CHAPTER ONE

1.0 INTRODUCTION
This chapter provides the background of CRDB Microfinance Limited, an overview of
it’s SMEs operating in Dar es Salaam and components of experimental design that justify
scientific inquiry.

The world of Microfinance Institutions (MFIs) is diverse, they exist in various legal
forms, including non-governmental organizations (NGOs), credit unions, non-bank
financial intermediaries, and commercial banks. MFIs fill the gap between demand and
supply for micro finance. MFIs were recently defined by the Task Force as "those which
provide thrift, credit and other financial services and products of very small amounts,
mainly to the poor.

MFIs can broadly be classified as institutions which are mainly engaged in promoting
Self-Help Groups (SHGs) and their federations at a cluster level. Another is organizations
which directly lend to borrowers, who are either organised into SHGs or into Grameen
Bank style groups and centres. Other are organizations which organised as non-banking,
finance companies. The main aim with which the alternative MFIs have come up is to
bridge the increasing gap between the demand and supply.

1.1 The Profile of CRDB Microfinance Limited

CRDB Microfinance Limited is the Microfinance wing of CRDB Bank which offers a
wide range of microfinance and related services to operators of SMEs. CRDB
Microfinance offers services to intermediary Microfinance institutions formed by
individuals, known as Savings and Credit Cooperative Societies (SACCOS). Savings and
Credit Associations (SACAS), Financial NGOs, and Community Banks. Beneficiaries
MFIs, in turn provide financial services to their individual customers.

CRDB Microfinance LTD was incorporated as a limited company in 2004 with the
objective of providing basic credit services to low and middle-income female
entrepreneurs engaged in small to medium scale businesses operating primarily in the

1
informal sector. CRDB Microfinance LTD was set up with the specific aim of acting as a
change agent for poor women entrepreneurs by assisting them to improve their economic
base through provision of credit, technical and training assistance.

CRDB Microfinance LTD also acts as a guarantor to banks and financial institutions on
loans to female entrepreneurs who do not have security. The manner in which the
company operates differ from the ordinary banks in order to make credit practically
attainable to women in the sense that it deviates from the conditions required by banks
others to be of the assistance to their target group. To begin with, it caters only for
women and this in itself make it unique.

CRDB Microfinance LTD caters for entrepreneurs who have nothing to start with. Loan
applicants need not have already established business or incorporated companies. Small-
scale entrepreneurs who intend to start a business or entrepreneurs who already have
small businesses are eligible for loans. Neither is there a restriction on the form of
business activity funded so long as it is legal and viable.

To prove the viability of a business, CRDB Microfinance LTD officials sit with the
women and calculate with them step by step on the procedures needed to be taken to
acquire a loan. The women need not present a formal project proposal but they merely
present the facts and work alongside the official who will make sense out of them. If need
be adjustments may be made to the client’s ideas to make them more workable.

CRDB Microfinance LTD insists on the security in terms of materials and also
guarantourship among client themselves, once a loan is given out they undertake to
monitor the recipients on a regular basis through project officers who go out in the field
and confer with the women over the running of the business and work hand in hand to
ensure that the loans are repaid within the stipulated time frame.

CRDB Microfinance LTD needs the recipient to introduce a third party who will act as
guarantor to ensure that the money lent out is properly utilized and that the client is well

2
monitored by channeling the loan funds through an account opened on the clients behalf
at a bank. In this way the client is not given hard cash but has the money deposited in her
account.

Meanwhile, the bankbook is retained by CRDB Microfinance LTD. So whenever the

client needs to withdraw from the account, she is accompanied by a CRDB Microfinance
LTD project officer to withdraw money upon proof of its intended use. This is of
beneficial use to CRDB Microfinance LTD who are better able to monitor the client
whilst the client also receives the benefit of having an account opened for her.

Services offered by the company cover the following areas:

1. Technical support to Microfinance Institutions
Using a team of experienced and highly competent specialist offers, CRDB Bank
supports partners MFIs through training and advisory services. Trainings offered covers
topics, which are tailored to meet the unique needs of the MFIs so as to facilitate
adherence to best practices.

2. Loans to meet various financial needs of partner MFIs

CRDB Microfinance Limited lends to MFIs at the most affordable yet negotiable interest
rates. The lower rates offered by the Bank enables MFIs to lend consumers at very
affordable rates and still make a reasonable income to cover for it’s operational costs and
make a profit.

Background information on SMEs

Small and Medium-sized Enterprises (SMEs) all over in the world are known to play a
major role in social and economic development. This is apparently the case in Tanzania
where SMEs contribute significantly to employment creation, income generation and
stimulation of economic growth in both urban and rural areas. The SMEs nomenclature is
used to mean small and medium-sized enterprises (ILO, 1998).

3
SMEs cover non-farm economic activities mainly manufacturing, mining, commerce and
services. There is no universally accepted definition of SME. Different countries use
various measures of size depending on their level of development. The commonly used
yardsticks are total number of employees, total investment and sales turnover. In the
context of Tanzania, SMEs are those engaging up to 4 people with capital investment
from Tshs.5 million to Tshs.200 million (URT, 2002).

About a third of the Gross Domestic Product (GDP) of Tanzania originates from the SME
sector. According to the Informal Sector Survey of 1991, SMEs operating in the informal
sector alone consisted of more than 1.7 million businesses engaging about 3 million
persons, about 20% of the Tanzanian labour force. Though data on the SME sector are
sketchy and unreliable, it is reflected already in the above data that SME sector plays a
crucial role in the economy (URT, 2002).

Since SMEs tend to be labour-intensive, they create employment at relatively low levels
of investment per job created. At present, unemployment is a significant problem that
Tanzania has to deal with. Estimates show that there are about 700,000 new entrants into
the labour force every year. About 500,000 of these are school leavers with few
marketable skills. The public sector employs only about 40,000 of the new entrants into
the labour market, leaving about 660,000 to join the unemployed or the underemployed
reserve (URT, 2002).

Most of these persons end up in the SME sector, and especially in the informal sector.
Given that situation and the fact that Tanzania is characterized by low rate of capital
formation, SMEs are the best option to address this problem. SMEs tend to be more
effective in the utilization of local resources using simple and affordable technology.
SMEs play a fundamental role in utilizing and adding value to local resources (URT,
2002).

4
In addition, development of SMEs facilitates distribution of economic activities within
the economy and thus fosters equitable income distribution. Furthermore, SMEs
technologies are easier to acquire, transfer and adopt. Also, SMEs are better positioned to
satisfy limited demands brought about by small and localized markets due to their lower
overheads and fixed costs. Moreover, SME owners tend to show greater resilience in the
face of recessions (URT, 2002).

Through business linkages, partnerships and subcontracting relationships, SMEs have

great potential to complement large industries requirements. A strong and productive
industrial structure can only be achieved where SMEs and large enterprises not only
coexist but also function in a symbiotic relationship. This research study looked at the
role played by Microfinance Institutions in promoting enterprise culture among SMEs by
focusing on CRDB Microfinance Ltd as a case study (World Bank 2003).

The SME sector in Tanzania is faced by many challenges such as limited access to
finance and lack of enterprise culture. To address these challenges, that is where
Microfinance Institutions (MFIs) come in. MFIs are the primary source of finance to
SMEs and are also contributing towards promotion of the enterprise culture by offering
various forms of training to SMEs. MFIs that help to promote the enterprise culture in
Tanzania include Akiba Commercial Bank (ACB), Tanzania Postal Bank (TPB), National
Micro Finance Bank (NMB) and CRDB Microfinance (Satta, 2002).

According to Chijoriga (2000), MFIs help to promote enterprise culture among SMEs by
providing various financial services to SMEs. These services include; advancing loans
and provision of credit management training to SMEs and holding their deposits. These
services together help to promote enterprise culture which encompasses savings culture,
investing culture and entrepreneurial skills.

5
1.2 Statement of the Problem
Despite of the very important role played by SMEs in promoting enterprise culture
among SMEs, still, MFIs in Tanzania face various problems in doing so. Using CRDB
Microfinance as a case study, the company faces many problems in promoting enterprise
culture among SMEs. According to Kuzilwa (2007), 32% of loans offered by CRDB
Bank to SMEs between 2004 and 2006 were not repaid in time. That is why CRDB
Microfinance and other MFIs consider SMEs as risky borrowers.

Another challenge faced by CRDB Microfinance in promoting enterprise culture is low

level of education among operators of SMEs. This makes it very difficult for CRDB to
provide business training to SMEs because most of the training materials require a certain
level of education at least secondary education. As a result, SMEs continue to lack
business training which affects their overall performance.

This problem is compounded b the fact that lending SMEs is less profitable because
majority of SMEs seek small size loans and follow up on small size loans offered to
SMEs is very costly. MFIs find it expensive to offer loans to SMEs because the unit cost of
giving small loans to SMEs are greater than the unit costs of giving large loans. Also, most
SMEs fail to prepare good business plans to justify the viability of their projects (Mwaniki,
2005).

It is due to these problems, the researcher thinks that there is a need for more research on
the role of played by microfinance institutions in promoting a culture of enterprise, and
that is exactly what this research study is set out to do.

1.3 Objectives of the study

1.3.1 Main objective
The main objective of this research study was to asses the role played by CRDB
Microfinance in promoting enterprise culture among SMEs.

6
1.3.2 Specific objectives
The study had the following specific objectives;
1. To asses the level of enterprise culture among SMEs
2. To identify challenges facing CRDB Microfinance in promoting enterprise culture
3. To suggest the way forward in solving challenges faced by CRDB Microfinance in
promoting enterprise culture for SMEs.

1.4 Research questions

This research study was guided by the following research questions:
1). What is the level of enterprise culture among SMEs?
2). What are challenges faced by CRDB Microfinance in promoting enterprise culture?
3). What is the way forward for CRDB Microfinance in addressing challenges it faces in
Promoting enterprise culture for SMES?

1.5 The significance of the study

Conclusions and recommendations to be drawn from this study include
:
i.Several studies have been conducted on the role played by SMEs in providing
access to credit facilities to SMEs but little attention has been paid by researchers
on the role of MFIs in promoting enterprise culture among SMEs in Tanzania.
This research study tried to fill that gap by shedding some light on the role played
by MFIs in promoting enterprise culture.

ii.The findings of the study will help stakeholders in the MFI and SMEs sector to
get a clear understanding of how MFIs help to promote enterprise culture by
highlighting the challenges faced by MFIs and suggest ways through which those
challenges can be overcome, and thus help SMEs to grow. It will also serve as a
training material for emerging entrepreneurs and help to boost their understanding
of various aspects of the enterprise culture.

7
 iii.The research study will serve as a stepping stone for future researchers on similar
subjects by suggesting areas which need further studies. The research study will
also help the researcher to fulfill partial requirements for the award of a Masters
Degree in Banking and Finance awarded by Mzumbe University, Dar es Salaam
Business School.

1.6 Limitations of the study

In doing this study, the researcher encountered the following limitations:

1. Time constraint
This study was carried out in a short period of time because the timeframe requirement
was to meet the deadline of the academic calendar of Mzumbe University, Dar es Salaam
Business School.

