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MICROFINANCE

CREATING SUSTAINABLE LIVELIHOODS

FOR POOR WOMEN?

A STUDY OF MICROFINANCE IN LEMARA, ARUSHA

JUNE 2009

Report by:

Rachel Aveyard

Kundhavi Balachandran

Rachael Freeth

Magda Ortiz

Kendra Ott

In part completion for the MSc in Social Development Practice at DPU,

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TABLE OF CONTENTS

ACKNOWLEDGEMENTS............................................................................................................ 4

ACRONYMS ................................................................................................................................ 5

LIST OF FIGURES ...................................................................................................................... 6

EXECUTIVE SUMMARY............................................................................................................. 7

1.0 INTRODUCTION ............................................................................................................. 8

1.1 Context and Background ............................................................................................. 8

1.2 Purpose and Objectives............................................................................................... 9

1.3 Definitions .................................................................................................................. 10

2.0. METHODOLOGY .......................................................................................................... 11

2.1 Secondary Research – Prior to Departure ................................................................ 11

2.2 Analytical Approach – The Sustainable Livelihoods Framework............................... 11

2.3 Primary Research – Lemara Ward ............................................................................ 12

2.4 Constraints and Limitations of research .................................................................... 12

3.0 FINDINGS AND ANALYSIS .......................................................................................... 14

3.1 Poor women of Lemara ............................................................................................. 14

3.2 Access and Purpose.................................................................................................. 15

3.2.1 Service availability in Lemara ............................................................................ 15

3.2.2 Use and purpose of microfinance in Lemara..................................................... 15

3.2.3 Barriers to accessing microfinance.................................................................... 16

3.3 Women’s identified preferences ................................................................................ 17

3.4 Impact on livelihoods ................................................................................................. 18

3.4.1 Livelihood Assets............................................................................................... 20

3.4.2 Relationship to wider Structures and Processes ............................................... 21

3.4.4 Livelihood Strategies ......................................................................................... 22

3.4.5 Livelihood Outcomes ......................................................................................... 22

4.0 RECOMMENDATIONS ................................................................................................. 23

4.1 Create a comprehensive, objective and accessible microfinance data source to

facilitate knowledge ............................................................................................................... 24

4.2 Socially Sensitive Microcredit Conditions .................................................................. 24

4.3 Comprehensive microfinance services should include savings and insurance......... 25

4.4 Stronger focus on training and business planning support ....................................... 26

4.5 Socially Sensitive and Expanded Monitoring and Evaluation.................................... 26

4.6 Recommendation Climate ......................................................................................... 26

5.0 BIBLIOGRAPHY ............................................................................................................ 28

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6.0 APPENDICES................................................................................................................ 29

Appendix 1: Terms of reference............................................................................................29

Appendix 2: Analytical Approach: Sustainable livelihoods framework..................................34

Appendix 3a: Stakeholder Analysis....................................................................................... 35

Appendix 3b: Prioritising Stakeholders ................................................................................. 39

Appendix 4: List of research activities................................................................................... 40

Appendix 5: Transect Walk ................................................................................................... 43

Appendix 6a: Guide for interviews - Primary Stakeholders................................................... 46

Appendix 6b: Guide for interviews - Secondary Stakeholders.............................................. 47

Appendix 7: List of interviewees............................................................................................ 48

Appendix 8: Interview protocols ............................................................................................ 51

Appendix 9: Focus group protocols....................................................................................... 97

Appendic 10: Microfinance models ..................................................................................... 101

Appendic 11: Strengths and weaknesses of recommendations …………………………….103

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ACKNOWLEDGEMENTS

Our group would like to acknowledge, in no particular order, the following individuals and

organizations for their contribution to our research project:

Our Tanzanian counterparts at CDTI Tengeru, Mr. Mohandi, Harold and Primrose, for

their time, energy, enthusiasm and input;

The staff members of the Municipal government in Arusha for their time, information

and insight;

The staff members of various microfinance institutions around Arusha for opening their

offices to our incessant requests for information and for taking the time to help answer

our questions;

Patrice North, our Course Director, for her planning, coordination, information sharing

and guidance throughout our project both in London and in Arusha.

Finally, we would like to express our sincere gratitude to all of the people in Lemara ward

who opened their homes, businesses and schools to us while we were there. We were

warmly welcomed and trusted with important personal information for the betterment of our

project. It is our sincere hope that this report reflects their words and interests, and is taken

into consideration by those able to positively influence microfinance practices in Lemara on

their behalf.

