An unmet demand for credit The NISS (1991) showed that only one per cent of operators in the informal sector could acquire capital from the formal financial sector.32 The rest had to rely on their own savings or informal sources. An Economic and Social Research Foundation (ESRF)
study in 2000 found that 94.8 per cent of the households in their six-region review indicated a demand for credit, but only seven per cent had access to formal credit.33 The same study reported that loan amounts required by women and youth in rural and urban areas far exceeded the loan amounts provided by formal financial institutions. SIDO (2002) estimates that the current demand for MSME credit in Tanzania is 2.5 million borrowers, yet, even in 2002, SIDO itself was only serving 50,000 – 2 per cent of the potential market. The largest demand for credit is in the range of Tshs 50,000 to Tshs 500,000. The existing financing possibilities for MSMEs include personal savings, money from family and friends, as well as credit from moneylenders, micro-finance institutions (MFIs), government departments/agencies, and commercial banks.
MFI loan ceilings are reported to be capped at Tshs 5 million (for groups), and most commercial banks are not inclined to grant credit facilities to individual MSMEs due to high risk and high loan administration costs. Lending by private sector banks and nonbank financial institutions is almost non-existent outside of major towns, municipalities and cities. The low level of savings in the country, combined with a weak financial infrastructure, invariably constrains the development of MSMEs.
To learn more about this author, visit International Labour Organization's Website.
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