2. Financial limitation
Lack of adequate finances may affect the quality and quantity of data collected during the
study. This hampered the researcher to conduct the study effectively because the
researcher was not able to interview as many respondents as expected.

4. Sample size selected

Since the research was based at the offices of CRDB Microfinance Bank and the sample
size selected involved only 110 respondents, this may not reflect a true representation of
the real situation on the role played by MFIs in promoting enterprise culture. Thus, a
small sample size affected the reliability of the data collected.

1.7 Delimitation of the Study

To deal with various litigation that the researcher faced in conducting the study, the
researcher focused the study on only at the offices of CRDB Microfinance. This helped
the researcher to minimize both, the time and money spent in conducting the study. To

8
address the issue of local empirical literature of the role of MFIs in promoting enterprise
culture, the researcher sourced materials from the internet so as to fill the gaps in
literature review.

9
 CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
This chapter presents a review of literature used by the researcher during the study. The
chapter also includes conceptual definitions, empirical analysis and conceptual
framework of the study.

Microfinance is a relatively new concept that has grown exponentially in the last decade
as investors, donors, and banks realize the potential for capital that can be made by
banking to the poor. In the past it was assumed that poor people were unbankable since
they were only capable of taking out small loans, and had no collateral (Brandsma and
Chaouli, 1998).

Grameen Bank in Bangladesh, the first to start banking to the poor, proved that not only
are the poor bankable, but microfinance in the informal sector can be quite profitable.
Since then microfinance institutions have sprung up all over the world and reached
millions of poor people (Simanowitz and Walter 2002). In essence, a microfinance
institution (MFI) acts as a bank for the poor.

In some cases, an MFI actually is a bank, or can become one, but usually it is an NGO or
governmental program aimed at poverty alleviation. The purpose of microfinance is to
provide financial loans to the poor that are not made available to them through the
traditional banking system. These loans can be as tiny as $50, and are typically used by
the client to start a small business (Brandsma and Chaouli, 1998).

Because microfinance institutions operate primarily (though not exclusively) in the Third
World, they are faced with unique difficulties; namely, lack of collateral and lack of
infrastructure or mobility. Consequently, MFIs have adopted several innovative practices
to accommodate for these difficulties. These practices are the use of village banks, trust

10
and group lending and high interest rates (Brandsma and Chaouli, 1998).

2.1 Microfinance Policy in Tanzania

Microfinance in Tanzania is one of the approaches that the Government has focused its
attention in recent years in pursuit of its long term vision of providing sustainable
financial services to majority of Tanzania population especially the mostly disadvantaged
groups such as the rural population, the disabled and the women (Rubambey, 2000). The
government’s choice of microfinance was influenced by the conviction that, given
adequate attention, microfinance has the potential to contribute considerably to the
economic development.

The Link between MFIs and SMEs

Several objectives so conceived by the government of Tanzania influenced the initiation
of the MFIs schemes, among them, the most commonly mentioned ones include: poverty
alleviation and improved living standards, offering financing to the poor (Harper et al,
1999), women’s empowerment (Rahman, 1999), and the development of the business
sector as a means of achieving high standards and reducing marker failure (Chijoriga and
Cassimon (1999).

Characteristics of Microfinance Institutions (MFIs)

Microfinance and its impact go beyond just business loans. The poor use financial
services not only for business investment in their microenterprises but also to invest in
health and education, to manage household emergencies and to meet the wide variety of
other cash needs that they encounter. The enormous success of few MFIs speaks
volumes about the difference that MFIs can bring about in lives of the poor mass (Bikki
and Joselito, 2003).

Perhaps the most well-known and studied MFI is the Grameen Bank of Bangladesh.
Founded in 1976 by the Nobel laureate Muhammad Yunus, it has been modeled by other
MFIs around the world. As of December 2009, The Grameen Bank reported 7.97 million

11
borrowers, 97% of whom were women. The total funds dispersed by the Grameen Bank
since its inception is US$ 8.74 bio. The Grameen Bank reports a loan recovery rate of
97% (ibid).

These small informal groups apply together for loans and its members act as co-
guarantors of repayment and support one another's efforts at economic self-advancement.
Evidence from the millions of microfinance clients around the world demonstrates that
access to financial services enables poor people to increase their household incomes,
build assets, and reduce their vulnerability to the crises that are so much a part of their
daily lives (Chijoriga, 2005).

Access to flexible, convenient, and affordable financial services empowers and equips the
poor to make their own choices and build their way out of poverty in a sustained and self-
determined way. It is a widely accepted fact that Microfinance in a poor country like
Tanzania is probably the best solution for poverty alleviation and inclusive growth. 31
percent of Tanzania’s population lives below the poverty line and microfinance can play
a vital role to raise the living standard of people at a faster rate (Kazi, 2003).

In most cases, microfinance and MFIs are supported by grant funding. In order to achieve
scale and viable business operations, we need capital infusion and funds / loans available
in a larger and more organized manner. At present, commercial banks have been
channelizing funds into MFIs to fulfill mandatory requirement only. MFIs play a very
important role in reaching the masses (Kimei, 2001).

MFIs capitalize on their local branch network and close proximity with their clients. The
range of services offered by them includes loans, savings facilities, insurance, transfer
payments, and even micro-pensions to the poor masses who cannot afford to enter to the
formal system of commercial banking. MFIs employ staff from local population, possess
extensive data about the clientele, have deeper relationship with the clients and can

12
operate much efficiently than a commercial bank in that area (ibid).

Financial Inclusion is a larger concept than the microfinance business. MFIs with their
out reach and contacts can play a very proactive role in furthering the Financial Inclusion
agenda. Essentially therefore, in the ecosystem of financial inclusion, both commercial
banks and microfinance institutions must co-exist cohesively if one would like to achieve
the goals set for financial inclusion (ibid).

In Tanzania, Microfinance is distributed primarily through MFIs (including micro credit

banks, NGOs, cooperatives etc), to the help rural groups directly. The participation of
commercial banks is limited to the role of a wholesale lender to the MFIs. MFIs also have
access to the funding from Donor Agencies and Government as well. In such a situation,
it is absolutely imperative that MFIs and commercial banks work in tandem,
complementing each other rather than competing with each other, and capitalize on each
others position in the market (Chijoriga, 2000).

It is more practical, efficient and effective to lend to the intermediaries (MFIs) who
would in turn lend to the final beneficiaries. The MFIs thus can become extended arms of
the banks to achieve the larger objective of financial inclusion which banks find difficult
to achieve solely. Rural clients like to have micro savings and micro credit products from
one source. So MFI can play an agent role or a point of contact for a commercial bank
with the rural masses (ibid).

It would a more commercially viable proposition for commercial banks to approach the
rural poor through MFIs rather than opening their own branches. Other measures could
include providing “Business Correspondent” status to MFIs. This would help banks
distribute their products and services to the masses through these MFIs. Rather than
competing with each other, collaboration is a win-win situation for both commercial
banks and MFI’s as banks are looking for a footprint while MFI’s for source of funding

13
(ibid).

A successful MFI is one that maintains strict client repayment schedules (Morduch
1999). Weekly repayment schedules and the local knowledge of the staff at village banks
enable MFIs to keep close track of who is repaying loans and who is not. Such strictness
is necessary even if the loan is late by a single day. The downfall of many MFIs is
lenience; often clients do not repay their loans on time.

Leniency teaches clients that it is not necessary to repay loans on time, and that the MFIs
are “soft” and easy to supplicate. An MFI with weak control over repayment schedules
would be unlikely to succeed. Additional functions of a strict weekly repayment schedule
are to remind the people of their debt to the bank, and to catch problems early on if there
is a client who may have difficulty repaying (Rhyne, 2001).

A second innovative practice adapted by MFIs is group lending. The function of group
lending is to make up for the lack of collateral in impoverished communities (Morduch
1999). Initially, microfinance was attacked by critics who argued that banking cannot be
done without collateral. Poor people typically do not have collateral to put up in case of
failure to repay their loans, therefore, they were assumed to be unbendable.

It has since been demonstrated that group lending can be used in the place of concrete
collateral. In group lending, the loan is made to a self-selected group of approximately
five villagers who may or may not be involved in the same business enterprise. A group
treasurer is elected among them to collect weekly repayments and deposit them at the
village bank (Brandsma and Chaouli, 1998).

Another important ingredient in the trust system is personal relationship between. MFI
staff and clients. The small staff at the village bank is encouraged to get to know clients
on a friendly basis. Owing to the fact that clients do not put down collateral, the loan is

14
based entirely on trust. Loan officers in particular, after spending much time with the
people of a village, are able to determine who can be trusted to repay a loan and who
cannot. This approach helps to weed out potential problem clients (Morduch 1999).

One of the unique features of microfinance is high interest rates. While a regular financial
institution may charge 10-15% interest on a loan depending on credit history of the
borrower, MFIs charge interest rates of 40-60% (Morduch, ibid). There is much arguing
among different microfinance programs on the effectiveness of charging high interest
rates.

Some experts say that high rates discourage the poor from borrowing, and take away a
significant portion of their profits if they are able to successfully start a business;
however, no research has been able to prove that high interest rates discourage the poor
from borrowing. In fact, the statistics show that MFIs can obtain a repayment rate of
98.7%, even with high interest (McNelly and Dunford 1998).

High rates encourage people to put a lot of effort into their business, since they will need
to work very hard in order to still make a profit after the loan is repaid; harder work
usually pays off with a higher success rate for the businesses. Also, 50% interest isn’t
terrible when the loan is repaid in small weekly increments. High interest rates are
necessary in order for a microfinance institution to become sustainable (Brandsma and
Chaouli 1998).

Sadly, some experts estimate that only 1% of microfinance institutions are fully
sustainable, and only 5% ever will be; the vast majority rely heavily on subsidies and
government grants (Morduch, 1999). Marguerite Robinson, a pioneer of microfinance,
and author of The Microfinance Revolution, explains subsidy reliance: Let’s assume that
the only objective we care about is maximizing benefit to poor people.
Although the ultimate goal of an MFI is financial viability, all MFIs need to start out with

15
subsidy. Subsidy can come from individual donors, government grants, or private
institutions, but it must be steady and reliable (Morduch,1999). During the first five years
or so a new MFI will rely heavily on subsidy in order to cover high operational costs, and
low profits from loan repayment.

Low profit does not mean that clients are not paying back their loans, rather it indicates
that the MFI does not yet have enough clients to cover costs. Many MFIs have chosen to
remain permanently dependent on subsidy in order to provide low interest rates to their
clients, and also to have a backup pool of money in case of economic disaster (Morduch
1999).

2.1.2 Types of MFIS

There are three main types of microfinance institutions: Latin American solidarity
groups, the Grameen Bank model, and the village banking system. Latin American
solidarity groups consist of 4-7 self-selected members who guarantee each others loans.
Initial loans are very small, and full repayment is required in as little as two months.
After the two months is up, another loan may be disbursed for an amount 20% higher.

In Latin American solidarity groups, members are usually required to deposit regular
savings which act as collateral and may be withdrawn at the end of a loan cycle. Group
members work together to sort out problems and use peer pressure to collect loans and
interest (Peace Corps 2000). The disadvantage to Latin American solidarity groups is that
the poor themselves are not granted much autonomy.

