The presentation highlights Micro-finance market in Tanzania with opportunities and challenges found within. Also the presentation illustrate 'what it takes' to invest in the sub-sector with touches in Micro-insurance and Islamic micro-finance.

1. IS MICROFINANCE INVESTIBLE?:ATanzanian
Perspective

2. IS MICROFINANCE
INVESTIBLE?: A
TANZANIAN
PERSPECTIVE
Prepared by Abdurahman Suddy

3. Introduction
• Microfinance is one of the fastest growing industries in Sub-SaharaAfrica
with growth of 10-15% annually for the last decade, with this trend, the
governments in Sub-Saharan Africa have recognized the implication of this
sub-sector by introducing laws and policies to regulate and improve
business environment for Microfinance Institutions with the aim of
increasing financial inclusion in their respective countries. Example
Tanzania’s National Microfinance policy of 2000,Tanzania Banking and
Financial Institutions (Microfinance Activities) Regulations 2014, Kenya’s
Microfinance Act 2006, Zambia’s banking and financial (Microfinance)
regulations of 2006 to name the few.

4. Introduction cont…..
• Access to finance remained to be one of the major challenge to the
development and growth of SME’s in Africa. According to the World Bank of
Doing Business report of 2017 Sub-Saharan Africa scores 37.5 out of 100
points second last to North Africa and Middle East with 28.75 points in
accessing credit.
• MF has approximately served over 150 million individuals and 20 million
businesses in Sub Saharan Africa its prominence in poverty alleviation and
business development can never be understated.
• Significance of Microfinance to Sub-Saharan Africa stretches from business
development to improved access to quality education, quality health
services, basic human needs and increased women participation in economic
activities hence women financial independence.

5. Microfinance in Tanzania
• Microfinance inTanzania has experienced immense growth ever since
economic and financial sector liberalization of the 1990’s. Microfinance
industry started from being donor initiated (most notably by USAID
and NORAD) to profit making businesses likeYETU Microfinance (a
public listed Microfinance bank).
• Microfinance has been recognized as being one of the most effective
tool in financial inclusion by the government, it has been able to be
implemented in poverty alleviation strategies like MKUKUTA,
NATIONAL FINANCIAL INCLUSION FRAMEWORK, etc.
• Microfinance users both in urban and ruralTanzania have been able to
finance their small businesses, pay for their children education, access
to improved quality health services etc.

6. Microfinance Industry In TZ
• Micro finance industry inTanzania has growth of 15% average.
• Serving almost 17% of allTanzanians financial needs according to the
National Financial Inclusion Framework.
• Tanzania has a 28.2% of the the population living under the basic
needs poverty line.This number can be served with MFI to improve
their socio economic development needs
• With current strategic alliances with mobile money services, MFI are
strategically increasing their outreach taking advantage of 44% of the
mobile money penetration inTanzania. 17% SERVEDWITH
SEMI-FORMAL
FINANCIAL SERVICES
15% AVERAGE
GROWTH
MICROFINANCE
SECTOR .

7. Tanzania Financial Inclusion Overview cont….
• Data from NFIF estimated that there is 12.5 million adults are completely
excluded to access of finance in 2009 representing 56% of adult
population.
• Also MSME’s survey indicated that 68% of 3.1 million MSME’s inTanzania
are not accessing financial services. Only 20 percent are formally
included and 12% are informally included on 2010.
• That number is excluded individual and businesses is high compared to
other EAC members.
68% Of Businesses Are
Financially Excluded!

8. Tanzania Microfinance Industry
Overview cont…
• Figure showing EAC block access to finance
Kenya, 42
Rwanda, 33
Uganda, 20
Tanzania, 17
Burundi, 7
0
5
10
15
20
25
30
35
40
45
Kenya Rwanda Uganda Tanzania Burundi
Financial Inclusion in %
Source: National Financial Inclusion Framework 2015

9. Tanzania Microfinance Industry Overview cont…
• The figure presented in previous slides translates to the continuing
market potential for new MFI’s and expansion of existing MFI’s.
• With the financial inclusion numbers presented in the previous page it is
evident that the market is currently underserved, literally, there is room
for everybody.
• Microfinance sector can be invested with 5 BillionTshs in (Microfinance
bank) to 5 MillionTshs (non-deposit taking MFI)
5 BILLION TSH required capital for
operating a Microfinance Bank

