The role of informal microfinance institutions in saving

CHAPTER 5
5.0. CONCLUSSIONS AND RECOMMENDATIONS
5.1 CONCLUSSIONS
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 people from borrowing, and saving.
Providing extended access to financial services would enable Tanzania to reallocate capital,
through mobilizing savings and increasing investments. The result could be increased capital
accumulation, which in turn can lead to economic growth in Tanzania. From a micro
perspective, individuals acquiring adequate financial services would be able to improve their
private economy, through accumulating larger lump sums, for school, medicines, houses,
stationary etc. which can increase human capital, the individuals ‘productivity and ultimately
contribute to poverty.
Since Tanzania has a history of high inflation, which has led people distrusting financial
institutions and monetary saving and borrowing. Therefore gaining people’s confidence is
crucial, as is providing services with positive real interest rates. If individuals believe saving in
an institution as being too risky, they will wisely consume or save in a non-monetary form.
An essential element is making financial services available for as many people as possible.
Developing and improving occupational SACCOs, saving and credit cooperatives, can be one
effective alternative to formal banks. SACCOs are reaching low-income people with financial
services. If improvements are made and regulations are recognized they could operate as an
intermediating institution, allocating resources between low income savers and borrowers. The
financial ideal would be available, widespread formal services, resulting in the whole
population having the opportunity to take part in the formal economic activities. Then there
would be no use for an informal sector. But at present formal banks are far from having the
capacity to offer financial services to the majority of Tanzania’s population, i.e. people with
low income.
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