FINANCIAL SERVICES IN KKTT COMMUNITY

TABLE OF CONTENT PAGES
Introduction…………………………………………………………………………….2
Definition of terms……………………………………………………………………..2
Community profile…………………………………………………………………….4
Financial services in our community………………………………………………….4
Proposal on what should be done to ensure that our community access reliable financial services……………………………………………………………………….7
Conclusion……………………………………………………………………………..9
Reference…………………………………………………………………………….10


















1. INTRODUCTION
In this paper, we shall examine the available financial services in our community and provide the proposals on what should be done to ensure that our community access reliable financial services.
In our attempt to achieve this, we shall first provide the definitions of key terms such as financial services, business and investment growth and the economy. We shall then explore the subject matter of our discussion.
Upon completing the discussion, we shall conclude our work by providing the possible recommendations. Finally, we shall provide the references of our work.

2. DIFINITION OF TERMS
2.1. Financial services
Financial services are the services which are connected with money. These services are composed of financial institution and financial matters. The providers of such services may include formal financial services such as commercial banks, saving banks, development banks, and non financial institutions such as insurance companies, NSSF, PPF and LAPF.
Financial services also include quasi formal financial services which do not fall under the regulatory powers of Bank of Tanzania, but are regulated by the government. Such institutions include NGOs offering financial services such as SACCOS and other government and donor backed institutions such as microfinance.
Financial services also include informal financial services which are not regulated neither by the Central Bank of Tanzania nor by the government machinery. These are mostly based on trust between the parties involved in the transactions. Such services include those offered by unregistered Routine Saving and Credit Associations (ROSCA), traditional money lenders and those offered by family members and friends.




2.2. Importance of financial services
· They supply medium of exchange and operative mechanism,
· Provide obvious and convenient way in which lenders can save money. So they provide saving facilities,
· They provide lending facilities at a fee,
· Provide maturity transformation. They bridge the gap between the wish of the most lenders for liquidity and desire of most borrowers for loans of a longer periods,
· Act as a medium of implementation of financial intermediaries of monetary policy,
· They help individual and the household to meet basic needs and protect against risks,
· They improve the economic welfare of the community and enterprise stability or growth of low income households,
· They sources of business training,
· They are involved in creation of new entrepreneurs and
· Act as a source of employment for the majority of the people.
2.2. Business and Investment Growth
Business and investment growth refers to the positive changes that can take place in the general activities involving undertaking with the aim of making profits as well as improvement in the capital stock. Any positive changes in regard to these phenomena leads to the general increase in employment levels, increase in people’s income, high level of consumption hence the economic growth.
2.3. Economy
This is a set of institutions within which a community decides what, how and for whom to produce. It is a framework through which a society allocates scarce resources among competing uses or it is an allocative mechanism of a society.




3. COMMUNITY PROFILE
Our community is based in Usa River, Arumeru District in Arusha province. Usa river is located 20 kilometers east of Arusha town. Usa River is divided into Manyata, Magadini, Mjimwema and Ngarasero.
Administratively, Usa River division is headed by Division Secretary. Below him are Ward Executive officers and sub ward chairmen. These chairmen are assisted by five cell representatives who normally elect one of them to become their secretary. Villages and hamlets are under village and hamlet councils respectively.
Usa River division lies in equatorial regions however, the climate of Usa River is influenced by Mount Meru. It lies in the eastern part of Mt. Meru, hence it is on the windward side. It therefore receives orographic type of rainfall which falls heavily in the months of February, March and April and moderate in October, November and December. It is estimated to receive about between 1200 and 1500mm of rainfall per year. The temperature in the area is high up to 32◦c during hot seasons. Humidity varies with temperature.

