Microfinance Institutions And Economic Growth In Tanzania A Case Study Of Chunya District, Mbeya

ABSTRACT

The study sought to examine the relationship between microfinance institutions and economic growth in Tanzania in Chnnya district, Mbeya in Tanzania. The study objectives were; to establish the contribntions of microfinance institutions towards economic growth, to identify the challenges facing microfinance institutions in regard to economic growth and to examine relationship between microfinance institutions and economic growth. A cross sectional survey was used in the course of the study. Both qualitative and quantitative data was gathered in order to establish the relationship between the independent and dependent variables, so as to examine the relationship between microfinance institutions and economic growth. The study took place in Chunya district, Mbeya, Tanzania. The district was purposely selected because of its' convenient location and also bore the necessary and required study elements. The study population involved 58 participants where 10 top authorities of the Institution, 15 officials from selected microfinance institutions , 8 officials from the Ministry of Trade and 25 local people who were found available. Purposive sampling was also used to select only respondents for the researcher to attain the purpose of the study. Data was collected from primary and secondary sources using questionnaires and interviews. After collecting data, the researcher organized well-answered questionnaire, data was edited and sorted for the next stage. The data was presented in tabular form, pie charts and bar graphs with frequencies and percentages. The study also found out that the less privileged acquire financial services such as loans through an informal relationship, which might prove to be costly and unreliable. It was revealed that unprivileged people might have profitable business plans, but they lack sufficient funds to meet the start-up costs. The study also concludes that when individuals are given decision-making power, they generally make decisions that will be optimal for their families. The study recommends that there is need to introduce interest rate ceilings. To minimize the heavy transaction costs that are associated with rural credit operations, there is need to provide incentives to MFis to increase rural outreach. The is need for a policy incentive structure for capacity building to act a step to the right direction supported by govermnent, key donors and other stakeholders to provide coordinated donor funding mechanism for microfinance capacity building based on agreed upon best practices and cost sharing basis to enhance impact, market responsiveness and cost sharing basis (Adams, I 992). 

TABLE OF CONTENTS 

DECLARATION .......................................................................................................................................... ii 

APPROVAL ................................................................................................................................................ iii 

DEDICATION ............................................................................................................................................. iv 

ACKNOWLEDGEMENTS .......................................................................................................................... v 

TABLE OF CONTENTS ............................................................................................................................. vi 

LIST OF TABLES ..................................................................................................................................... viii 

ABSTRACT ................................................................................................................................................. ix 

CHAPTER ONE ........................................................................................................................................... 1 

I.I Background of the Study ......................................................................................................................... l 

1.2 Statement of the Problem ........................................................................................................................ 2 

1.3 Purpose of the Study ............................................................................................................................... 3 

1.5 Research Questions ................................................................................................................................. 3 

1.6 Scope of the study ................................................................................................................................... 3 

1.7 Significance of the Study ........................................................................................................................ 3 

1.8 Conceptual framework showing independent and dependent variable ................................................... 5 

1.9 Definitions of Key terms ......................................................................................................................... 6 

CHAPTER TWO .......................................................................................................................................... 7 

LITERATlJRE REVIEW ............................................................................................................................. 7 

2.0 Introduction ............................................................................................................................................. 7 

2.1 Contributions of microfinance institutions towards economic growth ................................................... 7 

2.2 Challenges facing micro finance institutions in regard to economic growth ........................................... 9 

2.3 Relationship between micro finance institutions and economic growth ................................................ 12 

CHAPTER THREE .................................................................................................................................... 15 

METHODOLOGY ..................................................................................................................................... 15 

3.1. Research Design ................................................................................................................................. :.15 

3.2 Target Population .................................................................................................................................. 15 

3 .3 Sample Size ........................................................................................................................................... 16 

3.4 Sampling Technique ............................................................................................................................. 16 

3.5 Sources ofData ..................................................................................................................................... 16 

3.5.1 Primary Data ...................................................................................................................................... 16 

3.5.2 Secondary Data .................................................................................................................................. 17 

3.6. Research Instruments ........................................................................................................................... 17 

3.6.1. Interviews .......................................................................................................................................... 17 

3.6.2 Questionnaire ..................................................................................................................................... 17 

3.7 Data Analysis ........................................................................................................................................ 17 

3.8. Limitations of study ............................................................................................................................. 18 

CHAPTER FOUR ....................................................................................................................................... 19 

PRESENTATION, INTEPRETATION AND ANALYSIS OF DATA ..................................................... 19 

4.1 Demographic characteristics of respondents ......................................................................................... 19 

4.1.1 Gender of Respondents ...................................................................................................................... 19 

4.1.2 Age of the Respondents ..................................................................................................................... 19 

4.1.3 Marital Status of the Respondents ..................................................................................................... 20 

4.1.4 Education Levels of tl1e Respondents ................................................................................................ 21 

4.2 THE CONTRIBUTIONS OF MICROFINANCE INSTITUTIONS TOW ARDS ECONOMIC 

GROWTH ................................................................................................................................................... 23 

4.3 CHALLENGES FACING MICROFINANCE INSTITUTIONS IN REGARD TO ECONOMIC 

GROWTH ................................................................................................................................................... 25 

4.4 THE RELATIONSHIP BETWEEN MICROFINANCE INSTITUTIONS AND ECONOMIC 

GROWTH ................................................................................................................................................... 27 

CHAPTER FIVE ........................................................................................................................................ 29 

SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS ..................................... 29 

5.1 SummaryoftheFindings ...................................................................................................................... 29 

5.2 Conclusion of the Findings ................................................................................................................... 32 

5.3 Recommend~tions ................................................................................................................................. 33 

5.4. Areas for further research .................................................................................................................... 33 

REFERENCES ........................................................................................................................................... 35 

APPENDICES ............................................................................................................................................ 37 

APPENDIX I A: QUESTIONNAIRE ........................................................................................................ 37