• Reference: P-TZ-IE0-002
• Approval date: 10/05/2010
• Start date: 22/10/2010
• Appraisal Date: 05/12/2009
• Status: OngoingOnGo
• Implementing Agency: MINISTRY OF PLANNING, ECONOMIC AND EMPOWERMENT
• Location: NATIONAL

2.2.1 The project will comprise of the following two components:

(i) Financial Services; and

(ii) Capacity Building and Business Development Services. The following table presents the project components, expected outcomes and estimated cost per component.

ComponentDescription, expected outcomes and budget allocation

1. Financial Services (FS)SELF will manage a Wholesale Credit Fund. Based on the eligibility criteria stipulated in the Credit Operations Manual, SELF will lend these funds at a market rate of interest to MFIs for on-lending to end user clients. As a result, annual growth of loan portfolio is expected to improve from 25% to 55%; and clients reached will increase from 67,000 to 0.25 million. UA 14.43 million

2. Institutional Capacity Building (ICB)Institutional Capacity Building shall include both training and institutional support as need arises for SELF, MOFEA and intermediaries through tailor made training programs for skills and business development enhancement by credible service providers. In order to enhance credit consumer education, the project will support financial literacy programs as well as sensitization and awareness raising of the population specifically targeting women and youth, educated unemployed youth such as the graduates of VETA institutions as well as the "Machinga's" Youth Street Venders). Support will also be provided to refine and develop and test new innovative products and methodologies in service delivery (mobile banking, loan cards, micro-insurance, etc) which can reduce transaction costs and allow for a sustainable outreach of financial services to remote and low-density areas. The emergence of Carbon Micro Credit also provides an opportunity to generate income for target clients while addressing Global Warming. Additional support will be provided to strengthen M&E functions and Management Information systems. The expected outcomes will include: Project's portfolio growth increased from 25% to 55% per annum and maintaining 95% repayment, portfolio at risk (PAR) improved from 7% to 5%; and 30% and 5% of intermediary MFIs graduate from infant to intermediate and intermediate to advanced status, respectively. Provided technical and logistical support in order to manage the day-to-day activities of the project as well as the transformation of SELF to a corporate entity. Moreover, the project will provide the necessary support to establish the Microfinance unit in the MoFEA. UA 7.570 million.

The overall goal of the Project is to contribute towards reducing income poverty in Tanzania. The objective of the proposed project is to improve access of 820,000 of the active poor, especially in rural areas, to financial services.

1.3.1 The report of the Inter-institutional Committee on the review of the Financial Sector Assessment Programme (FSAP) of 2007 concluded that Tanzania's formal financial system plays a limited role in the economy and its current depth and efficiency fall short of what is needed to support economic growth. Financial intermediation in Tanzania is low and highly segmented with limited formal banking services. The financial system in Tanzania therefore continues to be restrictive in terms of accessibility to services and a very significant portion of the population is underserved, particularly the youth and women in rural areas.

1.3.2 In 2009, the Financial Sector Deepening Trust (FSDT) carried out a survey, FINSCOPE on the extent of access of financial services in Tanzania. This was a follow up to the similar survey carried out in 2006. The 2009 survey found that the financial sector landscape has not changed much and in some areas has worsened. Whilst growth in those accessing formal (banks) and informal (SACCOs/NGOs) financial institutions rose by 3.3% and 2.2% respectively; those who accessed the informal market fell by 7.8%. Furthermore, the percentage of the population who are totally excluded from both formal and informal financial institutions has increased by 2.3% to 56% in 2009. The survey also revealed that:

(i) the excluded youth (age 16-34) increased by 1.2 million (5.4% of adult population in 2009); and

(ii) While there is little difference between men and women in terms of access to financial services (on average 43.3% have access while 53.5% excluded) there is twice the number of men than women using the formal financial institutions and a third of both adult men and women remain outside the financial system altogether.

1.3.3 On the supply side, by December 2006, there were over 3,500 SACCOS with approximately 420,000 members. The informal savings and credit associations (Village Savings and Loan Associations (VSLA) were 158 with a total membership of 4,552 (70% women) whereas the NGO-type MFIs were estimated to have 200,000 active borrowers. Banks accounted for 294 branches and 176 ATMs, and employed 6,400 Tanzanians. BoT statistics show that there is excess liquidity in the formal banking sector. In 2008 total bank assets stood at TZS. 6.6 trillion (UA3.1 billion), total customer deposits amounted to TZS. 5.3 Trillion (UA2.5 Billion), with TZS2.4 trillion (UA1.2 billion) outstanding in loans and advances. The Government has, however, been continuously encourage lending to the productive sectors as well as product innovations for wider needs coverage. These assessments show that there is clear market failure in the provision of financial services in Tanzanians. Formal financial institutions have a very low level of penetration in the rural areas, since most of bank branches are located in urban areas and none of the existing institutions have a focused outreach strategy. This would require a holistic approach and alternative outreach modules to financial inclusion.

1.3.4 Based on the results of SELF I, which was introduced as the first of its kind in Tanzania at a time when the country was emerging out of a socialist economic policy framework, necessitate the Bank's intervention to sustain the results in the long-term and at a broader scale. This is especially relevant given the fact that the 2009 results of FINSCOPE clearly indicate that there is even a greater need to "improve access of the poor in rural areas to microfinance services". It is also hoped that such interventions, as been proven with various case studies of clients, will help introduce a business culture and contribute to the development of an entrepreneurial spirit among the excluded in rural areas. The project addresses the chronic lack of access to financial services by the majority of Tanzania's in a two prone approach which is:

(i) long-term approach to industry development and

(ii) replicating successful alternative home-grown models of intervention such as SELF.

1.3.5 The proposed intervention is building on the success and lessons learned from the previous phase. It is geared to complement the attainment of reforms through promoting inclusive financial service delivery and fostering growth of rural based financial institutions that are capable of providing sustainable and responsive financial services. Through the Project's provision of sustainable wholesale credit the intervention is able to effectively address the income poverty pillar envisaged under MKUKUTA.

The project will significantly enhance the incomes of the active poor and low-income categories of the population in rural areas. In addition, by empowering the clients and microfinance institutions through training and provision of basic logistical support, the project will contribute greatly to enhance their ability to propose viable micro-enterprises and better manage their businesses.

BUDALI Issahaku - OSHD1

Finance source	Amount
ADF	UAC 20,000,000
Government	UAC 2,000,000
Total	UAC 22,000,000