5. FINANCIAL SERVICES THAT ARE AVAILABLE IN OUR COMMUNITY
These financial services include formal, quasi formal and informal financial services. Each financial service provider do it on the basis of its own internal objectives, whether profit, poverty alleviation, self-help, or other motivation as described below:
5.1. PRIDE Tanzania
Promotion of Rural Enterprise Initiative Development (PRIDE) was opened in our community in 2006 as a subsidiary of Mianzini. This is an NGO which provide loans to small and medium enterprise under good terms. So far at Usa River, the organization has estimated members of 400 divided into groups of 50 people which are further sub-divided into groups of 5. For one to secure a loan, one needs to register and take 8 weeks upon contributing Tshs.1500 per week. There is no collateral needed but ones guarantors include oneself, immediate members and the entire group 50. The loans range from Tshs.100 000 to Tshs.2 000 000. Other terms are that one must have a business unit and be above 18 years.
5.2. BRAC Foundation
Brac Foundation came into our community in 2006. This microfinance operates as an NGO. This is for the groups of female only whose land (including household) is not more than 3 acres, works for other enterprises, sale manual labour, have small business etc. The admission fee is Tshs.1 500 and each member has to renew her membership with a renewal fee of Tshs.1 000. A member must also be aged between 20-50 years.
Loans are disbursed after four weeks of regular attendance of weekly meeting. Loan and its service charge are realized in 48 equal installments during weekly meeting. Loan service charge is 20%. 0.5% of loan sanctioned amount is charged as loan appraisal fee. 10% of loan amount is deducted during disbursement as loan security deposit (refundable).
5.3. SACCOS
Umoja wa Wanawake Tanzania (UWT) established Savings and credit cooperative Society (SACCOS) in 2006 with the aim of mobilizing savings from the women in Usa River community. Women were required to pay a registration fee of Tshs.10 000. The interest rate for the borrowed loan is 10% per annum. Other financial services offered by UWT SACCOS are the school fees loans and emergence loans. To operate on the safe side, UWT SACCOS insure every loan issued with the Alliance Insurance Company Ltd against bad debts arising due to the death and permanent disability of borrower.
5.4. CRDB Bank
The members of Usa River community have also been able to access “One Billion for each Political Region” through CRDB bank. However, the condition was such that one needed to be the member of a group. So, Umoja wa Wanawake Tanzania (UWT), Usa River branch comfortably got the loan at 8% interest rate which it lends its SACCOS members at the interest of 10%. CRDB bank which officially started operating in February, 2008 decided to open up their branch at Usa River so that its customers may access it easily.


5.5. Knight Foundation
Akiba commercial bank has actually attracted the majority of the poor through the Knight Foundation. The members who are women are entitled to a minimum loan of Tshs.150 000 after undergoing 2 weeks training programme on entrepreneurship. These loans carry interest rate of 20% per annum with maximum loan refund period of 12 months. Loan refund and interest are done simultaneously on the monthly basis.
5.6. COMPASION
Compassion is an NGO which provide loans to the poor women who are infected with HIV/AIDS from the revolving funds. These loans are provided without interest charges. The borrower is only but encouraged to refund the principal amount which is again doubled and given back to the borrower. This process continues until the organization feels that the borrower is stable enough to be left on her own then the principal amount is forfeited by the organization.
5.7. Traditional money lenders
Some women, either operating individually or in groups lend money to fellow women at very high interest rates. For example, Mama Bella charge Tshs.10 000 per month for every Tshs.100 000 loaned. Other requirement includes entry fee of Tshs.1 500 and a deposit of Tshs.10 000. Any failure to pay within the required time carry a penalty of Tshs.3000 for every day delayed.
5.8. Family members and friends
Some members of Usa River community also access finance through family members and friends. In most cases these are interest free loans and the requirement for payment is in short term. These loans are provided on sheer trust with no legal obligation. Though these loans are more convenient to the borrowers but nevertheless they carry more risks of running into bad debts on the side of the lenders.
5.9. Employers salary advances
The members of Usa River community who are employed also get financial assistance from their respective employers. For instance, Mukidoma School Company limited provides its employees with salary advances to carter for their extra needs. These advances are offered on the basis of interest free and the payment is conveniently spread over twelve months.
5.10. Donor community
Some donors are also in forefront to provide financial services in this community. For instance, Amani primary school and Agape College of Management Training were built under strong foundation of the donors funds. In Amani primary school, pupils who are admitted are assisted to get sponsorship abroad. But in Agape college, donors funds all the operation of the college; an act which end up benefiting all students.

