Micro finance regulation in Tanzania: implications for development and performance of the industry

This study of microfinance in Tanzania looks at how the overall regulatory framework affects the ability of microfinance institutions (MFIs) to become more market oriented and integrated with the formal financial system, and the set of incentives (or disincentives) for licensed financial intermediaries to move down market to provide financial services for the poor. The study identifies global best practices which might be adapted to the local context, and incorporated in operational support programs to institutional providers of microfinance services such that they are better able to provide their clients expanded access to financial services. There is need for a clearly defined strategy on how to integrate Savings and Credit Cooperatives (SACCOs) and nongovernmental organizations (NGOs) into the emerging microfinance regulatory framework, and what policy environment, resource and capacity requirements will be required not only by the institutions but also by the regulatory bodies. The gap between requirements for and the supply of manpower with financial skills for banking and microfinance operations is becoming increasingly more apparent as a major constraint to development of sustainable microfinance. Capacity constraints are a major issue, not only for providers of banking and microfinance services, but also for the regulatory agencies (BOT and the Cooperatives regulator. It is also important to understand why, in spite of the lower minimum capital requirements for special-license community banks, none of the larger microfinance organizations have taken steps toward transformation to licensed status.