RESEARCH NO.1-MICROENTERPRISE

TABLE OF CONTENT


1. Introduction
2. Theoretical Literature review
2.1. Historical background
2.2. Definition of micro enterprise
3. Empirical Literature review
3.1. Micro enterprise in East Africa
3.2. Financing micro enterprises
3.3. Impact of micro enterprise
3.4. Problems facing Micro enter price
4. Policy Review on Micro enter price in Tanzania
4.1. Micro-credit activities
4.2. Fair Lending practices
4.3. National Economic Empowerment programme: one Billion for each Political region.

4.4. General strategy of the fund
4.5. Conditions for Borrowers
5. Conclusion









1. INTRODUCTION
This paper will attempt to explore Micro enter-price in East African Countries, that is, Kenya, Uganda and Tanzania. It will be divided into four major categories, that is, Theoretical review, empirical review, Tanzanian policy on micro enterprise and the conclusion. Our approach will basically revolve around historical literature review.
Under theoretical literature review, we shall attempt to give the historical background of EA and how the differences in political ideologies have created differences in economic attainment of the three countries. We shall also try to look at the definition of micro enterprise in this section.
Under empirical literature review review, this paper will examine the real micro enterprises in EA by drawing examples from the three countries. Other sub-topics that will be discussed here include the financing micro enterprises, the impact of micro enterprises on development, problems facing micro enterprise and the future prospects of micro enterprises.
We shall then embark on policy review on micro enterprise in Tanzania.
We shall then further give the conclusion by offering the opinions and recommendations where necessary.

2. THEORITICAL LITERATURE REVIEW.
2.1. Historical Background.
The three East African countries Kenya, Tanzania and Uganda have along history of having several aspects of life in common. The three countries were one time acolony for Britain after the Second World War. They later formed East African community which collapsed in 1977 and today they have formed another one. They also speak a common language-- Kiswahili.
The differences among the three countries was in their political ideologies. After the Arusha Declaration in 1967, Tanzania became a socialist country while Kenya and Uganda remained to be Capitalist. However, Tanzania is now exercising a mixed type of Economy after a binding with Structural Adjustment Programme (SAP)-- a programme initiated by International monetary fund (IMF).
Due to the differences in ideologies and social political and economies, the three East African countries have found themselves in quite different situations.
In Tanzanian, reports by Micro Links states that it is the poorest countries in the World and has a population of 38 million. The economy depends heavily on agriculture, which accounts for almost half of GDP, provides 85% of exports and employs 80% of the work force. Topography and climatic conditions, however limit cultivated crops to only 4% of the land area. Some 28 million Tanzanian live in rural area, which has approximately 5 million households.
Foundation for Sustainable Development (FSD) reporting on Kenyan micro-enterprise / micro finance Issues:- Two major factors play into Kenyan’s economic situations – wealth disparity and lack of economic growth. Country’s richest 10% of the Kenyan population controls almost half of the nation’s wealth while the poorest 10% hold less than 1%. The continuous extraction of resources from the poor to the rich perpetuates many economic influences, including lack of hope that hard work will pay off - a belief that is vital to the economy and motivation of developed nations.
In Uganda, World vision under Impact HIV /AIDS writing on Uganda Micro enterprise Development says that there are two million children – nearly 20% of the country’s total – have lost one or both parents to HIV/AIDS. This epidemic has created adverse set of challenges and needs for the orphans and children left behind. Without financial support, care or protection of a parent in their lives, many are forced to leave school to care for other family members infected with HIV/AID or to engage in child labour. They often experience emotional distress, hunger, poverty, homelessness and physical and sexual abuse. To make matters worse, they also run a heightened risk of contracting HIV/AIDS.

2.2. Definition of Micro enterprise.
According to Rashid M. Mfaume and Wilhelm Leonard, in their paper Small Business entrepreneurship in Dar – es – salaam, Tanzania. Exploring problems and prospects for future Development, referring to Lome convention, micro enterprises are normally formal sectors with as many as 10 workers although there are usual part-time assistants. They went a head to say that an entrepreneur is a person or a group of persons who compete through innovations, discover through networks; persuade resource owner and indeed bear risk.