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ACRONYMS

BOT Bank of Tanzania

BRAC Bangladesh Rural Advancement Committee

CDTI Community Development Training Institute

CGAP Consultative Group to Assist the Poor

DPU Development Planning Unit

MF Microfinance

MFI Microfinance institutions

NGO Non Governmental Organisation

ROT Republic of Tanzania

SACCOS Service and Credit Cooperatives

SDP Social Development Practice

SEDA Small Enterprise Development Agency

SLF Sustainable Livelihoods Framework

TOR Terms of Reference

TPB Tanzania Postal Bank

UCL University College London

UN United Nations

VICOBA Village Community Bank

WDF Women Development Fund

WIA Women in Action

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LIST OF FIGURES

Figure 1: Continuum of microfinance sources by formality

Figure 2: Women’s preferred model elements against microfinance institutions providing them.

Figure 3: The impacts of microfinance on the livelihoods of poor women in Lemara

Figure 4: Building sustainable microfinance over time

Figure 5: Recommendations within a wider climate

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EXECUTIVE SUMMARY

This report examines the provision of microfinance to poor women in Lemara and evaluates

the impact of these services on their livelihoods. This process has informed a set of

recommendations that will, when implemented, make microfinance more accessible, useful,

better aligned with women’s preferences and more able to improve their livelihoods.

Despite the large number of providers in Lemara, our research identifies many remaining

barriers for women trying to access microfinance services. A key barrier is a lack of accurate

knowledge about the providers and their conditions. This is important because we found many

women in Lemara who are currently accessing microfinance through institutions that do not

satisfy their basic preferences. Women who were using microfinance services were

predominantly accessing microcredit rather than savings or insurance. Indeed, most women

we talked to in Lemara assimilated microfinance with microcredit, which supports our finding

that there is a lack of accurate knowledge regarding financial offerings in the ward.

Another key finding is that microfinance is often used for household and social expenditure, in

addition to business creation and expansion. Both uses of microfinance can lead to more

sustainable livelihood strategies either through smoothing household consumption by

spreading large or unexpected costs over time, or through the running of a profitable business.

At its core, microfinance aims to build individual assets, which can in turn inform livelihood

strategies that are less vulnerable to risk and shock. However, our research also identifies

negative impacts of microfinance and instances where vulnerability had in fact increased.

These instances were the result of default on loans and the associated consequences. For us,

this highlights the importance of other microfinance offerings such as savings and insurance,

which do not have such a risk. Moreover, wider economic, social, political and natural contexts

which heavily impact livelihoods in Lemara are not directly addressed by microfinance.

These findings led us to a set of five recommendations that build on each other to make

microfinance more accessible, useful and suitable for reducing the vulnerability of poor women

in Lemara. These are:

1. To create a comprehensive, objective and accessible microfinance data source, to

facilitate knowledge of microfinance;

2. Socially sensitive microcredit conditions;

3. Comprehensive microfinance services including savings and insurance

4. A stronger focus on training and business planning support;

5. Socially sensitive and expanded monitoring and evaluation.

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1.0 INTRODUCTION

1.1 Context and Background

The Republic of Tanzania (ROT) is one of the poorest countries in Sub-Saharan Africa and is

ranked 159 out of 177 on the Human Development Index. Furthermore 33.3% of the 34.5

million strong population live on less than $1 a day (ROT, Ministry of Planning, Economy and

Empowerment, 2008). Although the economy has experienced growth rates in the last few

years (7% in 2001 [National Bureau of Statistics, 2002] ) the number of people living in poverty

has risen by over one million in the last decade.

The Tanzanian government has implemented a series of macro-

economic policies and reforms in coordination with a wider international

agenda which emphasises economic liberalisation and self-help as the

root to economic development and poverty alleviation. This process has

been heavily supported by the International Monetary Fund, the World

Bank and significant international aid donors.

Poverty alleviation is a central objective of Governmental policy and is

endorsed by three key policy documents including the Tanzanian

Development Vision 2025, the National Strategy for the Growth and

Reduction of Poverty (also known as Mkukuta) and the National

Microfinance Policy. Throughout these documents the importance of

microfinance as a goal and catalyst for national economic development,

poverty reduction and women’s empowerment is heavily stressed.

Arusha is one of the wealthiest districts of Tanzania with a large revenue potential (Deutscher

Bank, 2007), primarily due to its setting as a tourist base for the surrounding national parks

and its proximity to Kilimanjaro. 31% of the district is urbanised and it is the second largest

urban centre in the country after Dar es Salaam (National Bureau of Statistics, 2002). In the

context of the global economic recession and a poor harvest, Arusha has experienced an

economically stagnant year and many of the populations’ livelihoods have been made more

vulnerable by these circumstances.

Microfinance at international and national levels is hailed for its ability to provide livelihood

opportunities and to mediate risk for the poor. Current discourse recognises the importance of

understanding the social dimensions of microfinance in providing and ensuring sustainable

livelihood opportunities, although the data and research on these issues is still limited.

