Effect of Microfinance on Poverty Reduction in Tanzania: A Case Study of the African Microfinance Limited

Abstract

Microfinance is defined as the provision of financial services to low-income people, particularly women. It is an attempt to improve access to small loans for poor individuals who are neglected by formal commercial banks. Microfinance is an effective way of financial inclusion of the poor, and therefore a key driver of poverty alleviation. Using the African Microfinance Limited as a case, this study aims at assessing the effect of microfinance institutions on poverty reduction in Kinondoni District in Dar es Salaam, Tanzania. Data were collected from 115 clients who live in the district; and 3 loan officers were purposively selected and interviewed. The effectiveness of microfinancing is measured by total income generated from the enterprise. Descriptive statistics as well as ordinary least square method was then used to analyze the data. The findings reveal that individual’s income increases as a result of access to loan; the latter being a function of collateral, cash inflows and education. Even though the poor were targeted as beneficiaries, only the ones with high collateral and high cash inflow; as well as those with high education appear to be the successful ones. Giving training for would-be borrowers on the fundamentals of business management would render microfinance more effective.