Assessing the effectiveness of loans by micro finance institutions in Tanzania

Since the financial sector liberalization that was done by the Government in 1992, there has been an increasing quality and efficiency in credit allocation to the people who are in need of the service. Among these are the SME operations. The banking and non-banking financial institutions have been playing a big role of channeling money to people or to other investment companies for economic development activities. These studies aimed at finding out of there are some improvements in the quality of life of the people who run SMEs by getting loan capital from microfinance institutions. This study has been done involving customers served by Promotion of Rural Initiatives and Development Enterprises (PRIDE Tanzania LTD), a microfinance institution operating in Tanzania. In the study, the information was obtained through questionnaires that were distributed to the respondents in Mbeya, Iringa, Sumbawanga and Songea respectively to PRIDE Tanzania customers to fill in others were interviewed at their business premises and observation to some of them justify what they narrated was done to their businesses and homes. The findings from the study have shown that individuals who get loans for their SMEs have changed their quality of life significantly by being able to build or renovating houses, buying new furniture, paying school fees for their children, meeting medical expenses, buying cars and winning social recognition. It is therefore recommended that the SMEs sector has to be given much emphasis by the government as it plays a major role in improving the life of the people as well as contributing much to the GDP of the country. The challenges facing the sector especially difficult conditions put by financial institutions as requirements for people to access loans have to be addressed to make it easier to access loan capital. Awareness of the available opportunities should also be created to the public especially to the SMEs sector operators to make them more successful.