“FOR STARTING A MICROFINANCE INSTITUTION IN TANZANIA”
1. INTRODUCTION AND BACKGROUND
1.1. Executive Summary
Empowerment Enterprises of Africa (EEA) was incorporated as a non-profit organization
under the laws of the United Republic of Tanzania in 2008. Its headquarters are located in
the capital, Dar-Es-Salaam. The organization was formed with the purpose of providing
social and financial solutions to the poor. The existent business plan provides a rational
framework for the microfinance part of EEA.
The Company was founded by Dr. Jasson Kalugendo and Jerry Twombly who, along
with Dirk Sander, are actively managing the company. EEA has already started a micro
lending pilot project in Dar-City and has scheduled to roll it out to 200 families in
Gongolamboto (underserved area in Dar-Es-Salaam city), by the end of 2009, in
collaboration with other stakeholders. The EEA intends to use Grameen Bank model,
developed by Nobel Peace Award winner, Muhammad Yunus.
EEA intends to reach out to 10,000 poor families in Tanzania with microloans in the next
five years in Gongolamboto, Kinyerezi, Chanika and Kigamboni. Achieving this goal
EEA will expand its business in 2013 to Dakawa, Morogoro Region. EEA management
philosophy is to gain self sufficiency within five years. For that purpose, the management
restricts the fundraising portion with a declining percentage of 100% in year one down to
55%, in year two, 50% in year three and 30% in year four. In 2014, EEA does not expect
to require any more grants.
This document won‘t be possible without the hardworking of Dirk Sander, a holder of
MBA in Accounting and Controlling. Dirk has invested a great deal of his time and
resources to develop this important document because of his passion to those who live
underserved conditions in Tanzania. EEA Governing Board is grateful to his support.
1.2. Mission and Goals
EEA exists to empower people economically while ensuring that those who live in
poverty, particularly vulnerable women and children, are served in body, mind, and spirit.
The springboard of EEA is compassionate micro-finance lending that includes a range of
support services for its members through multiple local programs in strategic rural and
urban areas of Tanzania, and will eventually spread to other countries in Africa. By 2025,
EEA expects to empower the entire population of one million Tanzanians to move out of
extreme poverty through strategic goals:
a) Microfinance. This includes urban and rural lending, community owned banking,
and asset development strategies.
b) Community Investment. This comprises consumer-owned businesses, social
businesses, and social investment.
c) Entrepreneurial of Entrepreneurship. This involves small-business development,
hands-on learning, technical know-how culminating in self-employment, and life
d) Dynamic social network. This involves sharing resources, local and global
interdependence, and mobilization of social networks.
As a Microfinance Institution, EEA intends to increase opportunities for the poor to
access financial services by providing financial services to low income entrepreneurs,
mobilizing deposits from members and non-members and then loaning a certain
percentage of these funds to urban and rural producers, traders and small scale farmers.
EEA‘s core values are enhancing their clients‘ self-determination, serving as an ongoing
financial resource for members, and achieving significant outreach and financial selfsufficiency.
1.3. Macroeconomic Situation in Tanzania
The United Republic of Tanzania is situated in East Africa and part of the Sub-Saharan
area with a total surface of 945.087 square kilometers and a population of 40,3 million
(Mainland and Zanzibar). The country gained its independence in 1961. In 1990, the
mainland of Tanzania initiated a political transformation process to a multi-party system.
Between 1999 and 2002 the economy picked up by an average of 6 % and by 2007 the
growth rate (7.1 %) was comparable to the early years of independence – (URT – United
Republic of Tanzania, 2008).
The inflation rate has been relatively stable during the last seven years with an average of
7% but it has increased significantly during the last 6 months, with a growth up to 11.3%
in April 2009 (BOT, 2009). The population living below the poverty line (income is
under one dollar a day) was 35.7 % in 2000/01. About 80 % of the population in Tanzania
lives in rural areas with agriculture being their main activity (Morrissey et al., 2005). In
2002, the agricultural sector in Tanzania contributed around 45% to the GDP (Gross
Domestic Product), of which subsistence farming accounted for 20 and 81% of GDP and
total employment in Tanzania, respectively. The sector has maintained a steady growth
rate of 3% and is said to be a major accelerator of economic growth. Despite the sector‘s
contribution to the economy, its growth rate is seen as insufficient to improve the
livelihood of the rural people as the rural areas account for around 80% of the 17 million
people living below the poverty line (Wangwe and Lwakatare, 2004). In 2000/01, 39% of
the population living in rural areas in Tanzania was below the basic needs poverty line,
compared to around 26 % in urban areas excluding Dar-Es-Salaam.
The impacts of a socialistic one-party government system led to a decline of old
traditions, melting of social ties, and timidity to engage in self-employment or
entrepreneurship. These were some of the primary reasons for the poverty. The main
political objectives in the last decade have been, therefore, the development of a national
economic growth and poverty reduction strategy initiated by the World Bank and IMF
(International Monetary Fund). Tanzania enjoys political stability though the physical
infrastructure and functioning executive, legislative, education, health, and juridical
systems are poorly developed. Recently, the government has policies and regulations in
place to maximize the utilization of domestic and international resources in a strategy to
reduce poverty and eliminate social problems in the country.
