Innovation in Rural Finance in Tanzania

In Tanzania economic reforms had been adopted in the mid eighties to change the public sector led and administratively managed economy to a market based one and reform in the financial sector was a part of it. Through financial sector reform the government intended to decontrol the interest rates, restructure the public sector banks and encourage the private banks to enter into the financial sector.

Reform also had been started in the rural areas to uplift the standard of the rural people and combat poverty. So innovations in rural finance in Tanzania had come through many ways to accelerate the financial reform program. These are analyzed below.

Financing by the Banks:

In Tanzania, several banks provided financial help and services to a large number rural people of low income. The government also encouraged those banks, for through this method it could reduce poverty.

The Exim Bank in Tanzania initiated the financing process. The bank started the pre export crop financing and provided financial services to the medium and small scale enterprises. This bank had also taken the responsibility of controlling the agricultural input fund.

The Exim bank had an affiliation with the International Finance Corporation of Washington who’s aim was to advance private sector investment in the underdeveloped countries. The Exim bank also aimed to improve the rural people’s social life by reducing poverty.

Formation of Member Based Organizations:

The idea of member based organizations was another innovation in rural finance. The two member based organizations viz, Credit Cooperative and Savings society were dominating in Tanzania. These organizations had been also patronized by the government to enhance the access to the rural financial services.

Role of the NGOs:

The non governmental organizations in Tanzania financed almost 18,000 micro entrepreneurs of the rural areas. PRIDE was one of the largest NGO in Tanzania who tried to bring micro finance in the rural areas. The aim of PRIDE was to assist the micro entrepreneurs by offering loans and providing technical skills. The NGOs had taken a very important rule in providing the financial services for all classes in the rural areas.

Contract Farming:

The government of Tanzania introduced the idea of contract farming to provide financial services in the rural areas. For example, the Dimon (T) Ltd, a tobacco leaf processor, had been supplying tobacco to the Tanzania Cigarette Company and also dealing with the farmers through cooperative societies.

Formation of the Agricultural Input Fund:

The Tanzanian government formed an agricultural inputs credit fund to increase the loans of purchasing agricultural inputs.