The role of informal microfinance institutions in saving

loans to their respective members in both rural and urban areas. Also in rural areas, SACCOs
will be regarded as important organs in the development of agriculture through provision of
credits to farmers for the purchase agriculture inputs, which will supplement the activities of
formal farmers’ cooperative unions. The challenge that still face these institutions engaging in
micro-finance as one means of reducing poverty in both rural and urban areas in Tanzania,
stood out from past experience, financial services should be delivery to low income
communities on a large scale, by allowing an institution be sustainable by following the rule of
the market. This means that fees and interest rates will cover the cost of operations including
some loan loss reserves, cost of funds and inflation charges, which will be usually to be above
that market rates.
Poor infrastructure that remains among the major problems for a long time that prevents
financial NGOs and formal banks to extend their micro-finance services to more rural areas.
The current move by the government to improve rural infrastructure as part of its poverty
reduction strategy will therefore facilitate better and fast delivery of micro-finance services in
rural areas; thereby facilitating poverty reduction in the country.
Other limiting factors to the success of MFIs could be ascertained in terms of NGOs and banks
engaging in micro-finance activities. As MFIs adjust to the reality of high cost, low margin
business, by applying realistic interest rates to cover their costs, they will also adjust their staff,
structure and procedures in order to minimize the risks of default payment and costs. In this
respect, commercial banks must design procedures to deal with small and illiterate borrowers if
they are to engage in micro-finance activities.
Many people in both urban and rural areas are not aware of what type of project(s) is viable
and profitable. This implies that households seeking micro-loans should seek training and other
important information to know which project(s) will be profitable and sustainable before
considering taking loans. This will reduce the chances of operating at a loss. This implies that
business service development will be very important. Hence creditors should help micro-
borrowers by training them on how to run business profitability.
1.1.22: LIMITATIONS AND SCOPE OF THE STUDY:
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