“microfinanceaddresses the financialneeds of major sectorsof the Tanzanianpopulation …as afacilitator rather thancreator of theopportunities that leadto widespreadeconomic prosperity’.(Ministry of Finance2000)

“Ensuring soundeconomicmanagement –specifically, the roleof start-up capitalmicro-credit inreducingunemployment”(Mkukuta, 2005)

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Lemara is one of 17 wards in Arusha municipality. It is a peri-urban ward

and remains relatively isolated from the centre of Arusha, in terms of

infrastructure and communication. Microfinance services have been

available in Lemara for over 20 years, but the impact of these

programmes is little known and Lemara remains one of the poorest wards

of the Arusha District.

1.2 Purpose and Objectives

Under directive from the Department of Community Development, Gender and Children the

primary aim of this study is to understand the impact of microfinance on the livelihoods of poor

Lemarian women. The report will make recommendations aimed at strengthening the impact

of microfinance in the wider context of the poverty reduction agenda.

A full Terms of Reference can be found in Appendix 1

In order to achieve this, we set out to:

(i) examine the access that poor women in Lemara havehad, currently have or would like to have, to formal

1

and/or informal1

sources of microfinance and for whatpurpose(s);

(ii) provide a comparative analysis of the source(s) ofmicrofinance these women prefer (or would prefer)and why;

(iii) provide a comparative analysis of the extent to whichformal and informal sources of microfinance havereduced, are reducing or are predicted to reducelivelihood vulnerability;

(iv) recommend a microfinance ‘model’ that is most suitedto women’s identified preferences, has the greatestpotential to contribute to improving their livelihoodsand can be sustainable.

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1.3 Definitions

In order to provide clarity of meaning these definitions have been outlined here and will apply

throughout the report.

Livelihood Sustainability:

“A livelihood comprises the capabilities, assets (including both material and social resources)and activities required for a means of living. A livelihood is sustainable when it can cope withand recover from stresses and shocks and maintain or enhance its capabilities and assets bothnow and in the future” (DFID, 1999).

Livelihood Vulnerability:

“the insecurity or well being of individuals or communities in the face of changing environments(ecological/ social/ economic/ political) in the form of sudden shocks long term trends orseasonal cycles” (Moser 1996).

Microfinance:

“offers poor people access to basic financial services such as loans, savings, money transferservices and micro insurance. People living in poverty, like everyone else, need a diverserange of financial services ti run their businesses, build their assets, smooth consumption andmanage risks (CGAP, 2009).

Microfinance exists on a continuum of formal to informal sources (Asian Development Bank,2009).

Poverty:

Poverty is a complex phenomenon that could be understood in a number of ways. In thiscontext it is important to recognise that it is not simply the lack of financial assets, but thesocial, human, physical and natural assets; and the capabilities to utilise them.

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2.0. METHODOLOGY

2.1 Secondary Research – Prior to Departure

In the weeks preceding our departure for Tanzania, comprehensive secondary research was

conducted. A databank was complied comprising information pertaining to:

The Tanzanian social, political, economic, historic and organizational contexts in

which we were to carry out our primary research.

The role and use of microfinance as a poverty reduction tool both inside and outside

Tanzania based on existing literature and analysis of case studies.

2.2 Analytical Approach – The Sustainable Livelihoods Framework

During our secondary research we identified the Sustainable Livelihoods Framework (SLF) as

an accessible and holistic tool through which to measure the actual and potential impacts of

microfinance on the livelihoods of poor women in Lemara (see Appendix 2 for full SLF). The

livelihoods of poor women are particularly fragile and dependent on a range of interconnected

variables, many of which are beyond their control. The SLF breaks down this complex

environment and presents the main factors that affect livelihoods as well as the typical

relationships between them (DFID, 1999).

This analytical framework was utilised in our research to assess the impact of microfinance

services on the factors in the SLF. This included a consideration of the impacts of

microfinance on the financial, human, social, physical and natural assets of poor women and

the wider social, political, economic and natural context in which they are embedded. This

then allowed us to evaluate the extent to which these impacts lead to more sustainable and

less vulnerable livelihood strategies with improved livelihood outcomes.

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2.3 Primary Research – Lemara Ward

Once in Tanzania, we formulated a stakeholder analysis together with our

Tanzanian counterparts (students from the CDTI), with the aim of

identifying appropriate actors for interviews (See Appendix 3a, 3b).

Primary data was then collected through a number of activities (See

Appendix 4):

An introductory workshop with speeches given by the Municipal

Community Development Officer and VICOBA programme

director.

A transect walk through Lemara to gather information on the area

and develop an understanding of the context for our research

(See Appendix 5).

