Credit risk management in micro, small and medium enterprises (MSMEs) in Tanzania: the case of selected MSMEs in Dar es Salaam.

The thrust of this study was to explore the credit risk management in Micro, Small and Medium Enterprises (MSMEs) in Tanzania. Specifically, the study focused at establishing the process of screening prospective debtors, monitoring and controlling debtors in MSMEs. MSMEs in a developing economy like Tanzania are very important aspect of economic growth, productivity, and the contribution in employment opportunities. However, customers taking products on credit and failing to pay back is among the critical problems of MSMEs cases. The unit of analysis was owners/owners-manager. Content analysis was employed in data analysis. It was established that, there are no common techniques that MSMEs use to screen, monitor and control their debtor through in general they follow the same credit risk management process. Majority user permanent resident and those they know well as screening variables, owners themselves track the debtors through telephone calls, friend and relatives. Majority review debtors ability to pay on monthly basis while others do in two to three months. This is done mostly by following them to their homes. Most of them stop selling on credit when their debtors disturbing them and no paying their duties timely. The techniques used in the whole process support the agency theory which emphasizes on instituting mechanisms insure that the agent act according to the principle’s interest. The study recommends on the tentative processes of screening prospective customers, monitoring and controlling debtors so as to manage credit risk. It also recommends that the government and private sector should assist MSMEs and establish Credit Risk Management framework that can be employed by the MSMEs in managing risk arise from sale on credit.