The Grameen Bank model, first developed in Bangladesh, is the most publicized MFI in
the history of microfinance. Grameen Bank lending programs allow greater autonomy for
the poor and create less responsibility for the MFI. Lending groups are self selected and
have five members. Members are required to save together for 4-8 weeks before
becoming eligible for their first loan (Peace Corps, 2000).

16
Groups are also required to deposit savings periodically throughout the duration of the
loan. Savings are used as a back-up emergency fund, and can be taken out only when the
group is disbanded. The group is then incorporated, along with up to eight other groups in
the same area, into a locally run “village center.” Village centers of up to 40 members
meet weekly with loan officers from the MFI (Peace Corps, ibid).

The Grameed Bank model uses voluntary client savings accounts as an additional source
of income. Clients may deposit funds into a savings account, and deposit and withdraw at
will. The pool of money from savings accounts may be used by the MFI in times of
growth or crisis (Morduch 1999). Saving also provides security for the clients themselves
in times of economic crisis.

The third and most popular model for MFI programs is the village banking system
developed by FINCA, a well-known and highly successful microfinance NGO. Although
the Grameen Bank model grants a certain amount of autonomy to clients, the village bank
system allows villagers full responsibility; the MFI or staff is barely involved at all. The
village bank literally functions as its own enterprise .

A village bank is composed of 30-50 members who elect their own management
committee. The villagers, not a loan officer, approve, disburse, and collect loans. A
relatively large loan is made to the village bank from the MFI. The village bank is then
responsible for collecting individual loans and using them to pay back the entire loan
from the MFI in a specified time period, usually 10-12 months (Peace Corps, ibid).

Village banks that successfully pay off the loan are given another. Thus, the MFI is not at
all responsible for individual loans, but rather, only for the large loan made to the village
bank. The only function of the MFI is to form the village bank, disburse one large loan,
and send a loans officer frequently to check up on progress, verify record-keeping, and to

17
bring cash back to the MFI where it will be kept safe (ibid).

2.1.3 Criticisms of Microfinance

There are many criticisms to the microfinance approach to poverty alleviation. Indeed,
the critics have even questioned whether microfinance alleviates poverty at all. There are
five main arguments against microfinance in the Third World:
1. Microfinance does not reach the poorest of the poor.
2. MFIs are rarely, if ever, financially sustainable
3. Microfinance is potentially harmful to women
4. Borrowing may create a heavy debt for some poor families
5. Microfinance is not universal in application

The first reason that microfinance does not reach the poorest of the poor is because of
discrimination by the loans officers (Simanowitz, 2000). As with all loan systems, the
higher the loan, the greater a profit to be made by the lender. Consequently, loan officers
often discriminate against very poor borrowers and instead favor the “richer” poor who
can afford to take out larger loans.

The second reason that microfinance may not reach the poorest of the poor is the pariah
status of the very poor. Just as there are large divides in wealthy countries between the
rich and poor, impoverished communities may have social segregation between the poor
and the destitute. The destitute, also referred to as the very poor or the poorest of the
poor, may be shunned from the rest of society (Wright 2000).

The very poor, who lack even basic needs, avoid contact with the rest of society out of
shame. They may have lice or parasites, they may lack decent clothing, or they may
simply be too embarrassed to display their extreme poverty in public. Simply put,
microfinance is not always an attractive option to the very poor (Simanowitz, 2000).
Microfinance can be used as an effective method of poverty alleviation for the poorest.

18
The solution for providing microfinancial services to the very poor is to design programs
that suit the needs of destitute families (Marcus, Porter, and Harper, 1999). Factors which
enable development agencies to reach the poorest are building a sharing knowledge with
the very poor, basing actions on the aspirations of the poor instead of their problems,
recognizing the value of cultural action, and training the poor (Wodon, 2000).

The second criticism of microfinance is that financial sustainability is rarely achieved.

There is overwhelming evidence of the failure of MFIs to achieve financial independence
from subsidies, even if autonomy is pushed as the primary goal (Murdoch 1999:).
Advocates for the microfinance approach to poverty alleviation are continuously haunted
by statistics such as: “only 1% of MFIs are financially self-sufficient”.

Opponents of the MFI system use statistics as evidence for the failure of microfinance
and thus, as proof that the practice should be discontinued. There are several problems
with criticizing the financial situation of microfinance institutions. In order to claim that
microfinance is a failure because it is not financially sustainable, one must keep in mind
the nature of the microfinance business.

The third criticism against microfinance is that it is potentially harmful to women. For
most of history, women were excluded from public or income-generating activities; only
recently they have started to speak up about gender equality and the right to equal
economic opportunity with men. Some men feel that women’s independence is a direct
threat to traditional patriarchal power (Murdoch and Haley, 2002).

There is a second argument for why microfinance may be harmful to women.

Microfinance is hailed as a means of promoting economic opportunity and empowerment
to women; however, when women take out a microcredit loan to start a business, it is
often the men who control how the loan is used (Rahman, 1999). In most Third World

19
communities, men have better income-generating activities, access to wider markets.

Another challenge that women face with microfinance is that they have a double
workload of running a business and childcare (Cheston and Kuhn, 2002). Traditionally,
women have taken care of children and household work while the men earn income for
the family. More and more women are now entering the public workforce, but they are
still expected to assume responsibility for all domestic tasks.

The fourth criticism against microfinance is that it creates a large debt for some poor
people who are unable to repay the loans (Buss 1999). Small businesses in Third World
countries are subject to a great number of obstacles; for example, lack of adequate
infrastructure, inability to access supplies needed for a business, difficulties with money
management due to improper schooling and lack of training or skill.

The fifth argument against microfinance is that it is not universal in application. It is said
that microfinance cannot be utilized by the very young, the old, the sick, or physically or
mentally handicapped (Versluysen, 1999). Microfinance programs are also charged with
excluding rural locations without infrastructure or access to markets, areas with a
dispersed population, or communities that depend on a single economic activity.

According to Parker and Pearce (2001), the most biting indictment against microfinance
is that it requires the poor to be entrepreneurial. Even in our own country it is abundantly
clear that most people are not entrepreneurial. It would be naïve to assume that the poor
are any different. Advocates of microfinance tend to promote the idea that all poor people
are dynamic, ambitious businessmen and women just waiting for the chance to shine, if
only they had access to credit.

Critics argue that microfinance is exclusive and that most impoverished people are poorly
educated, marginalized by society, and unlikely to have the entrepreneurial drive needed

20
to establish a business (Khandker, 1998). Critics stress the need to find a more universal
approach to poverty alleviation. Though it is true that not all poor can benefit directly
from microfinance, they can benefit indirectly.

2.2 Significance of SMEs

Small and Medium Enterprises (SMEs) account for a large share of the enterprises active
in Tanzania. In fact SMEs are the emerging private sector and do form the base for
private sector-led growth. SMEs, important as they are to the economy, have been facing
a number of problems despite the on-going reform programmes. This is due to a number
of factors, one of which is a persistent culture that has not recognized the value of
entrepreneurial initiative in improving the lives of the people (Wangwe, 1993).

Other factors include complex, bureaucratic and costly legal, regulatory and
administrative environment where SMEs are at disadvantage than their large
counterparts. The high cost of compliance to regulations may discourage potential
entrepreneurs from formally setting up their businesses, while driving some existing
enterprises out of business and those working for them into unemployment. Also due to
insufficient competition and inadequate information on the credit markets of Tanzania,
banks are discouraged and not willing to lend to SMEs (Wangwe, ibid).

Legislation and regulation on collateral exclude movable assets as mortgages, thereby

putting smaller businesses that own more of these assets into a disadvantaged position
against their larger business counterparts. SMEs have lower demand for business
development services such as training, counseling, advising and consultancy due to cost
considerations and lack of knowledge about the benefits of external services in improving
competitiveness.

Strategies for SME development programs focus on three main areas, namely, the
creation of an enabling business environment, developing of financial and non-financial

21
services and putting in place supportive institutional infrastructure. This takes into
account the special constraints and opportunities faced by SMEs in the Food Processing
Sub Sector and aims to address these constraints and maximize exploitation of the
opportunities (World Bank, 2001):

2.2.1 SMEs development in Tanzania

SMEs all over in the world are known to play a major role in social economy
development. This is apparently the case of Tanzania, where SMEs contribute
significantly to employment creation, income generation and stimulation of growth in
both urban and rural areas.

2.2.2 Definition of SMEs

The SMEs nomenclature is used to mean micro, small and medium enterprises. It is
sometimes referred to as micro, small and medium enterprises (MSMEs). The SMEs
cover non-farm economic activities mainly manufacturing, mining, commerce and
services. There is no universally accepted definition of SME. Different countries use
various measures of size depending on their level of development. The commonly used
yardsticks are total number of employees, total investment and sales turnover
(Swisscontact, 2003).

In the context of Tanzania, micro enterprises are those engaging up to 4 people, in most
cases family members or employing capital amounting up to Tshs.5.0 million. The
majority of micro enterprises fall under the informal sector. Small enterprises are mostly
formalized undertakings engaging between 5 and 49 employees or with capital
investment from Tshs.5 million to Tshs.200 million. Medium enterprises employ between
50 and 99 people or use capital investment from Tshs.200 million to Tshs.800 million
(URT, 2002).
2.2.3 Importance of SMEs
It is estimated that about a third of the GDP originates from the SME sector. According

22
to the Informal Sector Survey of 1991, micro enterprises operating in the informal sector
alone consist of more than 1.7 million businesses engaging about 3 million persons, that
was, about 20% of the Tanzanian labour force. Though data on the SME sector are rather
sketchy and unreliable, it is reflected already in the above data that SME sector plays a
crucial role in the economy (Toroka and Wenga, 1997).

Since SMEs tend to be labour-intensive, they create employment at relatively low levels
of investment per job created. At present, unemployment is a significant problem that
Tanzania has to deal with. Estimates show that there are about 700,000 new entrants into
the labour force every year. About 500,000 of these are school leavers with few
marketable skills. The public sector employs only about 40,000 of the new entrants into
the labour market, leaving about 660,000 to join the unemployed or the underemployed
reserve.

Most of these persons end up in the SME sector, and especially in the informal sector.
Given that situation and the fact that Tanzania is characterized by low rate of capital
formation, SMEs are the best option to address this problem (URT, 2002). SMEs tend to
be more effective in the utilization of local resources using simple and affordable
technology. SMEs play a fundamental role in utilizing and adding value to local
resources.

In addition, development of SMEs facilitates distribution of economic activities within

the economy and thus fosters equitable income distribution. Furthermore, SMEs
technologies are easier to acquire, transfer and adopt. Also, SMEs are better positioned to
satisfy limited demands brought about by small and localized markets due to their lower
overheads and fixed costs. Moreover, SME owners tend to show greater resilience in the
face of recessions by holding on to their businesses, as they are prepared to temporarily
accept lower compensation (URT, 2002).

