Effectiveness of guarantee funds to small and medium enterprises in Tanzania

This research aimed at identification and analyzing effectiveness of government guarantee funds to small and medium enterprises in Tanzania. To attain the above objective, a survey of 28 Small and Medium Enterprises (SMEs), which have accessed the government credit. Guarantee fund was carried out. Tanzania government issued Credit Guarantee Fund in financial year 2000/01 (managed by the Central Bank) to augment financial institutions' efforts to lend to the uncollateralised SME sector. Both From the observations, there existed some indicators that the government credit guarantee scheme has created awareness to the Small and Medium Enterprises lacking adequate collaterals in their endeavour to flourish their businesses. The Chi-Square tests suggested that the revenues of most of the firms interviewed showed positive growth. The turnover of employees did not match the researcher's expectations. This might be attributed to the duration of the guaranteed credit that is less than five years. From the findings it is recommended that the government guarantee funds' effectiveness has responded quite well albeit to a small number of farms so far. The government is advised therefore to increase efforts towards improvement of this financing for small businesses to enable them graduate to fully-fledged institutions such that they contribute positively to the Tanzania's economy. A farther research is recommended to address other factors not mentioned in this report including analysis of long-term effectiveness of the government guarantee fund.