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.
“Ensuring sound
economic
The Tanzanian government has implemented a series of macro- management –
specifically, the role
economic policies and reforms in coordination with a wider international of start-up capital
micro-credit in
agenda which emphasises economic liberalisation and self-help as the reducing
unemployment”
root to economic development and poverty alleviation. This process has (Mkukuta, 2005)
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

“microfinance
endorsed by three key policy documents including the Tanzanian addresses the financial
needs of major sectors
Development Vision 2025, the National Strategy for the Growth and of the Tanzanian
population …as a
Reduction of Poverty (also known as Mkukuta) and the National facilitator rather than
creator of the
Microfinance Policy. Throughout these documents the importance of opportunities that lead
to widespread
microfinance as a goal and catalyst for national economic development, economic prosperity’.
(Ministry of Finance
poverty reduction and women’s empowerment is heavily stressed. 2000)

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.

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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.

In order to achieve this, we set out to:

(i) examine the access that poor women in Lemara have

1
had, currently have or would like to have, to formal
1
and/or informal sources of microfinance and for what
purpose(s);

(ii) provide a comparative analysis of the source(s) of

microfinance these women prefer (or would prefer)
and why;

(iii) provide a comparative analysis of the extent to which

formal and informal sources of microfinance have
reduced, are reducing or are predicted to reduce
livelihood vulnerability;

(iv) recommend a microfinance ‘model’ that is most suited

to women’s identified preferences, has the greatest
potential to contribute to improving their livelihoods
and can be sustainable.

A full Terms of Reference can be found in Appendix 1

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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.

Microfinance:
“offers poor people access to basic financial services such as loans, savings, money transfer
services and micro insurance. People living in poverty, like everyone else, need a diverse
range of financial services ti run their businesses, build their assets, smooth consumption and
manage 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 this
context it is important to recognise that it is not simply the lack of financial assets, but the
social, human, physical and natural assets; and the capabilities to utilise them.

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 or
seasonal cycles” (Moser 1996).

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 with
and recover from stresses and shocks and maintain or enhance its capabilities and assets both
now and in the future” (DFID, 1999).

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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.

Informal Formal

Money Community NGO Private Public

Lender Banking
Kibati BRAC AKIBA CRB
Path Finder VICOBA Mwananchi NMB
PRIDE Postal Bank
SEDA SACCOS
WDF
Figure 1: Continuum of microfinance sources by formality

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

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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.

WOMEN'S IDENTIFIED MICROCREDIT PREFERENCES

months 9 =<Longer repayment period

Option to use credit for nonbusiness

Personalised repayment schedule

Opportunity to combat corruption

Service available close to home

Substantial financial training

Support with business plan

%16 >Low interest rates

No physical collateral

No need to join group

Monthly repayment

Fast loan sanction

No entrance fee

Group collateral
Money lenders √ √ √ √ √

Community
√ √ √ - √ √ √ √
Banking 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.
*

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.

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THE IMPACTS OF MICROFINANCE ON THE LIVELIHOODS OF POOR WOMEN IN
LEMARA

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.

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).

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.
Impact Over Time

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Figure 4: Building sustainable microfinance over time

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.

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