The attributes of microfinance institutions: a case of Non-Deposit Taking Microfinance Companies in Tanzania

This study aims to assess the attributes of non-deposit taking microfinance companies in terms of their products and services, pricing of the products, loan requirements and processing, loan repayment schedules and customers’ perceptions about the services of the MFIs in Tanzania. The study followed a survey technique whereby interview and documentary reviews were used to collect data from 100 MFIs, while convenient sampling approach was used to collect data from 200 MFIs’ borrows. Data was analyzed following descriptive statistics to reveal MFIs’ attributes and the borrowers’ perceptions. Findings show that, the major loan products offered by MFIs were business loan, employee loan, emergency loan and group loans in that order of preference. MFIs offer loans of different sizes from the minimum of TZS 50,000 to the maximum of TZS 200,000,000 with repayment duration ranging from 1 t0 60 months. Pricing of loan products were very high with an average of interest rate of 9.03% per month. Few MFIs (11.0%) use both methods in calculating interest rates, 56.0% of MFI s use reducing balance method’ only while 52.0% of MFIs use ‘flat rate method’ only. The borrowers also bear loan application fee (averaged TZS 12,000) and additional fees amounting to 3.0% of disbursed loan. Most MFIs require collaterals for the applied loans preferably, movable assets such as motor vehicles and other chatterals for the applied loans preferably, movable assets such as motor vehicles and other chatterals. Different MFIs have different requirements from both the borrowers and/or the guarantors such as collateral documents, certificate of T.I.N, business license, others. Most MFIs prefer monthly and weekly, fixed& variable repayment schedules with a combination of interest and principal payments. From the borrowers’ attributes to assess them before applying for a loan. Chiefly borrowers are more keen on loan processing time, nature of required collaterals, interest rates, fees and charges, recommendation from others and types of products and services offered by MFIs. The study concludes that, loan products offered by most MFIs have very high interest rates, fees and charges. The products and services offered by MFIs could be inaccessible by majority of the intended poor community as they perceive them as expensive and bureaucratic. MFIs should reduce lending interest rates as well as to diversify their products and services. Policy and decision makers should create supportive policy and regulatory environment necessary to a suitable delivery of microfinance services that expands outreach and at the same time improve access by poor to financial services. There is a need to conduct a comprehensive survey for assessing all attributes of microfinance institutions national wide with a wide coverage of all types of MFIs.