10. BUTWHAT DOES ITTAKETO INVEST INTHIS
LUCRATIVE SECTOR
A simple 5 millionTshs concept note will speak for
itself

11. Income sources
o Offer 10 loans worth 200,000 each with 20% interest rate a month for the first
quarter (3 months).
o Then 20, 30 and 35 loans for the second, third and fourth quarters respectively
at 200,000Tshs each.
o Loan application forms be at 20,000Tshs.
o Penalty for late repayment be at 2% a week.
Owner/Manager
Credit officer/
accountant
Secretary/office
manager/
cashier
Management Structure
Capital
The business will start with 5 MillionTshs
Assumptions

12. Assumptions cont….
Registration process 300,000 (average cost for many businesses)
Monthly Salary for per person- 150,000/=
Water and electricity at 30,000/= a month
One office rent at 100,000/= ( average for mini frame office)
Expenses
The business financial data will be presented in quarterly manner

13. DETAILS 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
INCOME
Interest received 1.2 1.8 3.0 3.6
Loan app fees 0.3 0.5 0.5 0.8
Income from penalty 0.03 0.05 1.0 2.0
Total Income 1.43 2.6 4.5 6.4
EXPENSES
Business Registration 0.3 0 0 0
Salaries 0.9 0.9 0.9 0.9
Rent 0.3 0.3 0.3 0.3
Office utilities 0.1 0.1 0.1 0.3
Total Expenses 1.6 1.3 1.3 1.3
NET INCOME -1.17 1.3 3.2 5.1 =
PROJECTED INCOME STATEMENT FOR YEAR 1 IN ‘MILLION’ TSHS’
7.9

14. Year 1 Financial Performance
• Financial performance
 Net income = 7,900,000Tshs
 Net Revenue = 14,930,000Tsh
 Net Profit Margin=
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
𝑁𝑒𝑡 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
∗ 100 =
7,900,000
14,930,000
∗ 100 =52.91%
 Return on Capital Employed=
𝐸𝐵𝐼𝑇
𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑
∗ 100 =
7,900,000
5,000,000
∗ 100 = 158%

15. Legal and regulatoryChallenges
Lack of Microfinance Professionals
Lack of credit reference bureau dedicated to MFI’s
Poor communication and transport infrastructure
High cost of operations
High cost of capital
Weak Internal control hence fraud
CHALLENGES FACINGTHE SECTOR

16. Challenges of Microfinance Sector In
TZ
• Legal and regulatory challenge has remained to be one of the hurdle for
Microfinance sector flawless growth inTanzania with no specific laws
governing microfinance.
• High cost of capital in the financial sector i.e. high interest rates.
• Increased bureaucracy and regulations on deposit taking MFI’s.
• Un-favorable business and operating environment. Such as poor
infrastructure especially in rural areas.

17. Challenges of Microfinance Sector In
TZ cont…
• Operational Challenges including high cost of operations.
Administering small loans is very expensive hence MFI’s charge
high interest rates on their loans an average of 5% a week.
• Lack of innovation in MFI sector inTanzania and professionals to
manage MFI’s.
• Increased fraud cases due to internal control weaknesses in MFI and
low levels of adaptation of MIS
5% a week 20% a Month 240% aYear

18. What to be done
• Increase Investment in sourcing talents and professionals in MF sector
• Invest in MIS that will subsequently decrease operational cost like
managing loan portfolio, systematic record keeping, etc.
• Lobby to the authorities against stiff regulations and ever increasing
bureaucracy operating deposit taking MFI’s.
• Lobby against improved business environment to attract FDIs in
financial sector particularly Microfinance.
TALENTS & PROFFESSIONAL
MIS, GOOD GOVERNANCE & BUSINESS MINDED OPERATIONS
LOOBY FOR BETTER BUSINESS ENVIRONMENT

19. Untapped opportunities
AGRI-BUSINESS FINANCING
• According to the 2011 Agriculture Finance Markets Scoping Survey
(AgFiMS), of 519 450 agri-business SMEs, only 168,300 (32 percent of the
total) accessed formal financial services, approximately 13 percent were
informally served and slightly over 54 percent were totally excluded from
any formal or informal financial services.
• These horrifying data prevails how MFI’s can invest in agriculture sector,
tailor made products can be developed to suit farmer needs.
• With employment rate of over 80% agriculture has investment potential,
through MFI’s, agriculture sector can develop abruptly.
• Example of products can be financing of the cultivation process of the small
holders farmers, products to finance marketing phase of the produce.
54% AGRI-CULURAL SMES
ARE FINANCIALL EXCLUDED
EMPLOYS 0VER 80% OF
TANZANIANS