3. IMPIRICAL LITERATURE REVIEW.
3.1. Micro enter prise in East Africa.
According to Choice humanitarian on Kenyan women New Micro enterprise, 17 women of Bahakwenu in the Taru location which is part of the Kwale District and the Samburu District have formed cooperative that is in the business of making and selling soap. They use the Aloe plant as one of the main ingredients of the soap. They were taught how to make soap by Rasilimal foundation. They have since used this simple technology to form a business.
UNCHS (Habitat) together with Manus Coffey associates carried out a project to find an appropriate technology to empty pit latrines, which led to the development of the vacu-tug. Vacu-tug has the responsibility of emptying 500 liters of waste in Kibera Nairobi, Kenya. In the process vacu-tug has solved the problem of the “Wrap and throw” method, known locally as the “flying toilet,” the way of disposing extreta.
In Uganda, a young window Joyce, a member of Trickle Up, launched her own business of making bricks. Since the construction of schools and homes is booming in Fort portal, Uganda, Joyce is able to bring about $700 per year with two staff members. She has so far been joined by other young windows and initiated a basket weaving business, which brings Joyce additional income.
Joe Gisbey writing on “Micro-enterprise project in Uganda empowers the poor” under local NGO, Links International operating under Global Connections, says how a lady has been successful, in carrying out small scale business. The author says, Nansikombi Berna - The charcoal/Tomatoes lady operating in Gerenge, a small fishing Village in Uganda has diversified her business buying Charcoal from the Islands and selling it to her fellow villagers.
In Kampala, Uganda, November 18, 2003 – Uganda’s vices President; Professor Gilbert launched “MTN Village Phone” an IFC-Supported joint venture between leading telecommunications company, MTN Uganda and Grameen foundation USA. Village phone operators take micro loans for the equipment as little as US$ 230 to be repaid over a period of up to 12 months. These village telephone operators earns as much as US700 per year-roughly twice the national average.
Rashid M. Mfaume, writing on “small entrepreneurship in Dar – es – Salaam” Says the ideological antipathy towards informal sector is buttressed by social conflict. One can witness the arrest of itinerant traders and other small business people setting up their merchandise along the pavements of busiest streets such as Azikwe, New post office, Telephone house, Samora Avenue and Kivukoni.
Mlowe, Towo and Bamanyisa in their research report entitled Crop diversification reports that in Bukoba, farmers are organized by a farmer’s network known as MAYAWA. The majority of the members are Vanilla farmers while 9.4 per cent are Mushroom farmers. A kilo of raw mushroom can fetch between Tshs: 2,500 and Tshs: 3000. The farmers sell the beans at a price that ranges between Tshs: 5000 for grade B and Tshs: 10,000 for grade A.
In Iringa district, a group of farmers at Ihemi and Kilolo Village grow Paprika under the Tanzania Spices (Foreign Company) terms and conditions. Paprika enables the farmers to fatch Tshs. 1070 per kilogram for grade A, Tshs: 560 per Kg. for grade B and Tshs: 250 per Kg. for Grade C. A farmer can produce between 500 to 700 Kgs. per harvest once a year.
In Hai, a cooperative society known as HABECO was formed to unite the beekeepers. The members of group have between 30 and 100 beehives per person. This enables the members to fetch between Tshs: 1,080,000 to 3,200,000 per year for raw honey.

