In a statement yesterday, Tanzania Association of Microfinance Institutions (TAMFI), which represents a network for microfinance institutions and service providers, noted that for the past five stakeholders have been advocating for such reforms.
"The microfinance sub sector in Tanzania, despite serving millions of the poor has been operating without proper regulation in the absence of a specific law that governs it," said Winnie Terry who is TAMFI’s Executive Director.
The statement said if the government adopts stakeholders’ proposal to introduce desired legal and regulatory framework with approval of parliament, the sector will be more professionally managed.
Terry said after a recent study which highlighted legal and regulatory constraints faced by the microfinance industry, TAMFI in an inclusive way drafted a microfinance bill, which was presented to government for necessary parliamentary processes.
The government has taken some step to adopt the stakeholders’ proposals and has come up with a bill called the National Microfinance Act, 2015 which is yet to be tabled in parliament.
TAMFI and other stakeholders are discussing the draft bill, the TAMFI Executive Director said expressing hope that an improved regulatory framework for the micro finance industry will soon become a reality.
“We have been advocating for the regulatory framework to make the sector grow and even protect the consumers. Lack of clear legal status of microfinance institutions in Tanzania is perceived as risky and therefore deterring wholesale lenders and investors,” Terry noted.
She further noted that because of lack of a regulatory law, plans to transform microfinance institutions to microfinance banks have been almost impossible.
“This can be explained in large part by the complex funding structure and high capital requirements,” the TAMFI chief argued.
Although serving millions of poor people in the country, the country has no specific legislation to guide the operations of microfinance institutions while informal players like village cooperative banks (VICOBA) are dominant in providing financial services.
“Lack of microfinance law has contributed to a large extent to the poor performance, diversity in institutional form, limited outreach, unhealthy competition, and limited access to funds among many others challenges,” the TAMFI ED argued in the statement.
Client over-indebtedness through multiple loans is on the rise as competition for market share intensifies. There is also an increase use of collateral that fosters abusive collection practices by some microfinance institutions (MFIs).
“Our hope is that the new government will help in creating an environment that will enable us to define our target group and therefore reduce the risks to MFIs,” she stressed.
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