23
Through business linkages, partnerships and subcontracting relationships, SMEs have
great potential to complement large industries requirements. A strong and productive
industrial structure can only be achieved where SMEs and large enterprises not only
coexist but also function in a symbiotic relationship. However, the linkages between
SMEs and large enterprises are very weak in Tanzania.

SME development Policy, therefore, creates the potential for enhancing linkages within
the economy. In addition, SMEs serve as a training ground for entrepreneurship and
managerial development and enable motivated individuals to find new avenues for
investment and expanding their operations (URT, 2002).

There are also opportunities indicating a bright future for SME sector development in
Tanzania. This includes the various on-going reforms that are oriented towards private
sector development and, thus, lay the ground for SMEs development. In addition, the
recognition of SME sector that it has higher potential for employment generation per
capital invested attracts key actors to support SME development programmes. Since SME
development does contribute significantly to poverty alleviation, resources earmarked for
poverty alleviation will also be availed to the SME sector. (Massawe, 2005).

Furthermore, there are several ongoing schemes aimed at strengthening SME service
providers such as Small Industries Development Organization (SIDO), Vocational
Education Training Authority (VETA), National Micro-Finance Bank (NMB),
Presidential Empowerment Fund (Kikwete’s billions) and various Industrial Support
Organizations. These interventions do provide opportunities for growth of the SME
sector. Given the fact that Tanzania is endowed with abundant natural resources, the
creation of enabling business environment will facilitate exploitation of these resources
through SMEs. This is again an opportunity for SMEs development (Massawe, 2005).

The Vocational Education and Training Act of 1994 provides the framework for the

24
vocational training system in Tanzania. This Act led to the formation of Vocational
Education Training Authority (VETA) which has over 630 centres in the country offering
training in more 34 different trades, including food processing. In 1999, the University of
Dar-es-Salaam established Entrepreneurship Development Centre within the Faculty of
Commerce and Management. The Centre provides consultancy and training in SME
related issues (URT, 2002).

Furthermore, the College of Business Education (CBE) offers business training including
entrepreneurship development. A number of initiatives have been designed by the
Government to set up funding mechanisms and schemes to address poverty and
employment related problems through promoting SMEs. Such funds include National
Entrepreneurship Development Fund (NEDF), Youth Development Fund (YDF) and the
Women Development Fund (WDF) (URT, 2002).

Apart from these, there are other related programmes that were established through
Government/donor joint efforts including the Small Entrepreneurs Loan Facility (SELF),
National Income Generating Programme (NIGP), Presidential Trust Fund (PTF) and
Community Development Trust Fund (CDTF). Another initiative towards this direction
has been the establishment of the National Micro-finance Bank (NMB), meant to cater
specifically for micro enterprises (URT, 2002).

In recent years, the country has witnessed the mushrooming of Non- Government
Organizations (NGOs) that are doing a commendable job in promoting SMEs. Most of
the NGOs are mainly involved in credit delivery, business training, providing general
consultancy, supporting market linkages and addressing gender and environmental issues.
However, most of the institutions supporting SMEs are rather weak, fragmented,
concentrated in urban areas and uncoordinated. This calls for the need to strengthen the
institutions supporting small and medium enterprises (URT, 2002).

25
2.2.4 Strategies for development of the SME sector
An assessment of the SME sector has shown that it is facing constraints which need to be
addressed adequately through this policy. Given the importance of the sector and the need
to transform it to a vibrant and dynamic one, it is crucial to put in place strategies that
will facilitate the removal of those constraints so that it can attain the desired vision and
identified objectives. The major areas of focus include: creation of the enabling business
environment and strengthening financial and non-financial services (World Bank, 2001).

2.2.5 Legal and regulatory framework

Despite of various interventions aimed at improving the business environment in
Tanzania, the legal and regulatory framework is bureaucratic, costly and centralized.
These characteristics of the legal and regulatory environment affect all sizes of businesses
adversely. However, SMEs are further constrained in this environment in comparison to
larger businesses due to the disproportionately heavy costs of compliance arising from
their size (University of Dar es Salaam Entrepreneurship Centre, 2002).

Most of informal enterprises have failed to formalize and micro enterprises have been
unable to grow and graduate into Small and Medium Enterprises. The tax regime in
Tanzania is also unfavorable for SMEs development. Taxes are many, rather high and
collected by various authorities including Tanzania Revenue Authority and the Local
Government Authorities. Furthermore, entrepreneurs are ignorant of tax matters and the
cost of complying with tax regulations is considered high (University of Dar es Salaam
Entrepreneurship Centre, 2002).

2.2.6 Entrepreneurship Development

Tanzania is endowed with a rich natural resource base. Even then, with all these
resources Tanzania is still a least developed country. The challenge lies in the ability to
transform efficiently and effectively the resources into goods and services that can be

26
availed to the market at competitive prices. One of the major limiting factors is the lack
of entrepreneurs at different levels. Some of the traditions, perceptions and values have
tended to create a culture that is anti-entrepreneurial (Rugumamu, 1999).

2.3 Literature studies that is similar to this study

2.3.1 Business training
Massawe (2005) conducted a study on SMEs operators in Tanzania and found that they
have rather low business skills and seem not to appreciate the importance of business
education. On the other hand, the quality of training provided by existing business
training institutions and costs involved has tended to be unattractive and unaffordable to
the potential beneficiaries.

2.3.2 Information
In this millennium information has become a prime mover of all economic undertakings.
However, the situation of SMEs in Tanzania is that of limited access to information
caused by lack of awareness on its importance and the prohibitive costs of acquiring the
same (Massawe, 2005).

2.3.3 Technology
Technology advancement and transfer are important aspects for SMEs development.
SMEs have limited access to technology development partly because they lack the
relevant information. The problem is further compounded by the existence of industrial
support institutions which are weak and do operate in isolation without focusing on the
actual requirements of the SME sector. Furthermore, technologies available are not
disseminated to the potential clients. In addition, SMEs cannot afford the services
provided by the relevant institutions. As a result of the above, SMEs continue to hold on
poor and obsolete technologies.

2.3.4 Marketing
Sustainability of a firm depends largely on its performance in the marketing.

27
Unfortunately, many enterprises are facing problems of marketing due to poor quality of
products, poor packaging, inadequate marketing skills and stiff competition. Inadequate
marketing services have been prohibiting SMEs to become competitive in local and
international markets.

2.3.5 Access to finance

The SME sector in Tanzania has limited access to finance due to the following factors:
the sector is perceived as a high risk one; inability of the SME operators to fulfill the
collateral requirements; most banks do not operate an SMEs financing window; some of
the banks operate in limited geographical areas; inexperience of Bank Staff in issues
related to Micro-finance; lack of a guarantee scheme to back up banks financing SMEs;
high cost of screening and administering small loans spread over big areas and inabilities
of borrowers to prepare applications that meet bank's requirements (Kimei, 2001).

The current reforms have resulted in liberalization of the financial sector to a great extent.
This has led to establishment of a number of banks including the National Micro-Finance
Bank, liberalization of financial rates and establishment of a stock exchange market. In
spite of all these, the SME sector is facing a major constraint in accessing finance. This
limits their capacity to survive, increase capacity, upgrade its technologies and even in
many cases, expand their markets and improve management or raise productivity and
eventually increase incomes (Kimei, 2001).

2.3.6 Access to credit

Available literature shows different arguments towards financial institutions in providing
credit to the poor people. Kimei (ibid), observes that, there is a bureaucratic procedure in
accessing credits from these institutions especially to the poor. He observed in the case of
Tanzania that most credit schemes are limited to the elite people rather than people who
are poor.

Most of the poor people who borrow funds, come from the informal sector but claimed to

28
be constrained by lack of understanding modes of funds delivery. However, he adds that,
formal sector may adopt features of the informal sector. Sometimes, this may create or
strengthen linkages the local knowledge of the informal agents and greater financial
resources of the formal sector to the mutual benefit of both.

2.3.7 The principle of lending

In his book titled “Elements of Banking”, Perry (1975) explains about the principle used
when a bank is approached for a loan in which a borrower is asked four questions
namely;
a. How much money is required?
b. What is the purpose of the loan?
c. For how long are funds required?
d. What is the source of repayment?

When these questions have been answered satisfactorily, it is time to think about security.
The credit officer’s decision will be influenced by many factors of which most important
are the character of the borrower, the risk involved, profitability of the transaction to the
bank and lending policy of the bank.

According to Oxford Advanced Learners Dictionary, a loan or credit is the act of lending
money for interest. Chiamba (1995) in his book titled “Commercial Banking Lending”
explains established lending policies, objectives and criteria so as to avoid non-repayment
of loan or credit. Additionally, Bikki and Joselito (2003) categorized credit terms in
consideration of 6Cs of credit. The 6Cs of credit include; character, capacity, collateral,
condition, credit history and capital. The number of 6Cs varies from lenders but they are
commonly used.

2.3.8 Credit policy

Bikki and Joselito (2003) explains that collection policy indicates what collection devices
and system are employed. Also, he said, credit policy will provide important guidelines to

29
employees and others who are involved in credit extension.

2.4 Empirical Analysis of past studies

In general women need to be encouraged and educated much as possible in order to face
the challenges. Also low population density, poor infrastructures and low house hold
income levels as constraints to the MFIs’ performance many of these MFIs have no clear
mission and objectives. Also their employees lack capacity in credit management and
business skill. Among the questions arising out of these research finding is whether these
MFIs whose performance is questionable will have any impact on women empowerment.

Many scholars have conducted studies on the performance and impact of MFIs in various
countries all over the world. The findings from these studies are useful to new researches
on microfinance. Some of the studies, which had a significant contribution, include the
study by Mosley (2001). In his study on Microfinance and Poverty in Bolivia, Mosley
assessed the impact of microfinance on poverty. The study was conducted through small
sample surveys of four microfinance institutions, two urban and two rural, using a range
of poverty concepts such as income, asset holdings and diversity, and various measures
of vulnerability.

All the institutions studied had on balance, positive impacts on income and asset levels,
with income impacts correlating negatively with income on account of poor households
choosing to invest in low-risk and low-return assets. This study revealed also that in
comparison with other anti-poverty measures, microfinance appears to be successful and
relatively cheap at reducing the poverty of those close to the poverty line mostly women.
However this was also revealed to be ineffective, by comparison with labour-market and
infrastructural measures, in reducing extreme poverty. The study further proposed
actions that appear to be promising for the further reduction of poverty in Bolivia which
can also be useful for other developing countries. These actions include stronger efforts
to mobilize rural savings, removal of lower limits on loan size, and the introduction of
appropriate insurance mechanisms.

30
Despite this contribution, the study by Mosley (Mosley, 2001) has some weaknesses.
The first problem is on the sample size, which was only four microfinance institutions;
this sample size might not be adequate for the generalizations made above. Also the
poverty concepts considered excluded the number of employees, this is very important to
measure, as it indicates whether the microfinance institution has created capacity to
employ more people or not.

Hassan and Renteria – Guerrero (1997) made another empirical contribution in this area.
In their work “The experience of the Grameen Bank (GB) of Bangladesh in community
development they examined the CB experience with a purpose of understanding the
essential elements of its operations and the factors that enabled GB to reach the poor.
This study revealed that the CB has established its credentials as an institution that aims
at providing credit to the landless and asset less poor in rural areas.

