Microfinance institutions seek new law to govern operations

Dar es Salaam, March 2014

There is an urgent need to establish a new law to govern the rapidly growing and increasingly vital microfinance subsector in Tanzania, which needs improved regulatory environment.
This emerged at a meeting for Tanzania Association of Microfinance Institutions (TAMFI) members organized recently in Dar es Salaam.

TAMFi members resolved to up dialogue with the government to ensure that a law is crafted in line with microfinance policy which came into being 14 years ago.
There was concurrence at the meeting that microfinance institutions remains principally the main providers of financial services to the rural economy and a cross section of the urban society and a proper regulatory regime is a necessity for the industry grow to next level.
The meeting observed that a major impediment to the development of microfinance business in Tanzania is lack of specific legislation to guide the operations of the sub-sector.
With over 70 per cent of Tanzanians still unbanked, microfinance institutions (MFIs) plays a pivotal role in increasing access to finance, which necessitates a proper regulatory environment guided by a Microfinance Act.
Such a law should also include establishment of a microfinance credit reference bureau, said Mrs Lucy Sondo a legal consultant, advising TAMFI on what should be done to improve regulatory environment for the subsector.
Mr Altemius Milinga, a TAMFI Board said that over the years MFIs have gone through a lot of challenges because of lack of clear regulatory framework tailored to meet the needs of the subsector.
Lack of microfinance law has contributed to a large extent to the poor performance, diversity in institutional form, limited outreach, unhealthy competition, limited access to funds among many others challenges.
TAMFI with support from BEST AC, is advocating for improved regulatory framework for the micro finance sub sector.
According to Mr Milinga TAMFI is advocating for introduction of a Microfinance Law that is business friendly, inclusive and allows fair competition in financial service operations.
“We need to have our legal existence as microfinance industry clearly known,” he said. He said that soon, they will present a proposal to the government on the need to introduce such a law and what the MFIs want included.
“Without proper regulatory base an institution can’t be sure how long it’s going to last… no wonder it is hard for many MFIs to attract big capital. Despite many gains, the sector can do much better if clearly regulated to enable the subsector to improve outreach and sustainability.
Many microfinance SMEs have great capability in reaching for people both in urban and rural areas if well enabled.
TAMFI is proposing for a Microfinance Law that is business friendly, and includes all types of Microfinance Institutions. This has come after the institution has undertaken thorough research about constrains and challenges that face microfinance industry.
“We want a law that will provide guidelines and ensure the interests of all microfinance institutions are well covered whether big or small to enable them to provide improved services,” said Mr. Walid Ahmed, of BRAC Tanzania.
“Such a law must keep in mind that one of the primary objectives of establishing microfinance institutions is to increase financial access to the poor and uplift them from poverty,” he said.

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