Transformation of Non-Governmental Micro Finance Institutions (Mfis) in Tanzania

Abstract

Transformation of NGO micro finance institutions (MFIs) is one of the solutions for increasing the supply of financial services to micro and small enterprises and the rural poor. The findings revealed that there are a number of challenges affecting the transformation of MFIs, including the lack of human resource capacity; inadequate technical skills in banking and finance; the lack of demand-driven financial products; limited capital and loanable funds; weak ownership and governance structures; and poor information technology systems including poor loan tracking. The legal and regulatory framework and high donor dependence also affects MFIs’ operations as commercial enterprises as well as future sustainability. The paper concludes that, while commercialization and transformation of MFIs is beneficial, many MFIs in Tanzania are not ready. Transformation of MFIs will lead to a mission drift, resulting in a widening of the financial service gap, especially for micro and small enterprises, low income earners and the rural poor.