The role of Small and Medium Enterprises in Tanzania

SMEs all over the universe and in Tanzania in peculiar, can be easy established since their demands in footings of capital ; engineering, direction and evenutilities are non every bit demanding as it is the instance for big endeavors. These endeavors can besides be established in rural scenes and therefore add value to the agro merchandises and at the same clip ease the dispersion of endeavors. Indeed

SMEs development is closely associated with more just distribution of income and therefore of import as respects poverty relief. At the same clip, SMEs serve as a preparation land for emerging entrepreneu ( SME Policy,2002 ) .

Empirical surveies find that the portion of SMEs in GDP is significantly increasing in Tanzania with norm of 16 % a and 18 % . This reveals the importance of SME growing and employment coevals. However, prevalence of recognition market failure is an of import restraint on the growing of SMEs. Since the closing rate of SMEs is higher than larger endeavors, the fiscal service suppliers tend to see SME funding hazardous ( Caves, 1998 ) . Much as like in microfinance, SME funding besides requires inventions in imparting engineering that could cut down the hazard to the loaner in ways that does non increase the overall dealing cost to the enterpriser. With the purpose of bring forthing employment chances through SME growing, Akiba Commercial bank of Tanzania launched a particular SME loaning strategy in 2002. Akiba commercial bank is a private bank in which local ownership is 66 % and foreign ownership is 36 % .

As one of the nucleus aims of Akiba commercial Bank ‘s SME loaning is to back up SME growing and employment coevals. Research and Development Department of Akiba Commercial Bank was asked to transport out a research to measure the extent of SME growing before and after funding. The undermentioned subdivision of the essay presents a brief reappraisal of SMEs growing, SME funding, SME and station loan alterations and the loan disbursed size to find part of microfinance on SME growing.


The SMEs term inTanzania is used to intend micro, little and average endeavors. It is

sometimes referred to as micro, little and average endeavors ( MSMEs ) . The SMEs cover non-farm economic activities chiefly fabricating, excavation, commercialism and services.There is no universally accepted definition of SME. Different states use assorted steps of size depending on their degree of development. The normally used yardsticks are entire figure of employees, entire investing and gross revenues turnover. In the context of Tanzania, micro endeavors are those prosecuting up to 4 people, in most instances household members or using capital amounting up to Tshs.5.0 million. The bulk of micro endeavors fall under the informal sector. Small endeavors are largely formalised

projects prosecuting between 5 and 49 employees or with capital investing from

Tshs.5 million to Tshs.200 million. Medium enterprises employ between 50 and 99 people

or utilize capital investing from Tshs.200 million to Tshs.800 million. This is illustrated in

the tabular array below ( SME policy, 2002 )

The Government of the United Republic of Tanzania began its first major effort to

advance the little industries sector as far back as 1966 with the formation of the National

Small Industries Corporation ( NSIC ) under the National Development Corporation

( NDC ) . The accent of the NSIC was to set up little industrial bunchs, basically

training-production workshops, which in 1973 were taken over by the Small Industries

Development Corporation ( SIDO ) , and go on to run.

They have besides implemented, and go on to implement, grassroots

accomplishments developing and micro-finance programmes to promote income-generating activities.

It would look that an stock list of these past and current MSME development

enterprises has non been compiled, nor has at that place been a systematic attempt to larn lessons

from undertaking appraisals. This has limited the exchange of “ good pattern ” theoretical accounts and


In September 2002, the University of Dar Es Salaam completed a study on recent

giver attempts on behalf of the DAC Private Sector Development Group Tanzania and the

International Working Group for SME Development of the OECD Committee of Donor

Agencies ( Olomi and Nchimbi, November 2002 ) .




Capital Investing

in Machinery ( Tshs. )

Micro endeavor

1 – 4

Up to 5 mil.

Small endeavor

5 – 49

Above 5 mil. to 200 mil.

Medium endeavor

50 – 99

Above 800 mil.

Large endeavor

100 +

Above 800 mil.

SME growing means addition in size or betterment of the concern development process.Various indexs both qualitative and quantitative are used to mensurate SME growing. They include ;

-outcome indicators-profit

-output indicators-e.g gross revenues volume, figure of employee etc

-capacity based indicator-value of assets, capital invested

-Qualitative indicators-structure, direction pattern, grade of formalisation etc

Therefore the step of SME growing as consequence of microfinancing is done utilizing above indictors as outlined in appraisal below. However the aim of this essay is to research on whether microfinancing to SMEs will lend to growing for them.