3.2. FINANCING MICRO ENTERPRISES.
Theo Mushi (2004) writing for financial times, on “Financial watch: Is National Micro financing policy working?, observes that there is department in the Bank of Tanzania which is responsible for implementing the policy. The providers of funds for micro-enterprises are many from both domestic and external resources. These include UK NGO GATSBY TRUST (Tanzania), Hans Seidof Foundation, SIDO, East Africa Development Bank, African Development Bank, bilateral donors, UNDP and the government as well as the private sector under the umbrella of the private sector Initiative (PSI).
Other players in microfinancing are Community bank is Mwanga, Mufindi and Dar es Salaam and the Kilimanjaro Co-operation Bank.
In Uganda, International finance Corporation (IFC) has provided funding for the projects from its SME capacity Building Facility, its granted innovative small business pilots and partnership.
. Links International has pioneered a micro enterprise development project at Wellspring Uganda in which more than 1300 families have been taken out of poverty since the year 2000.
Anne Martin (nee kesterton), 1997, writing on “Sustainability of financial services provision for the poor; the case of Kenya, points out that credit programmes in several countries have proved to operate viably on commercial principles whilst lending to the poor. The analysis differentiates between specialist and no-specialists agencies and between a poverty-alleviation and a macro enterprise-lending approach arguing that the target client and methodology is subtly different in each case. PRIDE’s micro enterprise lending tending to deviate from KREP Juhudi poverty-alleviation methodology but both demonstrated organizational flexibility and financial discipline.
In Uganda, World visions MFIs help families care for the HIV/AIDS children by grating them loans to start business, purchase supplies and equipment, expand operations, market goods or services and hire additional staff. With as extra income, this caregivers can afford to provide the nutrition food, improved living conditions, health care, and education these children need.


3.3 IMPACT OF MICRO-ENTERPRISES ON DEVELOPMENT
Tanzania Development Gateway (2006) stated that micro and small enterprises are an important factor for economic development and industrialization in poor countries. The 2005 world Development Report suggests that creating sustainable jobs and opportunities for micro-entrepreneurs are the partway out of poverty for poor people.
UNITUS - Innovative solution to Global poverty, writing on poverty and microfinance had this to say, women constitute the bulk of those who need microfinance services -70% of the world poor are women. Therefore, targeting women has also proved to be a successful, efficient economic development tool..
Micro-enterprise for pit latrine in running vacu - tug achieved the following objectives:
- It provides a services that is affordable and environmentally sustainable
- It improves the sanitation situation of the area being serviced.
- Decrease the pollution and contamination of groundwater recourses
- It improves general aesthetics of the surrounding area.
- It reduce the impact of diseases such as cholera and typhoid and diarrhea
- It provide employment to the urban poor
- It serves the people
- It provides a services that is accessible and easily obtained, efficient and reliable

3.4 PROBLEMS FACING MICRO-ENTERPRISE
Rashid M. Mfaume, writing on SPIV’S (Suspected Person and Itinerant Vagrant), has it that thugs and city askaris are among crime committers and any entrepreneur can be victim of criminal Acts. The result indicated that 81.5% of the respondents had the opinion that any petty trader is a potential victim of criminal behavior-are not certain of safety and security.
The author of Tanzania Development Gateway (2006) writing a policy Dialogue Seminar Paper on opportunities and challenges for Rural SMEs Development, said that a multitude of problems make it difficult for SMEs to exploit potentials for further employment and wealth creation, the fundamental one being limited capacity in terms of attitude, motivation, skills and experiences.
Theo Mushi (2004) of financial times wrote that the constraints facing micro-enterprises and SMEs, are lack of collateral for bank loans and lack of business skills. The author of Financial Times added that there is lack of information about markets and technology.

3.5 FUTURE PROSPECTS OF MICRO ENTERPRISES
Make Laiser, the director of SIDO while closing the seminar for SMEs in, March 2006 said that 40 entrepreneurs out of 300 have managed to access the international market through the assistance of ACCES. This five years plan is aimed at assisting up to 300 entrepreneurs.
Tanzania Development Gateway (2006) writing on characteristics and behavior of African markets and market institutions - consequences for economic Growth suggested that for reform programs to be successful, policy that enhances efficiency and competitiveness of the African factor markets must be put in place.
The author of Tanzania Development Gateway (TDG) added that the SMEs have been urged to form regional apex organizations that promote and safeguard their interests. This was advised by coordinator of the property and Business Formalization Program during a workshop in Dar es Salaam. There was also a significant increases in lending to various economic associates in November 2005.
The Financial Times reporter writes that lack of collateral for bank loans will be taken care of by SME credit Guarantee scheme, lack of business skills will be attached by entrepreneurship development programmes and the lack of information about markets and technology will be solved when the SIDO website is launched, and industrial information countries established.

4. POLICY REVIEW ON MICROENTERPRISE IN TANZANIA
In the year 2000, the Government approved a National Micro finances policy whose objective is to establish a basis for evolution of efficient and effective micro financial system that serves the low-income segment of the society.