31 Semi-structured interviews conducted with primary

stakeholders in Lemara identified using snowballing and

opportunistic techniques. (See Appendix 6a, 7, 8 for interview

topics for primary stakeholders, list of interviewees, interview

transcripts)

13 Semi-structured interviews conducted with secondary

stakeholders including staff from the Municipality, Regional

Commissioner’s Office and MFIs operating in Arusha (See

Appendix 7b, for interview topics for secondary stakeholders)

Two focus groups were carried out, attended by (Appendix 9 -

Focus Group transcriptions):

1) 6 women of mixed ages and marital status who had not

accessed microfinance

2) 11 married women of mixed age who had accessed

microfinance

Presented preliminary findings to stakeholders, colleagues and

lecturers and obtained feedback.

2.4 Constraints and Limitations of research

During the process outlined above we faced a number of constraints that may impact our

findings.

As our interviews were carried out in Swahili, the information may have been

misinterpreted, lost or biased during translation.

The number of interviews carried out in a day was restricted by having only two Swahili

speakers on our team.

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Two weeks is a limited amount of time to fully grasp the cultural and social (among

other) contexts within which we were working.

The findings may be subject to researcher’s unconscious biases.

The legitimacy of our conclusions is affected by the small sample size.

Some of the secondary data used in this report is outdated and incomplete due to

gaps in national government and MFI databases. Much of the recent baseline data

available is dated 2002.

Many of our interactions with stakeholders were set up by others. This means findings

may be subject to external bias.

Findings are based on the assumptions that information shared with us is correct.

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3.0 FINDINGS AND ANALYSIS

3.1 Poor women of Lemara

The women surveyed were between the ages of 25 and 60 years and most had a basic level of

education and fluent Swahili. Their average family size was approximately six, which often

included orphaned children from extended families. The majority of women surveyed live with a

male in a formal union and marriage is perceived as desirable and an important cultural norm.

However female heads of households are not unusual in Lemara and widowed and divorced

women made up a small percentage of our sample. Both these categories of women had

accessed microfinance in Lemara and we did not come across any unmarried women without

dependents who had accessed these services. However this may have been coincidental due

to opportunistic and snowballing sampling techniques.

Observed living conditions and productive activities suggested high levels

of poverty throughout Lemara, although pockets of relative wealth are

identifiable and women from these household are also included in our

sample. Interestingly women from these relatively wealthy households

were less interested in accessing microfinance as they perceived it to be

high risk. The majority of poor women surveyed were engaged in

productive work in the informal sector in agricultural activities, livestock

management, dress making and selling food items. Most of the married

women had husbands that were either salaried employees in the formal

sector or informal agricultural workers engaged in productive tasks away

from the home. The women expressed the necessity to support their

partners in sharing the financial burden of the household. However they did

not expect to receive reciprocal support from their husbands in their

reproductive roles. Legally women and men are entitled to own houses and

land, however due the patriarchal system; very few women have ownership

of either.

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3.2 Access and Purpose

3.2.1 Service availability in Lemara

A number of different institutions are providing microfinance services in Lemara, including

private sector initiatives, banks and NGOs as well as informal community banks and illegal

money lenders. Figure 1 presents these institutions on a continuum of formality representing

the degree of government regulation and control they are subject to.

Each institution utilises a different model of service provision and place different conditions on

service users. However similarities are identifiable, notably between the different categories of

institutions. For example many of the NGOs use a similar group collateral model and banks

often require a minimum level of savings before providing microcredit. Most providers stipulate

that credit should be utilised for microenterprise creation or expansion (see Appendix 10 for

further information on these different microfinance models).

3.2.2 Use and purpose of microfinance in Lemara

The majority of women interviewed had accessed some form of microfinance. The most

commonly utilised models in Lemara were VICOBA, SEDA and BRAC.

Microcredit was the most utilised service in Lemara. Significantly the majority of interviewees

assimilated microfinance as microcredit. Despite the stipulation that loans must be used solely

for business purposes, women in Lemara have utilised microcredit for other purposes such as

to cover social expenditure in health and education and for house building and improvements.

This is often done to the ignorance of the lending institution. Many women have started or

expanded small businesses such as livestock and poultry farming, shops, food stalls and brick

production serving the local economy. However it is clear that not all women accessing

Informal Formal

Money

Lender

Community

Banking

NGO Private Public

Kibati BRAC AKIBA CRB

Path Finder VICOBA Mwananchi NMB

PRIDE Postal Bank

SEDA SACCOS

WDF

Figure 1: Continuum of microfinance sources by formality

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microcredit have the desire or capacity to become entrepreneurs and that successful business

creation may be limited by actual market demand. We found that a number of similar business

existed in the same street and therefore further business creation of this kind is not efficient.

Significantly both women who had accessed microcredit for business purposes or social

expenditure cited the wellbeing of their families as their primary motivation.

