCOs and financing savings differs among SACCOs. Poor internal control which is a result of
the system failure to prevent and detect fraud or error, corruption and nepotism caused by
granting loans to unworthy borrowers, risky investment done without making the fully
required analysis, lack of training amongst the members and the Board of Directors and lack of
the decentralized financial system which can provide financial services to the SACCOs.
1.1.1. FACTORS LIMITING INDIGENEOUS HAVING LOW HOUSEHOLDS TO GET CREDIT
FROM FORMAL FINANCIAL INSTITUTIONS IN TANZANIA IN THE POST 1990 PERIOD.
This is the period when the government had implemented economic reforms in the country.
This among others led to the restructuring and privatization of most state owned financial
institution. However, while this increased efficiency and competition in the financial sector, it
had detrimental effects to the provision of credits to small and medium sizes enterprises (which
are owned by local people) compared to the pre 1990 period. These factors that have made
commercial banks to hesitate to provide credits to indigenous owned small and medium size
entrepreneurs in the post reform period are:
1: Lack or inadequate collateral securities demanded by banks. Most small and medium
sizes local entrepreneurs do not have the type of collaterals demanded by banks as one
of the conditions of getting loans. Plans to allow land title to be regarded as collateral
may help to reduce such a problem.
2. Some banks have been restricting lending operations while giving more priority to
loan recovery.
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