An economic analysis of demand for credit in Tanzania: a case study of small-scale enterprises (SSES) in Dodoma municipality.

This study is an investigation of factors which influence the demand for credit by Small-scale enterprises (SSEs) in Tanzania. The study is motivated by the need to have a clear understanding of the demand-side effects on financing SSEs. This is necessitated by the fact that the supply of credit to the SSEs does not only require an understanding of the existing services and their limitations from the supply side but it also requires an understanding of the other side. Both descriptive as well as statistical analyses have been used in this study. The sampling unit of thirty five SSEs was randomly selected from a list of registered SSEs which had ones borrowed from either SIDO and/or CRDB in Dodoma municipality in 1995. Data collected were complemented by interviews made to SIDO and CRDB officials. The study recorded the following findings. First, the micro-entrepreneurs feared to borrow because of the difficult conditions associated with the credit programmes operated. Secondly, there was an existence of an information gap on the part of micro-entrepreneurs. Thirdly, the SIDO loanable funds did not meet the demand for credit. Hence many of the micro-entrepreneurs resorted to other alternative sources of finance. Fourthly, many of the micro-entrepreneurs failed to maintain and audit accounting records according to the approved principles. Hence this was found to affect their ability to borrow from the existing formal financial institutions. Finally, many of the SSEs engaged in small-scale projects for the purposes of being employment and generating income to subsize their incomes from the wage employment in the formal sector. The study foward, however, that most of the SSEs had inadequate equity to expand their enterprises. The possible policy implication of the results is that institutional credit is important for the development of SSEs. Therefore, the study recommends an establishment of schemes and formal credit institutions earmarked for lending to the SSEs. Such an institution could be linked to SIDO or could be developed from a transformation of SIDO into a fully fledged financial intermediary.