Other microfinance services such as savings and insurance are underutilised in Lemara. Very

few women interviewed had a savings account due to their low income levels and the high

initial deposit required when opening an account. Savings services have been utilised primarily

as a means to obtain credit rather than for their own value. Kibati systems are based on a

principle of savings rather than credit with a rotating pot of money provided to three members

each week. However our sample included just one woman using this form of microfinance.

Participation in health and education savings/insurance schemes is compulsory in the VICOBA

model but no other service offers this.

3.2.3 Barriers to accessing microfinance

Although many women in Lemara are accessing microfinance services to varying degrees and

for a variety of purposes, a series of barriers to access can be identified.

Limited awareness and knowledge

The majority of poor women in Lemara were not aware of the range of microfinance

services available or had very limited knowledge regarding the details of models. Levels of

awareness and knowledge, loan uptake and institutional choice were based on

geographical clusters. Many women chose a service provider on the recommendation of a

neighbour or friend.

Psychological barriers

There is a very strong fear of default and the potential consequences such as the

repossession of physical collateral, regression and shame. High interest rates that are not

explained, lack of financial literacy, business skills, confidence and hearsay of negative

experiences all perpetuate this.

Social power relations

Social stereotyping has created barriers for marginalised groups such as women with

disabilities and the very poor. Within the community other women are not willing to form

groups with these individuals due to the perception that they are unreliable and will not be

able to repay loans. This is perpetuated by microfinance institutions that encourage the

formation of homogenous groups and fail to consider or target marginalised individuals.

BRAC explicitly refuses to provide service to persons with disabilities. In some instances

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patriarchal gender relations had also stopped women from accessing microfinance after

being discouraged by their husbands. Finally corruption and bribery was a widely quoted

reason for not accessing microfinance. The women said that it had seeped into every level

of administration, and they had to bribe officials at every step from getting a letter from the

ward to having a loan sanctioned.

Financial constraints

Low levels of income and savings can create a barrier to microfinance for the every poor.

Some institutions require recipients to have a significant level of savings before they can

obtain a loan. This is difficult for the very poor who struggle to simply pay their day to day

expenses and have no money left to save. More informal options such as VICOBA also

require members to purchase shares for a number of weeks and pay several fees before

they can obtain a loan also providing a significant barrier. Training on how to save the

minimum share amount of Tsh.1000 (US$ 0.75) a week, as offered by the Orgut VICOBA

model (which does not operate in Lemara but is based around Arusha) provides one

possible solution to this problem.

MFI conditions

Traditional bank-style microfinance institutions require financial or physical collateral. This

is disadvantageous to both poor women and men, who have little or no ownership of

physical resources. It further disadvantageous women, who have lesser control over

‘household’ resources relative to men. Furthermore all of the formal microfinance

institutions stipulate that loans can be used for business purposes only and many require

the prior existence of a business before providing credit. This is a contradictory logic as a

person must invest their own money first, providing a considerable barrier for the poorest

women in Lemara. It also means that loans cannot be openly accessed to cover social

and other expenditure.

3.3 Women’s identified preferences

An important barrier listed above highlighted a lack of knowledge of different models available.

This meant that women often chose a model based on limited and subjective information. This

is not to say that women do not have strong preferences regarding desirable conditions for

loans but that the models they chose did not necessarily reflect them. For example, the

majority of women surveyed said that they prefer low interest rates but many had taken loans

from institutions with the highest interest rates.

Figure 2 plots elements that women preferred against the microfinance institutions available in

Lemara. This illustrates that no model currently satisfies all of the preferences identified by

women but that different models satisfy different preferences. This chart lists preferences in

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order of increasing importance from left to right, demonstrating that the community banking

models and government schemes best represent the preferences of women in Lemara.

However some of the most important conditions are not addressed by any model.

3.4 Impact on livelihoods

The impact of microfinance on poor women’s livelihoods in Lemara is represented in Figure 3.

This diagram clearly captures the impact microfinance has on the interrelated factors required

for sustainable livelihoods.

WOMEN'S IDENTIFIED MICROCREDIT PREFERENCES

Low

inte

rest

rate

s>

16

% No

entr

ance

fee

No

physi

cal

colla

tera

l

Subst

antialf

inancia

ltra

inin

g

Support

with

busi

ness

pla

n

Longer

repaym

ent

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<=

9m

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paym

ent

Opport

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tocom

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Gro

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touse

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nonbusin

ess

Pers

onalis

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repaym

entsc

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Fastlo

an

sanct

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Serv

ice

availa

ble

clo

se

tohom

e

No

need

tojo

ingro

up

Money lenders √ √ √ √ √

CommunityBanking Kibatti

√ √ √ - √ √ √ √

PF Vicoba √ √ √ √ √ √ √ √

NGO BRAC √ √ √

Mwanchi*

PRIDE*

SEDA √ √ √ √

Private AKIBA √ √ √ √

Public CRDB*

NMB √ √

Postal Bank √ √ √ √

SACCOS √ √ Set by group √

WDF √ √ √ √ √ √ √ √

Figure 2: Women’s preferred model elements against microfinance institutions providing them.