It is a common apprehension that SMEs in Tanzania are being, to some extent, excluded from the targeted patronage of both the formal and semiformal sectors ( e.g. Ahmed, 1999 ; Meagher, 1998 ) . However, this is non a alone phenomenon peculiar to Tanzania. A big study in 80 states by Schiffer and Weder ( 2001 ) revealed that funding is the first obstruction for SMEs growing followed by revenue enhancements, ordinance and rising prices. Assorted factors are considered to be the hindrace for SMEs to be financed. They include deficiency of entree to banking services due to unavailabity of individuality papers, birth certifications, cogent evidence of abode, instruction and distance and deficiency of conveyance substructure. Besides there is deficiency of entree to recognition due to miss of collateral, instruction and deficiency of dealing history. Among the factors the major 1 is the deficiency of invention by bankers and regulators.

Most SME ventures in Tanzania depend on personal nest eggs, household or other informal recognition beginnings. A few of the more constituted MFIs ( Microfinance Institutions e.g SACCOS ) are scaling up to tap this market. The chief microfinance establishments can be categorized as non governmental organisations ( NGOs ) , Cooperative based establishments viz. SACCOS and SACCAs while the 3rd class is Bankss. The major participants in the NGOs class include PRIDE Tanzania, FINCA ( Tanzania ) , Small Enterprise Development Agency ( SEDA ) and Presidential Trust for Self-Reliance ( PTF ) . Others, which are comparatively smaller in size, include Small Industries Development Organization ( SIDO ) , YOSEFO, A SELFINA, Tanzania Gatsby Trust, Poverty Africa and the ZanzibarA basedA Women Development Trust Fund and Mfuko. There rest consists of really bantam programmes scattered throughout the state chiefly in the signifier of community based organisations ( CBOs ) . Banks that are actively involved in microfinance services bringing include the National Microfinance Bank ( NMB ) , CRDB bank, Akiba Commercial Bank ( ACB ) and a few Community/regional Bankss viz. , Dar es Salaam Community Bank, Mwanga Community Bank, Mufindi Community bank, Kilimanjaro Cooperative Bank, Mbinga Community Bank and Kagera Cooperative Ban

It is estimated that all the MFIs inA TanzaniaA put together function a combined client population of about 400,000 SMEs, which is merely about 5 % of the entire estimated demand. Commercial Bankss including community Bankss account for around 50,000 while the NGO class histories for the an estimated population of 220,000 clients. PRIDE Tanzania being the largest individual participant histories for approximately 29 % of the market portion in this class or 16 % of the bing entire market portion.

3,1 Delivery systems of fiscal merchandises

About all micro-finance establishments ( MFIs ) provide recognition services. Some others besides provide fiscal merchandises such as nest eggs, transportation payments and insurance. Some establishments like FINCA are in the procedure of developing a new merchandise: micro-leasing. Since recognition is the most common service, most of the bringing methods have been developed around recognition. Savingss and other merchandises are comparatively few and there has been less invention on how to present these services. The undermentioned are common bringing methods.

Group Lending

This methodological analysis is normally used by most MFIs. Credit is delivered to groups that guarantee the loan. Peer force per unit area is used to implement refund. The loan can be disbursed to either an single member of the group or to the group, which in bend provide loans to single members.

Individual Lending

Under the methodological analysis, recognition is delivered to persons harmonizing to their ability to supply the MFI with the confidence of refund and some degree of security.

With the purpose of furthering growing and to prehend the chances of the unserved market assorted fiscal instutions are coming up with advanced loaning attacks to tap the SMEs microfinancing demands. One of the attacks designed by one of them is explored hereunder and growing motivations to SMEs is analysed ;


The CRDB Bank, 90 per cent owned by DANIDA ( the authorities still holds 10

per cent of the portions ) provides both sweeping and retail loaning services. Reportedly, it

has a 40 per cent portion of the micro-finance market, with centralised loaning provided

through their 24 subdivisions.

For the first three quarters of 2003, CRDB statistics on micro-finance activities

indicate that adult females made up about 41 per cent of their members, and received 47 per

cent of their loans

During the period, male

members received an norm of 2.12 loans and adult females members received an norm of

2.54 loans. There is no indicant of the distribution between adult females and work forces of the

Tshs 25.6 billion in entire loan expenses. Since 2002, the Bank has been flying the SACCO construct ( Savings and Credit

Cooperative Society ) in four parts of the state as a manner of group-lending to MSEs.

