Portfolio Spotlight: FINCA Microfinance Bank Limited in Tanzania

The portion of Tanzania’s estimated population of 55 million people living under the global poverty line of $1.90 per day has decreased from 60% to 47% in the past 10 years[1], thanks to a consistently strong, yearly GDP growth of 6-7%. Despite this growth, however, 25 million Tanzanians still live below this level, approximately 12 million of whom live under $0.60 per day. Thus, a significant portion of the population is still highly vulnerable to economic shocks – the effects of which affordable financial services can help reduce. In addition, 800,000 Tanzanians enter the workforce every year, but only limited job opportunities are available. Small and Growing Businesses (SGBs) can help meet this employment demand with access to financial services.

The Tanzanian government is focused on utilizing the private sector to increase economic growth and job creation. While policies that improve the ease of doing business play a critical role in achieving these goals, so does access to affordable financing. According to the World Bank, accelerating this trajectory for Tanzania requires – a) expanding financial services to traditionally “unbanked” individuals, specifically women, b) increasing the use of a diversity of financial products and services that will help Tanzania’s economy become more formalized, and c) providing access to affordable credit through the selection of high quality borrowers.

FINCA Microfinance Bank Limited in Tanzania (FINCA TZ), one of MCE’s newest MFI partners and one of only three deposit-taking banks in the country, is actively contributing to each of these goals. FINCA TZ was launched in 1998 as a microfinance institution with the mission to help low-income entrepreneurs build assets, create jobs, and improve their standard of living across Tanzania. It operated as a nonprofit microfinance institution until 2013, when it transitioned to a deposit-taking institution. Then, in 2015, it transformed again into a regulated Microfinance Bank and changed its name to FINCA Microfinance Bank Limited.

FINCA TZ offers three types of savings products and five types of lending products, ranging from village banking and small enterprise loans to individual and small group loans, all in local currency with declining interest rates. Over 80% of FINCA TZ’s customers are served by group loans. Depending on the size of the group, interest rate fees are between 5.8 – 6.3% per month.

The savings products, Mkwanja, Hakika, and Mipango, are each designed for different circumstances. The Mkwanja account enables customers to carry on everyday purchases, similar to a checking account, however with the ability to earn a moderate interest rate of 0.5% per annum. The Hakika account is designed to help individuals and families save for unforeseen circumstances and emergencies, with only one free withdrawal per month but a higher interest rate of 2.0%. The Mipango account is a cumulative fixed term deposit account designed to help families save for a particular event, such as education fees at the beginning of a school session or the purchase of a vehicle.

More than half (54%) of FINCA TZ’s clients are women, and nearly two-thirds (65%) of total clients live in rural communities throughout the region. FINCA TZ also offers one-month financial literacy training programs for its borrowers, so that they understand the implications of credit. Additionally, FINCA TZ partners with CARE International and the Aga Khan Foundation to administer other social services in the communities where it operates.

Mama Kapu (pictured above left) has been a vendor since 1999, and has since become a client of FINCA TZ. She is a mother to both her daughter Faith (pictured above right), and her community. Before partnering with FINCA TZ, she rented space for her shop from a landlord, who raised her rent more than she could afford. When she acquired a loan from FINCA TZ, however, she was able to buy her own land and open a small restaurant. “The loan let me become self-reliant,” says Mama Kapu. “When I started my business, I had only one employee. When I got my loan and moved to this place, the business grew bigger. Now I have five women working with me here.”

FINCA TZ’s loan to Mama Kapu has not only benefitted her, but the women and families of her community as well. Amina, an employee of Mama Kapu, widow, and mother of two children, is one of those women. “Getting a job is so difficult. When I got a job at Mama Kapu’s restaurant, I thanked God.” Today, Mama Kapu’s business is more than just a restaurant, it is a place where her community can come together. She watches her neighbor’s grandchild, because the child’s mother is unable to, as well as other children in her neighborhood. “They live like a family,” says Jane, Mama Kapu’s loan officer at FINCA TZ. “Mama Kapu is among the best clients I have. She’s a role model of mine. She’s a star.”

One of the most unique elements of FINCA TZ’s business model – with regards to customer acquisition and repayment – is the organization’s use of 120+ remote agents. Agents are not official staff of FINCA TZ, they are small business owners throughout the region, such as pharmacy and grocery store owners. Through these agents, customers of FINCA TZ can perform savings and lending transactions (verified by fingerprint technology) that normally would be done at a physical branch. This is not only extremely cost-effective for FINCA TZ, as it reduces the need for building new physical branches, but also greatly expands the organization’s reach.

As of February 2017, FINCA TZ had a gross loan portfolio of $31.7M, with 25 branches and more than 51,000 borrowers. In addition, with a growing mobile money platform and agent network, the institution is well poised to take advantage of the digital trend that is transforming the financial services sector in Sub-Saharan Africa. According to its CEO, Issa Ngwegwe, FINCA TZ’s goal – through the provision of its savings and lending products — is to be the bank of preference for low-end consumers in Tanzania. With its strong brand recognition in the market, broad geographic reach, and large customer base, FINCA TZ is certainly heading in that direction.

Below: Elisabeth Chasia, MCE Portfolio Manager, with Anna Mote, FINCA TZ Branch Manager – Tegeta, attempting to deposit money in a savings account with an agent outside of Dar es Salaam.

[1] The World Bank Group Macroeconomics and Fiscal Management Global Practice – Africa Region, Tanzania Economic Update – Money Within Reach – Extending Financial Inclusion in Tanzania, April 2017: 7.

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