6. PROPOSALS ON WHAT SHOULD BE DONE TO ENSURE THAT OUR
COMMUNITY ACCESS RELIABLE FINANCIAL SERVICES
There are a number of proposals on what should be done to ensure that our
community access reliable financial activities. However, our discussion will basically
revolve around the most realistic and practical proposals as discussed below:
6.1. Gender Equity
Access to financial services should be available to both men and women. In order to achieve gender equity in the delivery of services, it may be necessary to make special efforts to incorporate features that make the services accessible to all.
6.2. Collateral Substitutes and Repayment Incentives
A variety of collateral substitutes and repayment incentives can be used so that loans are not secured in a conventional sense, but are adequately protected against risks. The techniques used today by most financial service providers in trying to make their loans more secure may hinder or even scare away the potential borrowers.
6.3. Government Intervention
Government intervention in the operation of the financial service providers is very important in order to avoid over exploitation of the public. As it is now most financial service provider have their own interest rates, some of which are very exploitative. For instance, the loan that PRIDE Tanzania which was secured at interest rate of 8% from “One billion for each Political region”-President Jakaya Mrisho Kikwete initiative, is being charged 30% interest. So the government should try and protect the public against such exploitation.

6.4. Governance
Institutions should have sound governing structures suitable to their institutional types. Participation by clients may in some instances be a fundamental principle of the good governance structure as it is in the SACCOS. However, the government and political interference should be kept at minimum.
6.5. Develop Microfinance
There is need to develop microfinance and Micro financial institutions (MFIs) which can deal in small transactions efficiently. In this respect, evolution of microfinance and MFIs will be very useful because they will be able to handle small transactions more efficiently as well as establish a long term relationships with the borrowers.
6.6. Improve the Credit Worthiness of the Poor
Innovation to assist more poor people to become credit worthy and in order to have long term relationship with formal financial institutions should be encouraged. As it is now, most of the poor are denied loans because of the fear that they will not be able to service the loans efficiently hence leading to bad debts.
6.7. Investing In Social and Physical Infrastructure
Most of the micro entrepreneurs find loan repayment difficult because the means of facilitating the transfer of their products is poorly developed. For instance, during the rain season, most roads are impassable hence the movement of goods to the market becomes very difficult. The development of schools and health centers will mean that the entrepreneurs will spend little money on transport in trying to get those services.
6.8. Discourage Debt Cycles
The practice of loan repayment by making fresh loans from money lenders has resulted in the creation of debt cycles. This practice actually makes the borrower always indebted to the lending institution hence failing to improve on means of coming out of poverty. Micro credit therefore may lead the poor to be caught up in the debt trap if they are not able to generate enough income for payment.
6.9. Provide education and training
Most of the Usa River community members lack knowledge on how to properly utilize the borrowed loans on the targeted ventures. Most of them still have the habit of diverting loans for the purpose which they initially did not have in mind. In the process they fail to refund the loans at the scheduled time. Some of them, as result have ended up losing their properties to their lenders.
6.10. Encourage the formation of SACCOS
Saving and Credit Cooperative Societies (SACCOS) have so far proved to be the best sources of finance for most small scale entrepreneurs since they provide loans at the lowest interest possible. The procedures required in obtaining loans is also simple and under short term notice. Beside that, the members are also eligible for dividend sharing at the end of the year.

7. CONCLUSION
The role of credit evolve as a determinant of the success of entrepreneurial activity but deep analysis of the entrepreneurial activity shows that finance does not in itself create opportunities rather it is the entrepreneurial nature of the people which lead them to see the various ways in which they can generate income. Nevertheless, credit plays an instrumental role in enhancing the capability of entrepreneur to utilize the available opportunity.
The high interest rates charged by most micro-financing institution is real discouraging to most financial services beneficiaries most of whom end up hooked by these loans to an extent that they become mere workers of financial organization. SACCOS have so far proved to be the best source of funds for the rural community if they adhere to cooperative principles. However, in the recent past, SACCOS have been reduced to be mere agents of financial institution particularly when they borrow money on behalf of the members at high interest rates and lend to their members at equally high interest rates.


8. REFERENCE
Microfinance and sustainable micro entrepreneurship development. Also available at http://www.ediindia.org/Creed/data.Nisha%2Bharti.htm
Chavan, P. & Ramakumar, R. (2002). “Micro-Credit and Rural Poverty: An analysis of Empirical Evidence” Economic and Political weekly, March 9, 2002.
United Republic of Tanzania, Ministry of industry and trade (2002). Small and Medium Enterprise Development Policy, The government printer, Dar es Salaam-Tanzania.
United Republic of Tanzania, Ministry of Finance (2002). National Micro-Finance Policy, The government printer, Dar es Salaam-Tanzania.
Ambilikile, C. M.(2004). Economics for Advanced level paper two and professional studies, Afroplus Industries Ltd. Dar es Salaam