Under this system, the CRDB Bank lends to jobbers, who in bend deliver microfinance merchandises through the SACCOs. To take part as a SACCO, groups of MSEs

must organize and register themselves. Each single member must hold to purchase portions in

the SACCO, which makes them eligible to borrow at a 1:3 ratio depending on the

figure of portions they have. Members must besides lend 25 per cent of the loan

sum as security-on-deposit with the CRDB. The jobber borrows from the CRDB

at 12.5 per cent and lends out to SACCOs at 24 per cent ( 2 per cent per month ) . It

appears that merely one of the SACCOs is for adult females merely.

A study of 125 SACCOs undertaken by the CRDB Bank late found merely 25

operating on a “ best pattern ” footing, the top acting of which was the adult females ‘s

SACCO. One of the other findings was that for assorted group SACCOs, adult females

borrowers had lower default rates than work forces, a finding consistent with other surveies of

micro-finance loaners. The Bank delivers three degrees of preparation to SACCOs – to all of

their members, to their professional staff, and to their direction commissions. The

purpose of the Bank is to turn over the SACCO theoretical account out across the state. The CRDB purposes to

go a retail bank within the following five old ages. Within this context, funding SACCOs is

an attack for the Bank to make MSEs that have the potency to go single

loan clients.


( SIDO )

SIDO, with an office in 20 of the 21 parts of the mainland, is a big supplier of

fiscal and non-financial services to MSEs. They have 70,000 credit-delivery clients

and make 300,000 MSEs through their little concern preparation and consultancy services.

The cardinal source from SIDO stated that there is a large spread in the capacity of the

organisation to run into the demand for recognition – of the 71,000 recognition applications they had in

the system in November 2003 ( for loan sums numbering TShs 27 billion ) , they will merely

be able to fund about 10 per cent.

SIDO offers three degrees of recognition:

Flat 1: Using the group-lending attack, members can borrow up to Tshs 1

million ( US $ 1,000 ) . Interest rates range up to 30 per cent per annum.

Normal refund footings are 12 months, but nutrient manufacturers may measure up

for a biennial repayment term.

Flat 2: For loan sums of between Tshs 1 million to Tshs 6.5 million, SIDO

moves to single loans.

Flat 3: For loan sums greater than Tshs 6.5 million, SIDO links the clients to

a fiscal establishment.

The organisation appears to hold an first-class procedure of supplying concern

development support prior to and after the proviso of recognition.


In chase of this end, AKIBA pioneered many types of nest eggs and microfinance

loan merchandises, with which it has supported assorted micro endeavor activities such

as nutrient peddling, fish mongering, food markets, mitumbas ( sale of 2nd manus apparels ) ,

little graduated table diary cowss maintaining, retail and distribution, orienting, woodworking, masonry

plants, cyberspace coffeehouse, letter paper stores, secretarial services, barber stores, hair salons,

and little graduated table agribusiness etc


AKIBA presently offers several microfinance loan merchandises each tailor-made to accommodate

every type of our client. In wide footings, the characteristics revolve around both the

traditional group and single loan methodological analysiss. Besides these, and by virtuousness of

being a fully fledged commercial bank, it besides able to offer consumer loaning and

corporate loans and overdrafts.

Group micro loans

Under this strategy, clients are able to borrow every bit small as TZS 20,000 and every bit much

as TZS 5 million with no touchable securities other than their nest eggs and the

warrants that members of the group give to each other. The entire portfolio size

presently stands at TZS 800 million. Sum of 4000 clients have been served under this attack.

Individual micro loans

This is the merchandise that serves many micro enterprisers in this

state. Since its launch May 2001 in one subdivision, it has grown at a faster gait than

any other loan merchandise over the past two old ages, from merely above 700 active loans in

December 2001 to 4500 today. Out of the current outstanding entire loans and

progresss portfolio of TZS 18 billion, TZS 4 billion is made up of single

microfinance loans. AKIBA s single micro loan is characterized by speedy bend

around clip and flexible loan footings more flexible than any of the merchandises offered by

its direct rivals. The minimal loan sum is TZS 200,000 and the upper limit

presently stands at TZS 10 million. Beyond this, clients graduate to SME loans

and further to corporate loans and overdrafts depending on their on the job capital


Consumer Loans

As with the single micro finance loaning, AKIBA was the innovator of consumer

loaning in Tanzania holding introduced the merchandise in December 2000. It was small

admiration that the portfolio and the entire plus base of the bank grew really quickly during

the early yearss of its launching. Competition has nevertheless since set in with all the

mainstream Bankss now sharply offering salary based loan merchandises similar to

AKIBA s. In malice of this, and because of our changeless inventions, flexibleness, and

good market intelligence, instead than lose our market portion, the figure of borrowers

hold continued to turn from 1200 in 2002, to 4300 today borrowing merely over TZS 7



In this subdivision general profile is provided for the sample of endeavors that were provided recognition by Akiba commercial bank in footings of some cardinal variables and the station loan alterations in these variables. Besides the utilizations of the loans and how these have affected the endeavors is discussed.

