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Tanzania: Banking for the Poor Made Easy Through Vsla.


November.04.2014 0 Comments

tanzaniaEARNING less than a dollar a day is no good to any banking institution, the farthest you can go, in case you want to attempt, is the reception area.

Traditionally poor people who are at the base of the economic pyramid have not been seen as a viable customer base for formal financial institutions.

They are considered a risky segment of the population, and some banks think it will be uneconomic for them to deal with poor people and they deliberately exclude poor people from their services.

There are many reasons why poor people find it difficult to deal with banks, and this might include the fact that they may not have enough money to open a savings account or the minimum balance that the bank requires them to maintain may be too high.

Some of the reasons may also include the scenario where they may not have sufficient traditional collateral (such as the deeds to the house where they live or the land they farm) to secure their loan.

It is with this in mind that recently delegates from Barclays Africa Consumer Council recently paid a visit on Banking on Change project in Vingunguti area, which is being implemented by Plan International Dar es Salaam Urban Programme Unit.

The programme focuses on saving-led microfinance and is a first partnership between a global commercial bank and international NGOs successfully link informal savings group to the formal banking sector.

Barclays Africa Consumer Council which includes Retail Directors from 12 Barclays Africa operations and other top executives from Barclays Africa Headquarters were involved in the visit.

The Pamoja Tunaweza group based in Vingunguti area is involved in various small businesses including soap and sugar projects, tailoring and boda boda business.

“Between 2009 and 2012 an investment of approximately 2.3 billion (880,000 pounds) was invested in Tanzania, with a total number of beneficiaries standing at 60,000, out of which 153 groups were linked to formal financial services,” says Miss Stella Tungaraza, the Plan International Advisor, Loans and Savings.

She says that the project spans over seven regions of Tanzania, and over the second phase which ran from 2012 to 2015, a total of 2.8 billion (1,057,621 pounds) has been invested in the project, which is set to benefit over 40,000 direct beneficiaries who will form 1,100 new youth saving groups.

Through the Banking on Change programme, Plan International and Barclays Bank has so far reached four districts including Kibaha, Ifakara, Mwanza and Dar Urban and expects to reach three new districts, including Morogoro, Temeke and Musoma by 2015.

Miss Tungaraza is optimistic that reaching new areas will allow the programme to reach particularly vulnerable, financially excluded areas previously unreachable by savings-driven microfinance and facilitate linkages to financial services.

In Tanzania, she says, Plan International leads the programme implementation, working with experienced partners through assessment, training and monitoring of these local partners to ensure delivery of the different training interventions and support of village agents.

Some banks, she says, think it will be uneconomic for them to deal with poor people and they deliberately exclude poor people from their services.

“They may consider that it is too costly for them to analyze and process the large number of loan applications made for the relatively small amounts of money required by poor people and instead prefer to make a few large loans to richer borrowers,” she says.

As a consequence poor people frequently rely on friends or family or private moneylenders as their principal sources of credit. Private moneylenders can offer several advantages that make their service convenient.

They are often personally familiar with the borrower and therefore offer credit without collateral; they are generally located locally and can both disburse loans immediately with minimal paperwork as well as receive repayment without the need to travel great distances.

Nevertheless, it is almost always the case that private moneylenders charge relatively high rates of interest and they may not be able to provide more than limited short-term capital.

Banking on Change project, according to Miss Tungaraza, facilitates the creation of apex organizations known as intermediary associations, known as Input Marketing associations (IMAs).

“The IMAs cluster between five to ten Village Savings and Loans associations (VSLA) groups to form a higher organization.

This approach facilitates access to higher savings and loans while increasing solidarity among members to address common challenges such as accessing markets for their products and assisting orphans and vulnerable children,” she says.

The IMAs, she adds, are linked with Barclays where possible and other banks where Barclays does not have a presence.