Factors influencing financial sustainability of urban microfinance institutions: a case of selected Microfinance Institutions in Dar es Salaam

Providing the poor with access to savings and credit services as poverty alleviation strategy has gained prominence in the past and recent years, this has resulted from the emergence of models showing increasing success in terms ability to reach the poor and in sustaining the delivery services. However, significant number of those engaged in microfinance services continues to struggle with sustainability (Tang 2002). This study therefore sought to establish the factors affecting financial sustainability of microfinance institutions operating within the urban areas. The researcher used case study design by selecting the sample of 10 microfinance institutions from which data were collected by using purposive approach. The study found that financial policies and regulations, performance of microfinance institution, client’s related factors i.e. loan default, source and usage of funds as well as the number of clients served, financial coverage and volume of credit transacted, were the factors that positively influenced the sustainability of microfinance institutions. The study recommended that MFIs should minimize cost and increase productivity e.g increasing the number of clients to be served so that they can enjoy economies of scale as well as learning from other successful MFIs e.g that of Bangladesh such as Grameen Bank, Association of Advancement and BRA, Changing their lending terms, loan management and follow ups. The study concluded by calling proper combination of the poor and relatively average poor clients in the loan portfolio.