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In recognition of the dynamic role of micro- and small enterprises and the need to find alternatives to the formal financing system, over 50 Micro Financing Institutions (MFls) have been established in Tanzania in recent years. This research evaluated the performance and financial sustainability of a sample of these micro-finance institutions in terms of the overall institutional and organizational strength, client outreach, and operational and financial
performance.
The overall performance of MFls has been found to be poor. Few MFls have clear objectives, or a strong organizational structure. They lack participatory ownership and many are donor driven. Client outreach is increasing, with branches opening in almost all regions of the Tanzanian mainland. Nevertheless, MFI activities remain centered around urban areas. Operational perfonnance demonstrates low loan repayment rates. Capital structure reveals a high dependence on donor or government funding.
The current expansion in micro-finance programmes targeting women is dominated by the 'financial self-sustainability paradigm' aimed at developing programmes which will ultimately be independent of donor funds. Evidence from Asia and Africa indicates that although to some extent empowerment aims can be integrated into financial sustainability 'Best Practice', there are also serious tensions. Increasing contribution of micro-finance to women's empowerment will require a more participatory approach to programme management and linking grassroots groups with other women's organizations. These in turn will require changes in current donor priorities and procedures both in relation to micro-finance itself and to macro-level economic and social policy.
Micro-credit programs offer credit without demanding land or property as collateral, thus targeting clients neglected by the formal banking sector. Major international development organizations and donors presently regard them as an effective instrument in development work, particularly in poverty alleviation, women's empowerment and employment creation. Based on research carried out on two Ugandan organizations, this paper argues that the social impact of micro-credit programs lags behind the expectations raised. Problematic aspects discussed include increasing work loads for women, exclusion of the poorest, and the unsatisfactory working and living conditions of many micro-entrepreneurs and their workers.
Financial development and financial institution building are important prerequisites for economic growth. However, both the potential and the problems of institution building are still vastly underestimated by those who design and fund institution building projects. The paper first underlines the importance of financial development for economic growth, then describes the main elements of "serious" institution building: the lending technology, the methodological approaches, and the question of internal structure and corporate governance. Finally, it discusses three problems which institution building efforts have to cope with: inappropriate expectations on the part of donor and partner institutions regarding the problems and effects of institution building efforts, the lack of awareness of the importance of governance and ownership issues, and financial regulation that is too restrictive for microfinance operations. All three problems together explain why there are so few successful micro and small business institutions operating worldwide.