4.1. Micro-credit Activities:-
Regulation № 17 (1 – 3) of 2005.
4.1.1. For purpose of these regulations, micro-credit means a credit accommodation whose security may include non-traditional collateral.
4.1.2. It may also be for an applicant who may lack formal financial statements and other accounting and operational records.
4.1.3. The companies engaged in Micro-credit shall specify the maximum amounts that can be approved at every level of discretion and procedural requirements and the internal controls to be maintained.
4.1.4. Micro-credit in excess of the equivalent of one percent (1%) of the core capital shall require the approval of every level of discretion including the Board of Directors.
4.1.5. Where the borrower lacks the registered security of immovable or movable property, a micro-credit shall be covered by:-
4.1.5.1. A reasonable non-traditional security or
4.1.5.2. A collateral substitute such as personal guarantee, contractual pledging of home or business assets or
4.1.5.3. Compulsory savings or group guarantee where members jointly guarantee each other’s loans.
4.1.5.4. Institutions engaged in micro-credit shall adopt the methodology determined by the Bank of Tanzania to assign identification numbers to their clients and to report a credit Reference data bank, their loan portfolio information in the format and with the frequency required by the Bank of Tanzania.
4.2 Fair lending Practices:-
Regulation 26 (1 – 5) of 2005.
4.2.1. The contract between a financial institution and the borrower shall state the nominal rate as well as commissions and fees either on annual or monthly basis.
4.2.2. The borrowers shall be permitted to make partial or
total prepayments on their micro-borrowings whereas penalties for prepayment if any, shall be described in the contract.
4.2.3. Imposition or asserting any contractual term or conditions granting the micro finance company authority to introduce unilateral modifications to interest rates or other loan conditions is prohibited.
4.2.4. The Micro-credit contract may establish an indexed interest rate, designed to vary in line with a reference rate published by the Bank of Tanzania.
4.2.5. The Bank of Tanzania shall monitor the collection practices in micro-credits and shall instruct institutions to discontinue that when in its opinion the collections are unfair and abusive.
4.3. National Economic Empowerment Programme
(One Billion for each Political region).
This is a grand government project whose objective is to empower economically the ordinary citizen from both the Urban and rural areas as well as promotion of employment.

4.3.1. General strategy of the fund.
4.3.1.1. Funds will be channeled through financial instructions.
4.3.1.2. The Banks participating in this programme will lend as soft loans.
4.3.1.3. They will use their ordinary Bank lending commercial principles.
4.3.1.4. No part of this fund may be used as allowances for any reason whatsoever.
4.3.2. Conditions to Borrowers.
4.3.2.1. The loans are for both individuals and groups.
4.3.2.2. Start up loans will be for group lending and not to individuals.
4.3.2.3. Borrowers should be verifiable and traceable.
4.3.2.4. No application fees will be charged.
4.3.2.5. No facility fee to be charged.
4.3.2.6. Simple loan application will be used.
4.3.2.7. Interest rate on loan will not exceed 10% per annum.
4.3.2.8. Loan applications that ensure promotion of employment will be more favored with lower interest rate.
4.3.2.9. Repayment period for any loan will not exceed three (3) years.



5. CONCLUSION.
In East Africa, Micro enterprise has not yet developed to a great extent. The majority of people who are involved in micro enterprise do so in their effort to reduce the hardships which come as a result of poverty. They are therefore, ill -educated, lack Capital, lack skills and training for various activities.
The financial institutional which try to lend money to the people only do so under very strict conditions which are not, in most cases, met by the majority. The savings and credit cooperative societies (SACCOS) whose aim is to mobilize savings and in turn lend to the members have also become the agents of micro enterprise financial institutions since they borrow money at very high interest and lend to their members at equally high interest.
The government intervention to correct the situation has not bored enough fruits since the money is also directed to the same financial institutions whose terms, the majority have failed to meet for example president of Tanzania’s 21 billions to various regions in Tanzania.
Therefore it is only through training and good governance and accountability that East Africa Countries may realize a meaningful micro enterprise development.




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