GB credit gives the recipients the power of entitlement to society’s productive goods and
services with immediate effect, unlike most of the other programs for the poor that tend
to create the unintended negative effect of dependency on the service providers.
However, it was observed the credit by itself is an insufficient factor to improve poverty
conditions, and thus the GB devotes a substantial amount of resources to the
improvement of the social wellbeing of its members.

The GB uses an unambiguous eligibility criterion which ensures that only the poor or
very poor can participate. It motivates their clients to organize themselves into groups of
five like-minded members. Each group elects one group leader among themselves.
Every six groups form a “Centre” which serves as the basic operating unit of the GB. It
is at the centre that weekly meeting are conducted to openly discuss loan applications
proposals and to accept weekly repayments and compulsory savings deposits.

31
While the loans are made to individual members, the group as a whole is expected to be
responsible for the regular repayments of the loans of all their members. This form of
grassroots organization not only promotes solidarity and participation among the
members, at the group and centre levels, but also promotes mutual support and peer
pressure to ensure that the loans we properly utilized and repayments made promptly.

In concluding their work, Hassan and Renteria-Guerrero asset that the GB’s approach
seems to be an effective tool for rural poverty reduction despite minor criticism that has
never given alternative solution for poverty alleviation. The program supplies credit to
improve the physical productive capacities of the poor and in addition, it provides the
disadvantaged with human development inputs to improve their overall productive and
living standards.

The success of the GB is not free from the influence of external factors. To be effective
and sustainable, a credit delivery system also needs a supportive national policy
framework for it remains autonomous and free from political influence. Despite the fact
that this work was just an experience and not a research work, its contribution acclaimed
in the area of microfinance practices.

2.4.1 Impact of MFIs on SMEs – Tanzania Experience

Recent studies have shown that, there are over 50 registered MFIs in Tanzania but their
overall performance has been poor (Chijoriga, 2001). In her study Chijoriga (2001)
evaluated the performance and financial sustainability of MFIs in Tanzania, in terms of
the overall institutional and organizational strength, client outreach, and operational and
financial performance. In the study, 28 MFIs and 194 MSEs were randomly selected and
visited in Dar es Salaam, Arusha, Morogoro, Mbeya and Zanzibar Regions.

The findings revealed that, the overall performance of MFIs in Tanzania is poor and only
few of them have clear objectives, or a strong organizational structure. It was further

32
observed that MFIs in Tanzania lack participatory ownership and many are donor driven.
Although client outreach is increasing, with branches opening in almost all regions of the
Tanzania mainland, still MFIs activities remain in and around urban areas. Their
operational performance demonstrates low loan repayment rates and their capita
structures are dependant on donor or government funding.

In conclusion, the author pointed to low population density, poor infrastructures and low
house hold income levels as constraints to the MFIs’ performance. Many of these MFIs
have no clear mission and objectives. Also their employees lack capacity in credit
management and business skills. Among the questions arising out of these research
finding is whether these MFIs whose performance is questionable will have any impact
on women empowerment.

Other studies on microfinance services, in Tanzania were carried out by Kuzilwa (2007)
and Rweyemamu et al, (2003). Kuzilwa examines the role of credit in generating
entrepreneurial activities. He used qualitative case studies with a sample survey of
businesses that gained access to credit from a Tanzanian Government Financial Source.
The findings reveal that the output of enterprises increased following the access to the
credit.

It was further observed that the enterprises whose owners received business training and
advice, performed better than those who did not receive training. He recommended that
an environment should be created where informal and quasi-informal financial
institutions can continue to be easily accessed by micro and small businesses.

Rweyemamu et al (2003) evaluated the performance of, and constraints facing, semi-
formal microfinance institutions currently providing credit in the Mbeya and Mwanza
Regions. The primary data, which were supplemented, by secondary data, were collected
through a formal survey of 222 farmers participating in the Agricultural Development

33
Program in Mbozi and the Mwanza Women Development Association in Ukerewe.

The analysis of this study revealed that the interest rates were a significant barrier to the
borrowing decision. Borrowers also cited problem with lengthy credit procurement
procedures and the amount disbursed being inadequate. On the side of institutions, the
study observed that both credit program experienced poor repayment rates, especially in
the early years of operation, with farmers citing poor crop yields, low producer prices and
untimely acquisition of loans as reasons for non-payment.

It was further revealed that poor infrastructure of the MFIs led to high transportation
costs, which increased the transaction costs in credit procurement, and disbursement and
this ultimately hindered the effectiveness of the credit programs. This happened because
most of borrowers lived in rural areas, far from credit offices. The coverage by Kuzilwa
was on the National Entrepreneurship Development Fund only, while Rweyemamu et al’s
study was on assessing the micro-finance services for the Agricultural sector only.

From the above evidence the researchers found that there was a strong need to study the
schemes existing in Tanzania and see to what extent their operations contribute to
poverty reduction and women empowerment in the country. From the study,
recommendations will be made to policy makers so as to find alternatives through which
financial services could be offered to the low income earning population or rather
restructure the existing schemes for empowering the women through their groups and
individually.
2.4.2 Lending methodology used by CRDB Microfinance
Lending involves the process of delivering financial services with an intention to finance
the matter for which the loan is meant for. The lending methodology can be categorized
as lend to individuals singly or lending to individuals via group guarantee. At CRDB
Microfinance, lending methodology for microfinance loans falls in both categories of
group based lending and individual based lending (CRDB Microfinance Operations
Manual, 2008).

34
Group Lending

In group based loan, there are solidarity group centres. This is a system where by clients
come together and form their own groups of six people and come to CRDB Microfinance
for loan application. The groups formed by the prospective clients have the following
features; members should not be related by blood, they shouldn’t be living in the same
house, members must know each other beyond any doubt, and every group member
should be running his/her own business (ibid).

Prior to loan application the group has to attend the four weeks training. These four
weeks are divided into sessions of two hours per week. The training covers the basics of
accounting, record keeping, marketing and a bit of human resources. After the first week
training, customers arrange with loan officer, so that the officer is able to visit the
business and residence of each of them. Thereafter the customers are allowed to open
their accounts for deposit savings and the group is officially registered (ibid).

Loan application

Loan application provides information about the client’s intent of accessing a financial
product, the amount and the purpose. It is on the basis of the information obtained in the
application that appraisal is done. A loan application process starts from the group
meeting. The customer fills application form then the “senta” members discuss his/her
application, which is approved once the members are satisfied with ability to repay and
ability to accommodate the loan amount in their group guarantee (ibid).

New members are not allowed to apply for the loan until after four weeks. The four
weeks are for familiarization. Then, two members out of six are allowed to apply in every
month until all members in a group receives a loan. The loan application of the last two
people will be acceptable on 11th week of group age, whereby all members will have
already made savings 11 times. For the existing groups every successful repayment of the

35
first loan qualifies for the subsequent one (ibid).

Loan processing
For the loan application of above Tshs. 300,000/= (USD 300), its processing should
involve a loan officer. The officer is responsible in loan appraisal by assessing the
business of the applicant. Below Tshs. 300,000/= (USD 300) the members themselves
undertake the task of loan appraisal. This process takes about 2 to 3 days. Before the
approval is made, the senta leader has to seek the permission of other group members
concerning the application (bid).

After the group collectively guarantee and approve, the offer letter/contract is prepared
for customer’s disbursement consent. Then the application has to be thoroughly checked
by the loan officer, before being submitted to the loan supervisor, then to the branch
manager for sanctioning or rejection. This process is completed within two weeks time
(ibid).

Loan disbursement

Once the loan is approved, it is disbursed into customer’s personal account. The
disbursement process takes less than a day

Repayment rate
At the beginning the repayment rate was almost 100% with exception of very few cases
of defaulting. It is only recently, that there have been a drop of the repayment rate but it
is still encouraging, since in aggregate of CRDB Microfinance branches it is still above
90%. The motive for timely repayment is embedded on loan officer’s commitment in
observing the banks rule in recruitment procedures.

The supporting reasons are; since every client maintains the Special Savings Account
(SSA), thus the account balance can serve to off-set the missed installment. The group
guarantee in this case is what really matters. Once the SSA is not sufficient to off-set the

36
difference, the balance is recovered from group members. Still senta members also take
the responsibility of loan repayment as well. Therefore the group guarantee and peer
pressures are the main repayment enforcement mechanisms (ibid).

However, for lending institution defaulting cases are inevitable. The defaulters result
from death, where by the loan is written-off. Also the dishonesty of some few loan
officers, who were not there before, resulted into disbursing loans to ghost clients, in
fictitious groups. Also some unfaithful loan officers colluded with some unlawful clients
who applied for the loan with a clear intention of not repaying. Such clients vanish after
receiving their loans. The above cases have contributed to the downfall of the repayment
rate (ibid).

Individual Lending
This occurs when an individual (Business person) approaches the bank or the bank
approaches him/her.

Requirements for Individual Lending

Before the customer applies for the loan, the following requirements must be met;
• The customer must have operated a licensed business for more than 12 months,
within the regions where CRDB Microfinance has branches
• Must open account with CRDB Microfinance and operate for 3 months before
applying for the loan
• Should prepare to pledge collaterals (movable and immovable) as security for
his/her loan. The collateral value should be 150% of the loan amount. All
collaterals should be in the same locality with the business whom the loan is
applied for.

Loan Procedures
After opening an account the loan officer must arrange a visit for a business assessment
and collateral certification and registration. The credit officer should obtain the duly

37
signed legal document for mortgage from the loan applicant. If married both parties
should sign. After the loan assessment and submission of legal documents, the
application is sent to the Credit Committee for final decision where a loan is rejected or
approved

Loan Recovery
It is the responsibility of the Loan Officer to ensure that the loan is fully recovered. S/he
has to always remind the customer few days in advance before the due date. Late
repayment is charged a penalty of 3% (of the delayed installment) on daily basis. If a
customer falls in arrears efforts are done to update him/her. These efforts include writing
reminder letters and contacting the guarantors of the borrower.

If these efforts fail, the loan officer, assisted by loan supervisor collects the collaterals
pledged as loan security so as to exert pressure to the defaulter. When 14 days lapse from
the date of seize of collaterals the collaterals are handled over to the bank auctioneer
(Yono Auction Mart) for selling to recover the outstanding loan. Where legal actions
needs to prevail in the issue, the matter is handled to the legal department for further
advice and further follow up, including taking legal actions against the borrower in
favour of CRDB Microfinance.

Loan Administration
Individual loans are handled by a specific officer. A loan officer handles a portfolio of up
to 250 clients of different loan sizes. Individual lending as it is for group lending, must
have a loan supervisor to whom the loan officer reports. All lending activities are under
control of a Branch Manager, who also reports to the Microfinance Manager, for all
issues parting to lending. The Microfinance Manager reports to General Manager-
Microfinance.

Lessons from the literature review

The literature review provides an insight into the way SMEs and microfinance

38
institutions operate in Tanzania and other countries. The literatures also sheds some light
on the roles played by SMEs and microfinance institutions in promoting a culture of
enterprise among operators of SMEs and the challenges faced, as well as prospects and
opportunities that exists.