*

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THE IMPACTS OF MICROFINANCE ON THE LIVELIHOODS OF POOR WOMEN INLEMARA

To be printed separately and attached here.

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3.4.1 Livelihood Assets

Based on a self help philosophy, microfinance has the greatest impact on the livelihood assets

of individuals. The concentration of impacts in the asset pentagon, in relation to other

elements of the framework, is highlighted in figure 3.

Financial

Financial assets are directly enhanced by access to credit, although

the underutilisation of savings and insurance leaves considerable

space to further develop this asset. It should also be recognised that

credit in the form of debt increases vulnerability to shocks and in some

cases led to financial, physical and social asset regression when

women could not afford to repay their loans.

Human

Human assets are directly enhanced when credit is accompanied by

financial and/or business training. There is a critical relationship

between these two assets as training increases the chances of

success if a business is started, thereby reducing the probability of

default. As has been highlighted above, microfinance has also

facilitated social expenditure on education and healthcare further

developing human assets. However fear of default as well as livelihood

strategies that enlarge women’s productive role can result in stress,

physical exhaustion and increased female time poverty.

Social

Group collateral systems and community banking models bring members of the

community together into organised group. This builds social networks and trust within the

community, extending the social assets of poor women. Many felt they could rely on fellow

members for emotional support and some said group members would assist them

financially in the case of a family death. However in cases of default women have faced

conflict and even exclusion from the community. Conflict within the household has also

resulted from the increased work load of women and perceived neglect of their

reproductive roles. Although men remain unwilling to assist with reproductive work, the

increased income and confidence of women has delivered a level of female

empowerment.

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Physical

Many women have used their loan or business profits to build a house,

increasing their physical assets. However due to gender norms married

women may not own these assets and hence their vulnerability in the

case of marriage breakdown or death of their husband may remain

intact. Essentially microfinance has not enhanced collective physical

assets in the community and the prevailing policy environment is not

conducive to improving this infrastructure in Lemara.

Natural

Microfinance has not enhanced natural assets and may have impacted negatively on the

natural environment in Lemara due to increased refuge from businesses.

3.4.2 Relationship to wider Structures and Processes

As microfinance is based on a self help philosophy little attempt is made to transform

structures and processes. Access to institution providing microfinance has increased but

women have little influence over them and most providers fail to respond to the preference of

women. VICOBA provides the greatest scope for individuals to influence a microfinance

provider, as members engage in a participatory process to develop their own constitution and

governing rules.

Government hierarchies have not been affected and corruption continues to provide a major

challenge. The VICOBA model has also taken steps to reduce corruption by incorporating

transparent procedures into their constitutions.

Little attention is given to cultural processes that impact on the level of access individuals have

and affect the impact of microfinance on their livelihoods. Although there has been a small

indirect impact on social and gender power relations, with women having an improved

bargaining position in the household and the community. However these impacts only go as

far as satisfying the practical need of women and few articulate strategic interests in changing

the gendered division of labour in Lemara.

Finally microfinance has not addressed laws and policies that hinder the development of more

sustainable livelihoods. There are several laws that specifically prohibit women form carryout

livelihood strategies such as the policy that items cannot legally be sold on the street outside

their homes. At a wider level basic social goods that are necessary to sustainable livelihoods

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are not provided. As microfinance fits into the self help neo-liberal policy sphere it does

nothing to challenge this.

3.4.3 Vulnerability Context

Microfinance has not directly impacted on the vulnerability context. However poor women’s

increased access to microfinance structures and the ensuing enhancements of their livelihood

assets has in most cases reduced their vulnerability to shock and seasonality. However

women who start businesses may be more vulnerable to international economic fluctuation

that will affect the prices they can charge and the incentives they receive for their goods.

3.4.4 Livelihood Strategies

Whether women choose to use microcredit to start a business or to cover social expenditure

and household items they typically have more sustainable livelihood strategies. Most women

who had started a business were still running it and some had expanded, normally with the

use of further loans. However, it is important to note that many of these businesses are similar

and in competition. This may reduce the sustainability of these livelihood strategies in the

future especially if more of the same businesses are started.

For households with an existing income, but one that is insufficient to pay for irregular or

unexpected expenses in one go, access to microfinance can spread costs over time with the

use of credit and insurance schemes in the case of VICOBA members. However these

strategies may have negative impacts on women’s livelihood assets such as those that have

been referred to above under a discussion of human assets.