Sectoral composing:

Sectoral composing of Akiba Commercial bank borrowers of the sample shows the high extent of concentration of Akiba Commercial Bank on bargainers ( retail and sweeping ) . No clear form is seeable among the different classs of borrowers, i.e. new, repetition and dropout, in their sectors of concern except for a somewhat higher portion of fabrication among the repetition borrowers than new, with which it has supported assorted micro endeavor activities such as nutrient peddling, fish mongering, food markets, mitumbas ( sale of 2nd manus apparels ) , little graduated table diary cowss maintaining, retail and distribution, orienting, woodworking, masonry plants, cyberspace coffeehouse, letter paper stores, secretarial services, barber stores, hair salons,

and little graduated table agribusiness etc

Value of the concern:

Average value of the concerns, measured by the sum for which the enterpriser can sell the concern, was Tsh 1.84 million before taking loan. Soon, the mean value of the concern of these endeavors is Tsh 2.49 million. Increase in value of endeavors has been higher for repetition borrowers than new borrowers, as expected, since they are runing for longer continuances. However, value of endeavors of the dropout clients has besides increased and their initial values were higher than others. Figures of mean growing in values by types of endeavors show that fabricating units have observed the highest growing and agro processing houses grew at the least gait. However, SME loan is non the lone factor behind this growing of concern. After all, SME loan constitutes merely 24 per centum of working capital on norm.

Gross saless volume:

Since Akiba Commercial Bank is supplying much needed working capital to these endeavors, volumes of gross revenues have increased for about every borrower. On norm, present gross revenues of these endeavors are severally 40, 67 and 26 per centum higher compared to pre-loan period.


Present loan size and future recognition programs

Average size of the last loans of the repetition borrowers is intelligibly higher than that of the new borrowers and dropouts. On norm, loan granted is about 85 per centum of sum demanded by the borrowers, with endeavors in the service and trading sectors having comparatively more ( 87-88 % of sum requested ) compared to those in fabrication and agro processing sectors ( 82-83 % ) . 80 per centum of the entire respondents ( including dropouts ) expressed their involvement in taking future loans from Akiba commercial Bank. 17 per centum of the bing borrowers, both new and repetition, are non lament about future loans. About 70 per centum of the dropouts are still sing possible loans from Akiba Commercial bank.


SME endeavors in Tanzania chiefly require funding for three intents – for start-up, for working capital, and for fixed capital. Inaccessibility of working capital from formal fiscal establishments is recognized as one of the major ailments of SMEs in Tanzania. The individual most of import usage of Akiba Commercial bank SME loans is in the signifier of working capital. 89 per centum of the clients reported that they used their loan for increasing working capital. Although the loan is used less for investing in fixed capital, treatments with clients revealed a demand for funding fixed investings, which will typically necessitate a gestation period before the investing generates adequate hard currency flow for refund. Harmonizing to the SME borrowers, given that the Akiba Commercial Bank installment strategy is non suited for fixed capital investing, about all of it is used for working capital. In progressively competitory markets, SMEs are under force per unit area to turn and diversify in order to keep on to their portion of the market. One client drew a comparing between his endeavor with a balloon stating that after having loan from akiba commercial Bank, his concern expands like a balloon, but finally shrinks down to its original size by the terminal of the loan term of office. Other utilizations of loan included purchasing vehicles, mending stores, edifice houses and refunding old loans.


The little and Average Enterprises in Tanzania are confronting many growing berries ; from the microfinance picker.

– Many SMEs who require funding in order to turn they are earnestly restricted to successfully obtain loan from fiscal establishments ; as to the grounds that the SMEs are unable to run into loan conditions refering to security.

– Another restraint for the growing of SMEs in Tanzania is the entree to microfinance support services. Many SMEs in Tanzania deficiency entree to advice guidance and encouragement from microfinance services which is mostly connected to miss of financess to pay for the services.