Research gap
From the above evidence, the researcher found that there was a strong need to study the
role played by MFIs in helping to promote enterprise culture because, there are no
documented studies which indicate that the same study has been done at CDRB.
Therefore, the findings from this study will help to bridge the knowledge gap.

CHAPTER THREE

RESEARCH METHODOLOGY
3.0 Introduction
This chapter presents the overall research design, location of the study, sample of the
study, sample size, sampling techniques that was used to select respondents, nature of the
study, data collection techniques that were used to collect relevant information and data
analysis as well as sources of data collection techniques.

3.1 Research Paradigm (philosophy)

In conducting this study, the researcher was guided by the “MAIR start-up” framework
involving the four components of motivation, abilities, ideas and resources (MAIR)

39
(Durham University Business School, 1995). According to MAIR theoretical framework,
entrepreneurs and their resource base are seen in relation to those ingredients that are
necessary to start and develop a successful business. The process of bringing together
“MAIR” ingredients, managing them is essential for the success of the business.

3.2 Research design (strategy)

3.2.1 Exploratory research design
Exploratory research design is suitable for exploratory studies which emphasize on
formulating a problem for more precise investigation or developing a working hypothesis
from an operational point of view. The major emphasis is on the discovery of ideas and
insight; as such the research design appropriate for such studies must be flexible enough
to provide opportunity for considering different aspects of a problem under study
(Saunders, 2000).

3.2.2 Descriptive research design

In descriptive research design, the major emphasis is on determining the frequency with
which something occurs or the extent to which two variables covary. It is typically
guided by an initial hypothesis. Descriptive studies are also concerned with specific
predictions, narrations of facts and characteristics concerning individuals, groups or
situation (Kothari, 2006).

3.2.3 Causal research design

According to Churchill (2002), causal research design is suitable for studies whose major
emphasis is on determining causal and effect relationship. Causal studies typically take
the form of experiments, since experiments are best suited to determine causes and
effects. This research study used exploratory research design due to the fact that there are
empirical studies which exist on the role of microfinance institutions in promoting
enterprise culture.

As Kothari (2006) puts it “it is necessary to have a clear picture of the phenomenon on

40
which you wish to collect data prior to the collection of data”. This means that a
descriptive study pre-supposes much prior knowledge about the phenomenon being
studied. Another reason for using exploratory research design is nature of the problem
being studied, which is clearly defined in the statement of the problem.

3.3 Area of the study

The study was conducted in Kinondoni district at CRDB Bank, Mlimani City branch.
This area was selected because it enabled the researcher to easily get answers to the
research questions.

3.4 Types of data collected

3.4.1 Primary data
Primary data includes all data that the researcher collected from the source during the
research study that is based on the role of MFIs in promoting SMEs.

3.4.2 Secondary data

Secondary data includes all the data that the researcher collected from other sources other
than himself.
3.5 Units of enquiry
The units of enquiry in this study included the objects and subjects of inquiry of the
study.

3.5.1 Objects of the inquiry

The objects of inquiry of the study includes the role of Microfinance institutions in
promoting enterprise culture among operators of SMEs.

3.5.2 Subjects of inquiry

The subjects of inquiry was members of staff of CRDB Microfinance Ltd and operators
of SMEs and the role of Microfinance institutions in promoting enterprise culture among
operators of SMEs.

41
3.6 Data gathering instruments
During the study both primary and secondary data collection methods was used. Primary
data collection methods that was used during the study included observation,
questionnaires and interviews. Secondary data collection methods that was used is
documentation.

3.6.1 Questionnaire
A questionnaires is a set of questions which are usually sent to the selected respondents
to answer at their own convenient time and return back the filled questionnaire to the
researcher. (Babie, 2001). In this study questionnaires were used to collect information
from respondents on the role played by microfinance institutions in promoting enterprise
culture among SMEs. The reasons for using questionnaires is that they cover large
sample at low cost, and it is free from bias. It also gave respondents adequate time to give
well thought-out answers.

3.6.2 Observation
According to (Kothari, 2006) observation is the method where the information is sought
by the way of own direct observation and environment scanning without involving
respondents. The researcher will make observations on how members of staff of CRDB
Microfinance Ltd and operators of SMEs interact. Observation method was used because
it allowed the researcher to see the situation by himself before getting information from
respondents.

3.6.3 Interview
According to (Kothari, ibid), an interview is a set of question administered through oral
or verbal communication or is a face to face discussion between the researcher and the
interviewee respondent. Both group and individual interviews were conducted with

42
respondents interview using both, open ended and close-ended interview questions. This
method was used because it enabled the researcher to get supplementary information
obtained by using questionnaires.

3.6.4 Documentation
Documentation method was used because it enabled the researcher to get ready-made
data and information by passing through various documents such as; books, magazine
and journals on the topic in question. This method was especially used because it helped
to simplify the task of the researcher by providing statistical information recorded in
terms of numbers and percentages and represented in tables, charts and graphs.

3.7 Sampling techniques

3.7.1 Sample and sample size
Kothari (2006) defines sample as a collection of some parts of the population on the basis
of which judgment is made small enough to convenient data collection and large enough
to be a true representative of the population from which it had been selected. Sample size
refers to a number of items to be selected from the universe to constitute a sample. The
sample must be optimum. An optimum sample is one which fulfills requirements of
efficiency, reliability and flexibility.

3.7.2 Sampling procedure

According to Kothari (2006), sampling is defined as the selection of some parts of

aggregate of the totality based on which a judgment or inference about the aggregate or
totality is made. It is a process of selecting a group of people, events, behaviour, or other
elements with which to conduct a study. An important issue influencing the choice of a
sampling technique is whether a sampling frame is available, that is, a list of units
comprising the study population.

A sample size of 110 respondents was purposively selected from among the population

43
based on their familiarity with the research topic. The sample included 10 members of
staff of CRDB Microfinance Ltd and 100 customers of the bank who operate SMEs. This
sample size is determined by the availability of resources such fiscal and time resources.

3.8 Data Reliability and Validity

In order to ascertain reliability of the study, a pilot study was conducted. Questionnaires
was distributed to respondents. This was done to identify questions that might be unclear
or ambiguous to the respondents. It also aimed to identify any non-verbal behaviour of
the participants that may possibly show discomfort or embarrassment about the content or
wording.

This allowed for corrections to be done before the questionnaires were distributed to a
larger sample. Prior arrangements were made to meet the respondents for the pilot study;
the questionnaires were given to the respondents to complete and return on the next day
of their training.

3.9 Data management and analysis

3.9.1 Data management
After data has been collected using methods listed above, the data was reduced into
summary form. The summary were processed by using spreadsheets and Statistical
Packages for Social Sciences (SPSS)

3.9.2 Data analysis

The research findings was organized and presented using words, numbers and
percentages by using tables, charts and graphs. Data analysis and interpretation enabled
the researcher get a solution to the research problem and give recommendations.

44
 CHAPTER FOUR

RESEARCH FINDINGS, ANALYSIS AND DISCUSSION

4.0 Introduction
This particular chapter is concerned with the presentation, discussion and analysis of the
findings. The data collected during the study was carefully checked for correctness,
completeness, accuracy, clarity and uniformity. Numerical data was analyzed by
computing percentages for quantification purposes.

The findings from observation and documentation were analyzed quantitatively and
qualitatively. The data was then processed by using spreadsheet computer programme
(Microsoft Excel) where by all required measurements were presented in tables by using

45
words, numbers and percentages and then into charts and graphs.

4.1 HOW CRDB MICROFINANCE PROMOTES ENTERPRISE CULTURE

To establish the role played by CRDB Microfinance Ltd in promoting enterprise culture
among SMEs, the researcher asked respondents to mention how CRDB Microfinance Ltd
promotes enterprise culture among SMEs. Feed back from respondents was recorded as
shown in the table:

Table 4.1: How CRDB Microfinance promotes enterprise culture among SMEs
Number of respondents Percentage
Financial services 28 28%
Business training 17 17%
Loans 42 42%
Business advice 13 13%
Total 100 100
Source: Researcher’s Analysis, 2010
According to the findings, CRDB Microfinance promotes enterprise culture among SMEs
by offering banking services, providing business straining, providing loans and other
credit facilities and providing business advice and supervision. The combination of these
services offered by CRDB Microfinance promote enterprise culture by helping operators
of SMEs to become more efficient in running their businesses successfully and in doing
so help them to achieve their objectives, which includes making profit.

4.2 Financial Services Offered By CRDB Microfinance

After finding out that the CRDB Microfinance promotes enterprise culture by providing
financial services, the researcher asked respondents to mention financial services offered
by CRDB Microfinance. The objective of conducting the survey was to determine
whether financial services offered by CRDB Microfinance help to promote enterprise
culture.

Table 4.2: Financial services offered by CRDB Microfinance

46
 Number of respondents Percentage
Money transfers 4 4%
Holding deposits 23 23%
Offering loans 65 65%
Payment services 8 8%
Total 100 100
Source: Researcher’s Analysis, 2010
According to findings of the survey respondents said that CRDB Microfinance promotes
enterprise culture by offering various services such as offering loans (65%), holding
deposits (23%), offering payment services (8%) and offering money transfer services
(4%). By offering these services, CRDB Microfinance helps to promote enterprise culture
by enabling SMEs to transfer money, make payments, save money and get capital for
running their businesses.

4.3 Size of Loans Offered by CRDB Microfinance

The following data was gathered by analyzing the size of loans offered by CRDB
Microfinance to SMEs. The objective of asking this question was to establish to what
extent CRDB Microfinance helps to promote enterprise culture among SMEs. The results
are presented below:

Table 4.3: Size of loans offered by CRDB Microfinance

Number of respondents Percentage of respondents

Above TShs 10 million 8 8%
TShs 6 – 10 million 28 28%
Below TShs 5 million 64 64%
Total 100 100%
Source: Researcher’s Analysis, 2010

The study found out that 64% of loans offered by CRDB Microfinance are below TShs 5
million while 28% of loans are between TShs 6 and 10 million and only 8% are above

47
TShs 10 million. These findings show that CRDB Microfinance promotes enterprise
culture among SMEs by offering them loans which are used as capital or for purposes of
business expansion. Since lack of capital is among the challenges that hinder flourishing
of enterprise culture, provision of loans to SMEs is one way of promoting enterprise
culture by encouraging more and more people to become entrepreneurs and start their
own businesses.

4.4 Types of Training Offered by CRDB Microfinance

After finding out that CRDB Microfinance promotes enterprise culture by offering
training to SMEs, the researcher asked respondents to mention various types of training
offered by CRDB Microfinance that helps to promote enterprise culture among SMEs.
The feedback from respondents was recorded as follows:

Table 4.4: Types of training offered by CRDB Microfinance

Bookkeeping Marketing Credit Customer care

Management
No. of respondents 40 26 24 10
Percentage 40% 26% 24% 10%
Source: Researcher’s Analysis, 2010

The study found out that CRDB Microfinance promotes enterprise culture by offering
various business management skills training which includes bookkeeping skills,
marketing skills. Credit management skills and customer care skills. The respondents said
that busies management skills training offered by CRDB Microfinance helps them to
conduct their businesses successfully, record their businesses properly, find markets for
their products and services, manage their loans and take care of their customers. Thus, by
training operators of SMEs to conduct their businesses successfully, CRDB Microfinance
helps to promote enterprise culture among SMEs.

