1st August 2015
After a month within the Ibumila community it has become increasingly clear that microfinance is a fundamental resource that enables entrepreneurs to tap into accessible and affordable capital.
For the entrepreneurs we have been working with microfinance is essential in securing funding without the high interest rates or collateral based system that is prevalent in many other financial institutions.
Throughout much of Tanzania, particularly within the rural villages, SACCOS (Saving and Credit Cooperatives) are the first step for entrepreneurs wishing to access credit. SACCO is a small scale credit financier providing low interest (approximately 9%) loans to members, which are guaranteed by the initial payment members must make to join (approximately 30,000 Tanzania shillings) and by two further members acting as guarantors. Each SACCO has its own terms and conditions but they all follow the same cooperative approach to lending.
SACCO is based on a simple local idea throughout Tanzania known as a VICOBA (Village Community Bank). VICOBA is essentially a savings account set up by a small group. The group agrees to pay in a certain amount of money each week with the total amount being kept until one member is in need of the savings. Every member is guaranteed a yearly return of the total amount they have put in. Furthermore the novel e-finance initiative known simply as Mpesa is proving popular in much of Tanzania as well as the rest of Africa. It is mostly used for the exchange of finances using a mobile phone. Large telecommunications companies have recognized this and have facilitated its expansion by providing it as an add-on service. This is coupled with small local specialist shops stationed within communities.
Focusing on local initiatives has been known to aid funding by pooling finances which are then redistributed in the form of small loans with a flexible repayment plan along with continuous guidance and support concerning business ventures. Accessible forms of finance are available including angel investors. The investors are often independent stakeholders who are looking to promote business development through investing.
Lastly, well established private limited companies focus their efforts on local community projects and in particular small businesses involving the young and enterprising within rural areas. This acts as part of their department dedicated to corporate social responsibility. Microfinance is an integral part of the programme that will allow entrepreneurs to grow their business ideas over time.