3.4.5 Livelihood Outcomes

These livelihood strategies have in many cases led to improved livelihood outcomes such as

increased household income, number of meals per day and improved health. Moreover these

livelihood outcomes in turn further develop livelihood assets and slowly building up stronger

asset bases for sustainability. The majority of people interviewed observed that individuals

accessing microfinance services are better off and a noticeable difference is emerging

between service uses and non-users.

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4.0 RECOMMENDATIONS

We have identified a tangible set of recommendations that are both immediate and long-term

in scope. The recommendations have been specifically designed to address the core

objectives set out by the Department of Community Development, Gender and Children. The

recommendations are sensitive to the many stakeholders involved with microfinance in

Lemara, including policy makers, service providers but primarily the women of Lemara.

Importantly, the recommendations do not advocate a new microfinance model or suggest that

one model is able to serve the diversity of requirements of the women in Lemara. However, in

reading our recommendations, it is noticeable that they support many aspects of village

community banking models. This is not accidental. Our analysis of microfinance models in

Lemara has provided us the insight necessary to stand knowledgeably behind this type of

model as well suited for the poor women of Lemara. As such, we have built upon some of the

core aspects these models including member ownership and transparency.

Figure 4 illustrates how our recommendations are crafted to build upon each other. This

indicates priority and impact over time, with the base recommendation being the most

immediate. The recommendations start with creating a strong knowledge base. Thereafter we

have put forth some conditions specifically for microcredit, the aspect of microfinance we found

to be most utilized in Lemara. Following this we recommend steps towards improving

accessibility to savings and insurance. The final recommendations are wider in scope and

would require more resources and commitment to implement. The fourth recommendation is

that training be enhanced. And finally, monitoring and evaluation should be expanded to cover

social impacts.

I

Figure 4: Building sustainable microfinance over time

Imp

ac

tO

ve

rT

ime

Village community banking models are defined as: member-based institutions, normally

promoted by international NGOs, owned by members of the village bank but not being

bound by conditions of credit unions formally registered (FINCA, 2009).

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4.1 Create a comprehensive, objective and accessible microfinance data source to

facilitate knowledge

In Lemara Ward, and indeed throughout Arusha, there is a significant lack of accessible and

objective information about microfinance options for poor women. The concern therefore is to

develop a comprehensive data source available in a range of both easily reached and

understandable mediums for all stakeholders with priority given to poor women in Lemara.

The inability to make informed choices regarding microfinance models lead to women

‘choosing’ inappropriate models, which in some cases further diminished their asset base.

This, in turn, has increased livelihood vulnerability for those women.

Logistically this is a difficult task when facing resource limitations in the Municipality. However

there are many NGOs, research institutes and universities focused on microfinance. The

Municipality could link up with these organisations to access their information and skills free of

charge or at a reduced rate. This task could be out sources in this way also allowing for

objectivity.

Moreover this would not be a difficult of lengthy task as much of the required information

already exists at an ad hoc level and amid uncoordinated stakeholders. Specifically, the data

source can draw on information from the Bank of Tanzania, the research done while drafting

the MKUKUTA and other government surveys. Additionally, many of the MFIs have

themselves carried out data collection during the course of operation.

In the longer term, it would ideally be regulated by a federation made up by the government

and microfinance institutions working together in an integrated manner. It is in the

government’s interest to partake in this effort as it is a tangible move toward improving access

to microfinance for poor women and thereby achieving the objectives stated in Tanzanian

poverty reduction policies.

4.2 Socially Sensitive Microcredit Conditions

A number of the microcredit services and conditions in Lemara can, through relatively simple

steps, be tailored to better serve the purposes and needs of poor women by making them

socially sensitive. The recommended conditions cater to the key preferences and

requirements that the women voiced and address barriers identified during our research. This

recommendation seeks to address women’s preferences while taking into account the

financial and operational logic behind existing microfinance conditions. This recommendation

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should be taken into consideration by all service providers. Socially sensitive conditions should

include;

- Interest rates that are explained, understandable and justified to clients. Also interest

rates could be capped at 10% above the commercial lending interest rate

- Up-front joining fees that are spread over a prolonged time period so as to remove

psychological and financial barriers to entry

- Flexible loan guarantees do reduce the social and financial barriers faced by poor

women. The requirement of a letter from clients Ward Executive Officer guaranteeing

credibility is acting as a significant barrier to marginalised women in the ward. This

can be addressed by making letters from other legitimate sources acceptable (i.e.

health care professionals, other credible lenders, business owners, and other

professionals)

- Loans for non business purposes with a specific focus on education, health and

home improvement/building

- Flexible loan repayment periods with options to pay more over a longer timeframe

on the same loan

- Member ownership so that terms of loans are set by the members of the group

4.3 Comprehensive microfinance services should include savings and insurance

If microfinance is to reduce poverty and increase livelihood sustainability, it should

meaningfully incorporate saving and insurance services as these are crucial to reducing

vulnerability. To do this, there should be an increase in the spectrum of services offered by

MFIs in Lemara. This could be achieved through;

- Savings accounts with lower initial despot requirement. This could be on the

condition that no interest or bank fees would be paid until a set amount is reached

- Specific education and health savings and insurance schemes

- Training that stresses the benefits of these services. Microfinance is a concept

understood by most of the women as solely microcredit. In order to encourage the use

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of savings and insurance that can protect women from vulnerability and encourage

accumulation

4.4 Stronger focus on training and business planning support

Our analysis revealed that businesses started with microcredit in Lemara are often of a similar

nature and operating in close proximity. This limits their possibility for growth and is inefficient.

