The role of informal microfinance institutions in saving

Finally, governments in Sub-Saharan Africa play a key role in promoting the microfinance
sector by putting in place the necessary laws, regulations, and institutions for the licensing,
prudential regulation, and effective supervision of the sector. Official practices in each of these
areas vary widely across countries, reflecting the stage of evolution in the country’s
microfinance sector, institutional capacity, and skilled personnel constraints, and differences in
official approaches ranging between intensive regulation and a more ‘’laissez-faire’’ approach.
In general, regulatory requirements and prudential norms applied to MFIs need to be well
adapted and flexibly designed to reflect the specific characteristics and stage of evolution of
the MFIs in a given country. It appears that these requirements and norms for MFIs are
financially less demanding than those applied to commercial banks; and newer and smaller
MFIs have been subjected to less exacting licensing and regulatory requirements, and less
closely supervised than the commercial banks and larger nonblank financial institutions.
However, the growing linkages between MFIs and banks and the potential systematic effects
of supervision of MFIs will become increasingly important.
The main constraints to developing the regulatory and prudential supervision framework are
threefold. A first set of capacity constraints relate to the lack of bookkeeping and reporting
standards, internal controls, and credit decision mechanisms at the level of the MFIs. A second
set of capacity constraints are at the level of the institutions entrusted with supervision
authority, mainly due to shortage of skilled and trained staff. Finally, the information or
database on borrowers, their credit history, and repayment records have not kept pace with
the growth of the microfinance sector.
5.2: Measures taken by the Tanzanian Government to strengthen Savings and
Credit Cooperatives Societies (SACCOs)
Since 2000, The Tanzanian Government has undertaken various measures to strengthen the
role of Savings and Credit Cooperatives Societies (SACCOs) of reducing poverty in the
country. These include:
(i) Strengthening the linkage between Savings and Credit Cooperatives Societies (SACCOs) and
formal banks in order to facilitate easy channeling of micro loans from formal banks to low
income households in the country.
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