Potentials and challenges of commercialization of micro finance institutions in Tanzania.

Tanzania experienced a rapid development of donor supported MFIs in early 1990s, with the objective of building economic capacity of low-income population and hence fights against poverty. It is approximately 13 years now but demand for microfinance services in Tanzania continues to outstrip the supply. Studies showed that donors are now shying away from provision of grant capital into loan capital. Various scholars claims that this is the high time for MFIs to change their structure of operations into commercial enterprises and start to offer full range of financial services to the low income population and to utilize commercial sources of capital such as equity capital, loan from commercial banks, government and corporate bonds and other commercial sources of funds in order for them to repudiate from donor dependency and fill the gap between demand and supply. However other group of scholars claim that commercialization of MFIs will result into wealthier clients crowd out poor clients. It is from the above context, potentials and challenges of commercialization of Micro Finance Institutions in Tanzania became the subject of this study. Three MFIs, PRIDE (T), FINCA (T) and PTF were visited and findings from the field revealed that, commercialization of MFIs will result into reduced interest rates on loans; increases range of financial services offered to the micro finance clients, improves quality of the services offered and increases out-reach with the demand driven financial products to the micro finance customers. The study also confirmed that there is huge demand for, saving accounts, individual loans, leasing of equipments, money transfer and long-term micro loans, but these financial products are yet to be offered by MFIs currently operating in the market. The research found that, among three visited MFIs it is only one that has human resources capacity to transform and operate as commercial enterprise. Other MFIs need substantial capacity building before they are transformed into commercial enterprises. In addition to that study also revealed that MFIs do not have clear ownership structure therefore, MFIs' ownership structures imposes serious challenge in the transformation process. The conclusion reached here is that, commercialization is the right way to take, however substantial capacity building is required in both Government's regulatory body (BOT) and MFIs themselves in order for the benefits of commercialization to be reaped by MFIs and community at large.