Why community microfinance groups' contribution to financial inclusion drops
In a concerning trend for advocates of financial inclusion, participation in Community Microfinance Groups (CMGs) has experienced a steady decline over the past five years.
The level of CMGs participation has dropped from 16 percent in 2017 to 12 percent in 2023, according to the FinScope Tanzania 2023 Survey.
The survey is of adults (those aged 16 years or older) living in Tanzania, currently estimated to be 34.1 million, or 55 percent of the total Tanzanian 2022 Census population of 61.7 million.
CMGs have long been recognised as crucial entities for promoting financial inclusion, particularly among underserved communities.
These groups offer individuals without access to traditional financial institutions the opportunity to access small loans, savings facilities, and financial education within their own communities.
Data showed that Over a third (35 percent) of CMG members joined their group to access emergency funds, while 20 percent used it for savings, 16 for borrowing money, and 11 percent to socialize or meet with friends.
The report noted that the groups also function as an intersection between community finance and the larger insurance sector, as two percent of CMG members have also gained insurance benefits through their CMG.
Due to their significant role in pushing for financial inclusion, especially at community levels, there was a pressing need to investigate the factors contributing to the decline in participation.
Speaking to The Citizen, a member of a Village Community Bank (Vicoba), Ms Grace Filemon, said many groups fell after the government started the process of formalisation, which created the reluctance of many individuals to participate.
“The formalisation represents a loss of autonomy and control that they enjoyed within their community-based CMGs. So many people decided to opt out,” she said.
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CMGs were previously tagged as informal but were later formalised under the implementation of the Microfinance Act in 2018.
The Bank of Tanzania (BoT) has the mandate to register the groups through its CMG’s Online Registration System.
During budget tabling in May this year, the Minister for Finance and Planning, Dr Mwigulu Nchemba, told the National Assembly that in 2022 a total of 37,153 community microfinance groups would be registered, with nearly a million registered members.
Chief Executive Officer of the Institute of Management and Entrepreneurship Development. Dr Donath Olomi said the government’s emphasis on formalisation may not be accompanied by adequate awareness campaigns and educational initiatives.
“Many individuals within marginalised communities may be unaware of the benefits of formalisation or lack understanding about how it can enhance financial inclusion,” he said. Dr Olomi says the incorporation of technology can also expand the participation of CMGs, making it easier and more convenient for community members.