– Many of Torahs and ordinances of Microfinance services on Tanzania is impacting SMEs growing which include processs and standards of measure uping for the Loans and the sum issued for the Loan. This is referred to corruptness and bureaucratism which make the affairs worse.

– The UDEC ( 2002 ) study expressed that ; most of these SMEs in Tanzania chiefly owned by adult females which they do n’t hold the same chances as work forces to run into and negociate payoff with chiefly male microfinance establishments functionaries.

Microfinance make the SMEs non turn as they assits those who are in concern already by non supplying SME with the support from the start this can take the SMEs to be weak from the start.

Most of the microfinance provides vision and mission are focused to SMEs who are already started and non the new 1s.

– In extra, research workers identified that may microfinance services are confirmed to be stationed in urban countries which make many SMEs resides in rural distant countries of face the job to entree the service due to the hapless economic conditions, hapless substructure, covering with complicated formalisation processs, torment of going many times for seeking the services, these restrictions make the SMEs non to turn due to the fortune of sufficient working capital to run into their demands.

– By and large, all SMEs runing in Tanzania are confronting a figure cultural, socio economic and operational barriers in relation to microfinance services that limit that ability and capacity to turn. In add-on SMEs in different phases face other alone challenges to turn and from those who are already running SME the chief challenges are limited entree to quality and low-cost microfinance services, entree to term finance and doing working capital to run into their demands.

CRDB Bank vission and Mission

Our Vision

We aspire to supply fiscal and non-financial services throughout Tanzania aiming people below the banking pyramid to cultivate them into CRDB Bank clients and include them in the state ‘s fiscal system.

Our Mission

We are a market leader in sweeping microfinance, supplying a broad scope of needs-driven fiscal and non-financial services to retail fiscal mediators utilizing a motivated, knowing and skilled work force. We will run productively adding volume of concern to the keeping company from a market section antecedently impossible to tackle with normal banking system.


Akiba Commercial Bank Vision and Mission

Vision: A The vision of Akiba Commercial Bank ( ACB ) is to be the Tanzanian bank of pick in the proviso of fiscal services to micro- , small- and moderate-sized endeavors. To recognize this vision, the bank ‘s mission is to supply appropriate microfinance services in the most efficient and sustainable mode possible while at the same time encompassing the societal and environmental involvements of all its stakeholders.



Inventions in turn toing the recognition market failures faced by hapless families through microfinance have been a major development discovery of recent times. Micro and little endeavors have been shown in several surveies to be mostly underserved, giving rise to the term ‘missing in-between ‘ in the literature. Yet, this is a critical market section to back up for both growing and poorness relief through employment coevals. As a response to this demand and supply side alterations in the traditional microfinance market, which has become significantly more ‘crowded ‘ in recent times, many microfinance suppliers in Tanzania have started supplying endeavor finance targeted at the little endeavors. Some formal Bankss have besides started runing in this market. Akiba commercial bank established in 2001 with a position to back up little and average endeavors and since 2002 has been supplying little and average endeavors recognition. This paper is an early appraisal of Akiba microfinance establishments imparting to little and average endeavors with regard to further growing.

A reasonably comprehensive method was employed in order to capture the full extent of SME growing by interrupting down endeavors into three groups – fabrication, trading and agroprocessing employment. Percentage of endeavors graduating from microfinance into little endeavors increased by 20 % in mean but in varied per centum between fabrication, trading and agro processing endeavors. Trading is significantly higher than that of fabrication and agroprocessing. It is notable that more than 50 per centum of the new occupations are created by increased endeavors as consequence of borrowing.Thus the importance of sustained entree to finance appears to be of import from growing position of SMEs.

However growing of SME is non needfully a map of microfinance other variable such as handiness of market, authorities ordinances, instruction and rising prices could every bit impact thegrowth of SMEs.

Financing SMEs as a nucleus concern is still comparatively new for formal fiscal suppliers in Tanzania. This is basically different to microfinance, which is basically supplying families with better money direction installations ( Rutherford, 2001 ) . Akiba commercial bank ‘s SME funding has rapidly become its core merchandise line and our analysis suggests that it is successfully financing growing of the SMEs supported, which in bend is bring forthing employment. However, the merchandise features still appear to be more suited for financing growing of comparatively established trading based endeavors. Most of the investing being made is besides in footings of increasing working capital. Future challenges of Akiba commercial bank SME loaning operations would be to develop the right types of merchandises to impart to fabricating endeavors, and back uping fixed capital investings of SMEs. Such variegation would hold greater potency of back uping growing and bring forthing sustainable employment chances.

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