Operational partnership facing challenges with commercial banks: microfinance the case of Hembeti and Turiani saccos/CRDB partnership
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Date
2011
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Publisher
Sokoine University of Agriculture
Abstract
Financing the poor is expensive than commercial banking due to transactions and
administration cost. Loan officers have to travel to remote areas to give loans and
other services. The problem is aggravated further by the fact that poor people have
only small sums to save which limit the banks' economic opportunities. Recently,
Microfinance Company initiated efforts to assist the poor by creating awareness on
the borrowing procedures. This situatiomattracted Microfinance Industries (MFIs) to
go into partnership with commercial financial institutions. The lending programme
appears to produce tangible benefits and does not distort the process of financial
intermediation between micro savers and micro borrowers' survivor. The purpose of
this case was to determine the operational challenges facing the MFIs partnership
with commercial banks. Two SACCOS namely Hembeti and Turiani were used as
case studies. The data were gathered through participating in the SACCOS general
meetings and interviews with leaders and other members. The results narrate several
challenges which face the SACCOS. For the case of Hembeti SACCOS, paddy
storage was a problem as all respondents mentioned shortage of godowns. Farm
input costs to both SACCOS was mentioned by more than 90% of the respondents as
prohibitively high to the extent of compromising SACCOS members from effective
farming activities. Education is an important component for the SACCOS
management to manage business and financial aspect as organization grow. This
study has found that 55% of Hembeti SACCOS leaders had primary school
education different from their counterpart Turiani SACCOS with 92% of its
management members with secondary school education and 8% being universityiii
graduate. Furthermore, the 81% and 99% of Hcmbcti and Turiani borrowers
respectively used their loans as planned and had significantly reduced credit risk.
Therefore there is need for MFIs continue plans to build a vibrant market of
microfinance services by setting fair pricing and profit levels. Need for micro credit
to expand entrepreneurial activities is a very important aspect. The study
recommends that MFI management should posses the necessary skills that would
lead to implementation of range of financial services and policies that support the
farmers in different matters. Adherence to agreed ethics and the general code of
conducts shall be taken as necessary.
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Keywords
Commercial banks, Microfinance, Operational partnership, SACCOS Hembeti -Turiani