48
4.5 Role Of CRDB Microfinance in Promoting Enterprise Culture
To asses the role played by CRDB Microfinance in promoting enterprise culture among
SMEs, the researcher asked respondents to give their assessment on the role played by
CRDB Microfinance in promoting enterprise culture among SMEs. The objective of this
survey was to determine the effectiveness of CRDB Microfinance in promoting
enterprise culture. The feedback from respondents was presented as shown below:

Table 4.5: Role of CRDB Microfinance in promoting enterprise culture

Very effective Effective Less effective Not effective

No. of 10 60 25 5

respondents
Percentage 10% 60% 25% 5%

Source: Researcher’s Analysis, 2010

As shown above, 70% of respondents said that CRDB Microfinance was either very
effective or effective in promoting enterprise culture while a total of 30% of respondents
said that CRDB Microfinance is either less effective or not effective in promoting
enterprise culture among SMEs. These findings show that since majority of respondents
agreed that services offered by CRDB Microfinance help to promote enterprise culture
among SMEs.

4.6 Challenges Faced By CRDB in Promoting Enterprise Culture

The researcher asked respondents to mention challenges faced by CRDB Microfinance in
promoting enterprise culture among SMEs. The objective of conducting this survey was
to determine whether or not CRDB Microfinance faces any challenges in promoting

49
enterprise culture among SMEs in order to solve them. The feedback from respondents
was recorded as shown in the table below:

Table 4.6: Challenges faced by CRDB Microfinance in promoting enterprise culture

Number of respondents Percentage
Lack of business experience 4 4%
Low level of education 43 43%
Low level of loan repayments 45 45%
Poor entrepreneurship skills 8 8%
Total 100 100
Source: Researcher’s Analysis, 2010

The findings of the survey show that CRDB Microfinance faces many challenges in
promoting enterprise culture among SMEs such as poor entrepreneurship skills, low loan
repayment rates, low level of education and lack of business experience. The researcher
found out that these challenges hinder the efforts of CRDB Microfinance in promoting
enterprise culture among SMEs by reducing the effectiveness and efficiency of services
offered by CRDB Microfinance.

4.7 Level of Business Experience Among Operators Of SMEs

To analyze the level of experience among operators of SMEs among respondents, the
researcher wanted to asses the level of business experience among respondents by asking
them to mention the number of years in which they have been in business. The feedback
from respondents were recorded as shown in the below:

Table 4.7: Level of business experience among operators of SMEs

Experience Number of respondents Percentage of respondents

0-5 years 48 48%
6-10 years 35 35%
11-15 years 10 10%
16-20 years 4 4%

50
21 years and above 3 3%
Total 100 100%
Source: Researcher’s Analysis, 2010
The results show that 48% of respondents have business experience of less than 2 years
while 35% of respondents have business experience of 3 up to 4 years, 10% have
business experience of 5-6 years, 4% have business experience of 7-8 years and 3% have
business experience of more than 8 years. These findings suggest that efforts of CRDB
Bank to promote enterprise culture by giving loans are hampered by lack business
experience among SMEs which makes them not creditworthy

4.8 Level of Education of Education Among Operators of SMEs

The following data was gathered by the researcher in order to determine the level of
education among operators of SMEs. The objective of conducting this survey was to
establish whether or not lack of education is among the challenges faced by CRDB
Microfinance in promoting enterprise culture among SMEs. The findings are shown in
the table below;

Table 4.8: Level of education among operators of SMEs

Number of respondents Percentage of respondents

Primary education 11 11%
Secondary education 61 61%
High school or 28 28%

diploma
University degree 0 0%
Total 100 100%
Source: Researcher’s Analysis, 2010

The results show that 61% of respondents had only Secondary education, 28% had

51
attained high school or diploma, 11% had attained only primary education and there were
no respondents who had attained university degree. Findings show that lack of education
is among challenges faced by CRDB Microfinance in promoting enterprise culture
because affects provision of training.

4.9 Causes of Low Loan Repayment Rates Among SMEs

After finding out that one of the challenges faced by SMEs in promoting enterprise
culture among SMEs, the researcher asked respondents to mention the causes of low
repayment among SMEs. The objective of conducting this survey was to establish
whether a low loan repayment rate is among challenges faced by CRDB Microfinance.
The feedback from respondent was recorded as shown below:

Table 4.9: Causes of low loan repayment rates among SMEs

High interest Poor credit Short Poor business

rates management repayment skills

period
No. of 40 26 24 10

respondents
Percentage 40% 26% 24% 10%

Source: Researcher’s Analysis, 2010

The study found out that causes of low loan repayment rates among SMEs are high
interest rates charged by MFIs for various types of loans, poor credit management skills
among SME owners, shorter loan repayment period and poor business management

52
skills. These factors together affect the effectiveness and efficiency of CRDB
Microfinance in promoting enterprise culture among SMEs. The researcher found out that
low repayment rates discourages CRDB Microfinance and other MFIs in their effort to
promote enterprise culture.

4.10 Level of Entrepreneurship Skills Among Operators of SMEs

After finding out that poor entrepreneurship skills among owners of SMEs is among the
challenges faced by CRDB Microfinance in promoting enterprise culture, the researcher
wanted to establish the level of entrepreneurship skills among respondents and asked
them to asses their entrepreneurship skills. Results of the assessment was recorded as
shown in the table below:

Table 4.10: Level of entrepreneurship skills among operators of SMEs

Maximum Average Minimum None

Number of 17 34 22 27

respondents
Percentage 17% 34% 22% 27%
Source: Researcher’s Analysis, 2010

The data shows that only 17% of respondents said their level of entrepreneurship skills
was maximum. 34% of respondents said their level of entrepreneurship skills was
average, 22% of respondents said their level of entrepreneurship skills was minimum and
27% of respondents said that they have no entrepreneurship skills at all. These findings
suggest that majority of operators of SMEs have poor entrepreneurship skills. Poor
entrepreneurship skills among operators of SMEs prevents them from running their
businesses successfully, and their businesses struggle to survive.

4.11 The Impact of Services Offered By CRDB Microfinance on SMEs

53
The researcher asked respondents to mention the impact offered by CRDB Microfinance
on SMEs. The objective of asking this question was to establish how services offered by
CRDB Microfinance help to promote enterprise culture. The feedback from respondents
is shown below.

Table 4.11: The impact of services offered by CRDB Microfinance on SMEs

Number of respondents Percentage
Rise of enterprise culture 10 10%
Growth of SMEs 44 44%
High entrepreneurship skills 41 41%
Job creating 5 5%
Total 100 100

Source: Researcher’s Analysis, 2010

As shown above, 44% of respondents said that services offered by CRDB Microfinance
lead to growth of SMEs, 41% of respondents said that the services offered lead to high
level of entrepreneurship skills, 10% of respondents said that services offered lead to rise
of enterprise culture while 5% of respondents said that the services lead to job creating.
Thus, according to the findings of the study, the services offered by CRDB Microfinance
are very helpful to SMEs because they help them to grow, create jobs and contribute to
enterprise culture.

54
 CHAPTER FIVE
5.0 DISCUSSION OF THE FINDINGS OF THE STUDY
This chapter presents the summary of findings, conclusions and recommendation made
based on the study findings and objectives.

During the study, the researcher found out that loans offered by CRDB Microfinance are
mostly in the range of TShs 5 million up to TShs 15 millions. By offering such loans,
CRDB Microfinance helps to promote enterprise culture because lack of capital is among
the challenges that hinder flourishing of enterprise culture. Other services offered by
CRDB Microfinance include various form of training such as bookkeeping skills,
marketing skills. Credit management skills and customer care skills.

The training offered by CRDB Microfinance helps them to conduct their businesses
successfully, record their businesses properly, find markets for their products and
services, manage their loans and take care of their customers, and thus, help to promote
enterprise culture among SMEs. The study found out that Microfinance was either very in
promoting enterprise culture.

55
In offering it’s services, CRDB Microfinance is faced with various challenges including
poor entrepreneurship skills among SMEs, low loan repayment rates, low level of
education among SMEs and lack of business experience. These challenges hinder the
efforts of CRDB Microfinance in promoting enterprise culture by reducing the
effectiveness and efficiency of services offered.

Lack of business skills was evidenced by the fact that majority of 83% respondents had
been in business for only three years or less. Lack of experience hampers efforts of
CRDB Microfinance to promote enterprise culture because it makes SMEs to be not
creditworthy. Another challenge faced by CRDB Microfinance is low level of education
among operators of SMEs which because affects provision of training.
Another challenge faced by CRDB Microfinance is low rates of loan repayment among
SMEs. The study fond out that low loan repayment rates are caused by poor credit
management skills among SME owners, shorter loan repayment period and poor business
management skills. Low repayment rates discourages CRDB Microfinance and other
MFIs in their effort to promote enterprise culture.

Another challenge faced by CRDB Microfinance is poor entrepreneurship skills among

operators of SMEs. The study found out that majority of operators of SMEs have poor
entrepreneurship skills which prevents them from running their businesses successfully,
and as a result, their businesses struggle to survive. The impact of services offered by
CRDB Microfinance include growth of SMEs, job creations, rise in level of
entrepreneurship skills and promotion of enterprise culture among SMEs.

56
 CHAPTER SIX
6.0 CONCLUSION AND RECOMMENDATIONS
This chapter offers a summary of recommendations made by the researcher.

6.0 CONCLUSION
According to the findings, CRDB Microfinance helps to promote enterprise culture
among SMEs by offering banking services, providing business straining, providing loans
and other credit facilities and providing business advice and supervision. Financial
services offered by CRDB Microfinance include offering loans, holding deposits,
offering payment services and offering money transfer services.

6.2 RECOMMENDATIONS

To address the challenges faced by CRDB Microfinance in promoting enterprise culture,

the researcher recommends the following measures to be taken:

o CRDB Microfinance should start offering credit management training

to SMEs in order to make help them to repay loans in time, and thus
help to promote enterprise culture among SMEs.

o The government should support MFIs which deal with SMEs because

57
 in doing so, MFIs such as CRDB Microfinance will be in a better
position to assist more SMEs and help to develop more SMEs, and
promote enterprise culture in the process.

o CRDB Microfinance and other MFI should conduct awareness

campaigns among SMEs which will help to become more successful
and in the process encourage more people to become entrepreneurs
and thus promote enterprise culture.

6.3 FURTHER RESEARCH AREA

The researcher recommends that more studies should be conducted on challenges faced
by MFIs in promoting entrepreneurship in Tanzania.

58
REFERENCES
Babie, M.(2000) Research Methods for Business Students, Second Edition, New York
Prentice Hall.

Bikki, R. and Joselito G. (2003); Micro Finance Regulation in Tanzania; Implications for
Development and Performance of the Industry. Africa Region Working Paper
series, No. 51, June 2003.

