Microfinance NGOs and poverty reduction in Tanzania: a case study of VS&LAs under CARE Programs in Coast region

There is still a very large gap between the needs of the poor for financial services and the ability of Banks and large Microfinance Institutions (MFIs) to provide these services. This study assessed the impact of Microfinance Non-Government Organizations (MF- NGOs) on poverty reduction in Tanzania. A sample of respondents comprising of ninety Village Savings and Loan Association members and ten NGO leaders taken from Coast region was used. The research instruments used to collect data from the field were questionnaires, interviews and observations. The four Null Hypotheses used in this study were: There is no change in livelihood of borrowers after receiving loans from MF- NGOs; The interest rates charged by MF NGOs doesn’t affect the borrower’s ability to repay the loan; The entrepreneurial skills provided by MF NGOs does not affect the improvement of entrepreneur’s business; and There is no relationship between the amounts of loans provided by Microfinance NGO's to VS & LA members and the contribution to business growth. The findings from this study revealed that people’s well being improved after receiving loans from microfinance NGOs, e.g. before taking loans, out of 47 people interviewed in Kibaha district, only 6, 7, 30, 12 and 4 people were able to pay medical, education, clothes, meals, ownership of assets expenses but after taking the loans 27, 28, 47, 44, and 20 were able to pay the expenses respectively. Borrowers were able to repay the loans because the interest rates were low. Training given was focused on how to form and manage VS&LA groups and savings/credit instead of entrepreneurial skills. Amount of loan received was found to be not enough to start and expand businesses. It is concluded that Microfinance NGOs which are tailor made to suit the needs of poor and the pro-poor people are able to reduce poverty by providing grants and microfinance services to them. Finally it is recommended that MF-NGOs should strengthen training of VS&L members on entrepreneurial skills and give them grants. Large MFIs and Government should provide grants and conducive policies to support the development and sustainability of VS&LAs.