This threat to sustainability is easily addressed through enhanced business training and

support in planning. This need was also identified by poor women surveyed who indicated

three areas that would be most useful; basic business skills and accounting, business advice

and support and implementable business plans.

Although these training and support programmes would be a fairly new initiative in Lemara,

there are certainly groups and individuals competent in this area who could engage with the

process. There is ample money and resource either within universities, research NGOs or

government institutions to dispense sound business information and advice. This change is

desirable to all stakeholders in order to increase both social and financial returns, enhance

economic growth and alleviate poverty.

4.5 Socially Sensitive and Expanded Monitoring and Evaluation

As microfinance is a tool to reduce poverty and livelihood vulnerability, it should be measured

against these criteria, made transparent and accountable to those it aims to serve. Currently,

monitoring and evaluation is focused on how much money has been sanctioned, rate of

default, and in the case of community banking, the number of groups formed. None of these

indicators can measure poverty or vulnerability. Therefore, monitoring and evaluation needs to

be multidimensional to capture the impacts of these services on the lives of poor women. Such

monitoring and evaluation can feed back into the planning and provision of services that will

contribute to achieving government objectives for poverty reduction. The municipality can

achieve through new tools currently being developed by key international players in

microfinance (such as CGAP) to measure social impacts. The current administrative structure

reaching out to every ten households in Tanzania can augment this process.

See Appendix 11 for a strengths and weaknesses analysis of each of the recommendations.

4.6 Recommendation Climate

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Our recommendations have been devised to be tangible, feasible and operational. We have

confidence that the stakeholders we met during our research have the ability and drive to

make the suggested improvements.

However, looking through the sustainable livelihoods lenses, we feel that microfinance is only

one piece of a very complicated puzzle. Whilst microfinance can build ‘micro-resources’ at

individual level, as a derivative of the neo-liberal agenda reinforcing self-help, it has limited

scope to challenge wider structures and processes which also affect the livelihoods of poor

women in Lemara. This is represented as a circle in figure 5.

These wider structures and process including gender inequality, corruption and the lack of

public goods such as education, healthcare and social security, may leave women more

vulnerable to shocks. Efforts need to be taken by a much wider group of actors at the local,

national and international level to transform these structures and processes. These efforts are

far beyond the reach of microfinance initiatives. Nevertheless, they need to be addressed to

build livelihoods capable of breaking the cycle of poverty.

Figure 5: Recommendations within a wider context

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5.0 BIBLIOGRAPHY

Asian Development Bank (2009) www.adb.org

Deutscher Bank (2007) Annual Report, http://www.ded.de/cipp/ded/lib/all/lob/return_download.

FINCA (2009) From Information to Innovation: Harnessing Social Data to Empower Change,

http://www.villagebanking.org/site/c.erKPI2PCIoE/b.2628761/k.6A65/Annual_Symposium_and

_Research_Papers.htm.

Ministry of Finance (2005) National Microfinance Policy

http://www.tanzania.go.tz/pdf/nationalmicrofinancepolicy.pdf

MKUKUTA (2005) National Strategy for Growth and Poverty Reduction, Government of the

Republic of Tanzania, Vice Presidents office, June 2005

Moser. C. (1996) Confronting Crisis: A Comparative Study of Household Responses to Poverty

and Vulnerability in Four Urban Communities, ESD, Washington DC

Department for International Development (1999) Sustainable Livelihoods Guidance Sheet:

Introduction. http://www.livelihoods.org/info/info_guidancesheets.html#1.

National Bureau of Statistics (2002) Population and Housing Service Village and Street

Statistics. http://www.nbs.go.tz/publications/index.htm.

National Planning Division (2005) Tanzanian Development Vision

http://www.tanzania.go.tz/vision.htm.

Nzaidtools (2009) Sustainable Livelihood Approach http://nzaidtools.nzaid.govt.nz/sustainable-

livelihoods-approach/annex-1-components-sustainable-livelihoods-framework-0

ROT Ministry of Planning, Economy and Empowerment (2008) “Ministry of Finance

Homepage” http://www.mof.go.tz.