Brandsma, J, and Rafika C. (1998). Making Microfinance Work in the Middle East
and North Africa. Private and Financial Sector Development Group, Human
Development Group, Middle East and North Africa Region, Washington D.C:
World Bank Report 23076.

Buss, T. (1999). Microenterprise in International Perspective: An Overview of the Issues.

Journal of Economic Development. www.spaef.com/sample.html

CGAP, (1998); Commercial Banks in Micro finance: New Actors in the Microfinance
World. Focus Note No. 12.

Cheston, S. and Lisa K. (2002). Empowering Women Through Microfinance.

Bloomfield, CT.

Chiamba, J. (1995). “Access to finance in South Africa: A supply side

regulatory review”. The Task Group of the Policy Board for Financial Services and
Regulation. Internal Report.

Chijoriga, M (2005); “The performance and sustainability of Micro Financing Institutions

in Tanzania” Micro finance Journal

Churchill G.A (2002). Basic Research. 3rd Edition, Orlando Florida the Dryden Press

Daniels, R. (2001). “Financial Intermediation and the Micro-finance Sector.”

Development Policy Research Unit. University of Cape Town

FACET BV (2001); “Financial Sector development in the Lake and Northern Zones of
Tanzania” A Report for a facility to promote the deepening of financial services,
Tanzania

Herper, S. (1999). Finance for Small and Medium-sized Enterprises: A Report on the
2004 UK Survey of SMEs, 87-98.

ILO (1998). Microfinance in Africa. International Labour Organization, Rome, 23-29.

59
Isern, J. and Porleous, D. (2005); Commercial Banks and Microfinance: Evolving
Models of Success; CGAP Focus Note No. 28
JCR-VIS (2003); “Micro Finance Institutions Rating Methodology”. Journal of Micro
Finance India

Kazi, V. (2003); Improving Delivery of Microfinance for Enhanced Performance of

Micro And Small Scale Enterprises (MSEs) in Tanzania. An Exploratory Study.
Un Published MBA Dissertation of the University of Dar es Salaam.

Karungu, P, and Marabwa, E (2000). “Evaluation of ODA to the SMME sector”. A report
financed by the Japanese International Co-operation Agency. part of its aid
programme to the Government of South Africa

Khandker, S (1998) Fighting Poverty with Microcredit: Experience in Bangladesh.

Oxford University: New York, NY.

Kimei, C. (2001); “Mainstreaming Micro and Small Enterprises Finance into Commercial
Banking” Provision of Sustainable Financial Services, Tanzania

Kothari, C.R (1998).Research Methodology: Methods and Techniques, 7th Edition, New
Delhi, India
Kuzilwa, J.A (2007). The Role of Credit for Small Business Success: A Study of the
National Entrepreneurship Development Fund in Tanzania, A Research Paper
presented at a Conference on Entrepreneurship and Business Development. White
Sands Hotel, Dar es Salaam.

Massawe, G. (2005). Entrepreneurial Inclinations of College Students: The Case of

Selected Colleges in Dar es Salaam

MkNelly, B and Christopher, D. (1998). Impact of Credit with Education on Mothers and
Their Young Children’s Nutrition: Lower Pra Rural Bank Credit with Education
Program in Ghana. Freedom from Hunger Research Paper No. 4. Freedom from
Hunger: Davis, CA.

Morduch, J. (1999). The Microfinance Promise. Journal of Economic Literature, Vol

XXXVII, 1569-1614.

Mwaniki, R. (2006); INAFI Africa Trust; Supporting SMEs Development & The role of
Microfinance in Africa. A paper Presented at Africa Union Conference. Cairo,
Egypt
Mwaniki, B. (2005); Performance and Sustainability of Ward Banks and Potential for
Replication: A Case Study of Mbeya Rural District, Tanzania. Un Published MBA

60
 Dissertation of the University of Dar es Salaam.
National Microfinance Bank Annual Reports of 2004/05

National Microfinance Bank Brochures

Peace Corps (2000). Microenterprise Training Guide for Peace Corps Volunteers.
Module 2: Microfinance Methods. Module 3: Operating a Microfinance Institution.

Perker, M. and R.L. Pearch. (2001). The Triangle of Microfinance: Financial

Sustainability. Outreach and Impact. John Hopkins University Press.

Perry, W. (1975). Entrepreneurs and Entrepreneurship in Africa. World Bank Research

Observer, 3(2): 171-187.

Rahman, A. (1999). Micro-credit Initiatives for Equitable and Sustainable Development:

Who Pays? World Development. 27 (1) p. 67-82.

Rhyne, E. (2001) Mainstreaming Microfinance. Kumarian: Green Haven, CT.

Rubambey, S., (2002), NGOs and Poverty Alleviation. The case study of World Vision
Tanzania, (M.A Thesis), University of Dar es Salaam, Dar es Salaam: DUP

Rugumamu, S. (1999): “Entrepreneurship Development: Some Reflections from

Tanzania,” In Rutashobya,

Rweyemamu et al (2003), Perspectives and Approaches for sustainable rural

Development in Africa: Proceedings of the International Conference held at the
Institute of Continuing Education (ICE), SUA , Morogoro Tanzania 18th –20th
February 2002,

Satta, T.A (2002) “A Multidimensional Strategic Approach to Improving Small Business

Access to Finance in Tanzania. The African Journal of Finance and Management

Saunders, M.K. (2000) Research Methods for Business Students, Second Edition, New
York Prentice Hall.

Segrado, C. (2005); “The involvement of commercial banks in Microfinance: the

Egyptian experience”, Muda Project.

Some, S. (2001) “Commercialization of Micro Finance Institutions and its impact in the
provision of financial services” Unpublished MBA Dissertation, University of
Dar es Salaam.
Swisscontact (2003): SME Facts “Country Mapping”, Vol 1 (7), July from The World

61
 Bank Group SME Department, New York J, S, POL, MSE
Toroka, E. B. and Wenga, P. F. (1997): “Small Industries Development Organization:
Tanzania Experience with SME development”, A paper presented at a National `
Workshop on Micro and Small Enterprises

URT (2002). National SME Development Policy. Ministry of Industry and Trade.

URT (2003). National Microfinance Policy. Ministry of Finance and Economy.

Versluysen, E. (1999). Defying the Odds: Banking for the Poor. Kumarian Press:
Greenwich, CT. p. 41-44, 224- 227.

Wangwe, S.M. (1993): “Small and Micro-Enterprise Promotion and Technological

policy Implications,”

Wodon, Q. (2000). World Bank Technical Paper No. 467.

World Bank, (2001); Small and Medium Enterprise Mapping of Tanzania

Writ, S (2000). A Theory of Discouraged Borrowers. Small Business

Economics. 21, 37-49.

www.bot-tz.com

62
Appendix I: Schedule of activities
The table below is the schedule, which shows the time and activity that the researcher
spent during the whole period of the research.

ACTIVITY DURATION (IN WEEKS)

1 2 3 4 5 6 7 8
Preparation of the materials for
research e.g. questionnaires
Making arrangements and
appointments with respondents.
Conducting interviews with
respondents
Distributing questionnaires to
respondents.
Distributing questionnaires to
respondents.
Collecting of questionnaires and
review of collected data
Preparation and presentation of
research report

Appendix II: Budget for the research study

Item Particulars Amount in TShs

63
 - 2 Reams of plain paper
Stationery TShs 5,000 @ 40,000
- 2 Clip Files
TShs 5,000 @
- Questionnaires 4pg x
Photocopying 40 30,
TShs 50 @ page 000
- 30 pages (Proposal) x
Typing and Printing 2
- 40 pages (Report) x 2 200,0
TShs 1,000 @ page 00
For 10 weeks
Transport Two days a week 150,
TShs 2,500 @ day 000
For 8 weeks
Meals Two days a week 100,
TShs 5,000 @ day 000
For 8 weeks
Telephone Follow-ups Two days a week
TShs 5,000 @ day 100,
000
-
Internet search
Miscellaneous -
Assistants’ 300,
allowances 000
- Etc
TOTAL 920,000

Appendix III: Data gathering questionnaires to CRDB Microfinance Ltd

64
This questionnaire has been prepared by the researcher for the purpose of collecting data
for a research study on the role played by microfinance institutions in promoting a culture
of enterprise among operators Small and Medium-sized Enterprises (SMEs) in Tanzania.
Your contribution is highly valued in making the study successful. Assurance is given
that your personal information will be handled confidentially and with utmost secrecy.

Questions:
1. Name
_________________________________________________
Position
_________________________________________________

2. For how long have you been in this position?

______________________________

3. Do you make decisions of giving or not giving loans to SMEs?

Yes ________
No ________

4. Does your bank play any role in promoting a culture of enterprise?

_________________________________________________________________
_

5. Do high rates of defaults hinder your bank’s ability to offer loans to SMEs?
_________________________________________________________________
_
6. Does your bank offer credit management training to would be loan recipients?
_________________________________________________________________
_

65
 7. Does training in credit management help to reduce the rate of loan defaults?
Yes ________
No ________

8. Does your bank have a credit ratings system for loan applicants especially SMEs?
Yes ________
No ________

9. What challenges does your bank face in promoting a culture of enterprise in

SMEs?
_________________________________________________________________
__

10. How does your bank meet the challenges described in question 9 above?
_________________________________________________________________
__

11. Are there any prospects and opportunities for your bank in dealing with SMEs?
Yes ________
No ________

12. Explain your answer in question 11 above.

__________________________________________________________________
_

13. What are your suggestions on the way forward concerning the role played by your

66
 bank and other microfinance institutions in promoting a culture of enterprise
among operators of SMEs in Tanzania.
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________

Thank you for participation.

Your cooperation is highly appreciated.

Appendix IV: Data gathering questionnaire to operators of SMEs

This questionnaire has been prepared by the researcher for the purpose of collecting data
concerning the role played by microfinance institutions in promoting a culture of
enterprise among operators Small and Medium-sized Enterprises (SMEs) in Tanzania.
Your contribution is highly valued in making the study successful. Assurance is given
that your personal information will be handled confidentially and with utmost secrecy.

Questions:
1. Name
_________________________________________________
Age
_________________________________________________
Highest level of education attained
________________________________________

67
1 For how long have you been in the SME sector?
____________________________________________________________________
__

2 Is your business fully registered?, If not please explain why.

Yes ________
No ________

3 How much have you taken as a loan from CRDB Microfinance?

____________________________________________________________________
_

4 Are the interest rates favourable for the growth of your business?
____________________________________________________________________
__

5 Do you face any difficulties in repaying your loans?

__________________________________

6 Does the loan help your business to grow. Explain.

Yes ________
No ________
_________________________________________________________________
_

7 Does CRDB Microfinance play any role in promoting a culture of enterprise among

68
 operators of SMEs in Tanzania? Explain.
Yes ________
No ________
_________________________________________________________________
_
8 What challenges do you face as an operator of SME in Tanzania?
____________________________________________________________________

9 Does lack of access to finance affect the growth of your business? Explain.
Yes ________
No ________

Your cooperation is highly appreciated.

69