20. Untapped Opportunities
MICRO INSURANCE
• This a hidden gem that unfortunatelyTZ MFI’s hasn’t put enough attention to.
• With 3.1 million businesses and above 90% of them being SME’s, micro insurance
has market disruption potential if taken seriously by investors and the law makers.
• It is estimated that 66% (16.4) of adultTanzanians can afford Insurance services but
only 3 million are insured making 13 MillionTanzania an un-insured.This gap can be
filed with Micro-insurance and with the population increase expected to reach 70
Million by 2025 (CIA Factbook 2015)there is massive opportunity in this sector.
• It has growth of 18% yearly since 2009 3X more than the national GDP
79% ARE UN-INSUREDWHILETHEY
CAN AFFORD INSURANCE
GREW BY 18% LASTTWOYEARS

21. Micro-Insurance• Micro insurance is feasible inAgricultural sector where small holder farmers
insure their farming risks.
• Agriculture employs more than 80% of allTanzania's and is the second
highest contributor of the GDP (after services).
SOURCE:TIRA 2012 growth of premiums since 2003

22. Micro-insurance• Micro-insurance is expected to grow even further over the next years, this is due to
increased integration of insurance services with mobile money services.
• A study conducted by GSM 2016, indicated that 44% of all adult population have
access to mobile money services, representing 16M of adultTanzanians with
expected increase of 5.1 in 2017.
• Service likeTIGO BIMA has a success story in Micro insurance sector and with only
18 InsuranceCompanies operating inTanzania there is a big gap to be filled in this
sector.
• The gap of 13 Million uninsured but able to, cannot be served by mainstream
insurance companies only MFI’s has also a chance to step in.
• Micro Insurance diamond under the dirt for sure
Un-Tapped Opportunities cont……
WHO IS GOINGTO FILLTHE GAP IF NOT US!

23. Islamic Micro-Finance
• Another untapped opportunity is the Islamic microfinance
• Islamic finance is the financial system that adheres to Islamic laws
(Shariah)
• Islamic laws prohibits interest, alcohol, and cigarate related business/
instruments also gambling and speculation related financing
• Islamic finance is not for Muslims only, any body can participate in this
system.
• Islamic finance principle include principal of equity, principle of
participation and principal of ownership.
• Tanzania has about 50% Muslim population and some are financially
excluded because their faith forbids them to participate in conventional
finance hence they lack the right to participate in the financial system.
50% ofTanzanians are Muslim hence half
of 3.1 businesses might be owned by
Muslims

24. Islamic Finance Cont….
• Islamic Finance has a growth of 20% annually globally,
with banking assets globally exceeding trillion dollars.
• In 2011The fully fledged Amana bank recorded assets
growth of 96% the largest in the banking sector that year
hence it is a profitable business.

25. • Islamic Microfinance targets low income Muslims and Muslim owned
businesses and other population seeking alternative of conventional finance.
• Islamic microfinance has wide range of models and products including
 Murahaba
 Mudarabah
 Musharaka
 Istinsaa etc.
Islamic Micro-finance

26. Islamic
microfinanc
e products.
MUDARABAH
A profit and loss sharing contract where one party provides capital and the other
provides expertise ( Management) example project financing
MURAHABA
It is cost plus contract where the financier buys capital good (machinery, property etc)
and sells it to borrower with promise of future repayment and on installments basis with
increased cost. MFI can buy capital good for its client with cost plus payment o future
goods sort of like interest but only the MFI buy the actual good with the clients
specification
MUSHARAKA
Profit and loss sharing products where two or more people provide capital and share
profit and loss

27. • RECAP
MICROFINANCE INSTITUTIONS- 56% are excluded
MICROFINACE BANKS- only 10MF BANKS
MICRO-INSURANCE- only 18institutes serving with
13M needed
AGRICULTURE FINANCING- employs over 80% ofTz
ISLAMIC Micro finance-20% growth,1.4M businesses

28. NOWYOUTELL
ME IS
MICROFINANCE
INVESTIBLE?