A very serious problem for Tanzanian society is the HIV/AIDS epidemic. The country
has high rate of infection with around 6% of population ages 15-49 carrying the disease
(WBCR, 2009). According to the Health Sector Performance Profile report provided by
the Tanzanian government, the costs of treating AIDS cases could easily consume half of
the country‘s health budget, a factor that slows down the country‘s strategic efforts on
2. MARKET AND CLIENTS
According to a study of PRIDE (Promotion of Rural Initiative and Development
Enterprises), a major microfinance oriented NGO, ―it is estimated that there are close to
eight million small and micro entrepreneurs who need financial services, and the number
is growing by 4% percent annually, the majority of whom are found in the rural areas‖
(PRIDE, 2009). That is 20% of the country‘s population, mainly dealing in the informal
At the beginning of their microfinance activities, EEA is focusing on the urban informal
sector. This sector contributes 43% of the country GDP. Also it contributed 35% to the
total urban labor force (URT, 2003). In Dar-Es-Salaam Region, the informal sector offers
about 65% of the city’s labor force (URT, 1995). Nearly two of three urban households
own informal enterprises (URT, 2003).
EEA decided to boost informal sector by providing financial services to their actors.
Although there are contradicting views regarding the relationship between poverty and
the informal sector, without it, the poverty situation of the affected families would have
been much worse (Orlando, 2001). At the beginning, EEA selected four underserved
target areas for their credit program to informal micro entrepreneurs. All are situated in
Ilala, one of three districts of Dar-Es-Salaam Region.
Furthermore, EEA is chiefly committed to empowering the communities in rural areas
because of the fact that their access to financial services is extremely limited. The initial
community to be reached during the pilot phase is Dakawa, a village in the Morogoro
Region, 300 km away from the EEA Head Quarter in Dar-Es-Salaam City. For further
detailed information regarding demand, market penetration and opportunities, see section
2.2. Microeconomic Background
Gongloamboto is one of the wards of the Ilala Municipal with an estimated total
population of 15,000 people. The Ilala Municipal belongs to Ilala one of three districts in
Dar-Es-Salaam. The district includes an estimated 783,687 people found in 65 wards and
102 sub-wards (URT – Dar-Es-Salaam City Profil 2004). The area of Ilala is 273 km² and
is about 20 km away from Dar-City, where much of the commerce, banking and national
offices are located.
Despite the high urbanization rate of Dar-Es-Salaam Region (93.9 % – Morogoro, 2007)
and the narrow to the capital, the Ilala District is defined as an urban agriculture sector.
Only a quarter of an entire population is involved in non-agriculture, mainly in the
Informal Sector (95 % – URT, 2008). Typical small scale businesses include: street
vendors, shop sales workers, and crafts men. Majority of people work in petty cash
businesses in which they can buy only the food of the day. Although the poverty rate is
only the half of the country average, Ilala residents do not have savings for retirement,
medical expenses, life insurance, or plan for sending children to school.
Agriculture activities are based on small and large scale crop farming mostly using poor
hand equipments. GDP per capita for Dar-Es-Salaam is to be USD 437 with 35% of the
population earning an average low income of USD 24 per month (URT – Dar-Es-Salaam
City Profile, 2004).
From Gongolamboto EEA will expand their business later to Chanika with 23,000 and
Kinyerezi with 5,800 resident, and the forth area in Ilala will be Kivukoni with an
estimated population of 50,000.
Dakawa is a small village that is located along the Morogoro – Dodoma highway. The
village is found in Mvomero district which is among the six districts of Morogoro region.
The regions country size is about 73.000 km2 with a total population size of 1.7 Million
people. Morogoro GDP is 5.39%, so that the region ranked eighth out of 21 regions
(URT, 2006). The per capita GDP of Morogoro Region is USD 311. The relatively well
growing economy is reflected in a surplus of 4.1 % in-migration (Morogoro Regional
Commissioners Office, 2006).
The total human population in the Mvomero district was estimated to be 280,475 people
in 2006 (URT, 2007), and this accounts for a population density of 37.9 persons/km2
This is relatively low as compared to the average of the Mainland. About 40% of the
population is in the reproductive age (15-44 year old). Mvomero‘s urbanization level is
very low. Only 11.5% of the district population is living in urban areas (Morogoro
Regional Commissioners Office, 2006). The main industry of the labor force depends on
1 Kivukoni has a special status, because of its high population density and the fact that 15 MFIs including
NMB have their offices and branches within this ward. Half of the underserved micro-entrepreneurs in the
four target areas are living and working in Kivukoni. The microfinance market is a growing sector and
attracts more competitors. Because of a relatively proper infrastructure and their high population density,
Kivukoni is one of the most attractive markets in the Dar-Es-Salaam Region – foremost for commercial
Banks that can easily expand their business to this ward. This is a significant market risk for new players
with minimum initial infrastructure like a start up. That is why EEA‘s implementation plan puts Kivukoni
in forth priority.
The major economic activity in Mvomero district is crop farming, employing 81% of the
total labor force. But only 2.1% of the crop farming production is sold (National Sample
Census of Agriculture 2002/2003). Banana, cassava and maize are among the major food
crops grown in the District. Sugarcane, coconut and sesame are among the major cash
crops. Coconut and sesame are sold generally by the smallholders. Due to the rainfall
seasons between November and May, half of the crop selling farmers store crops for three
to six months. There is a high variation of the price within the region that indicates
inefficiencies of the crop marketing system. For instance, the price for sesame varies by
Tsh 500 between Kilosa and Morogoro District. Other occupations that employ a
significant number of the labor force include livestock, crafts, small business, street
vendors, professional jobs and other elementary occupations.
Smallholders are the main keepers for chicken, cattle, goats, and dairy cattle in Mvomero.
The largest proportion of all livestock kept is chicken (55.5%), followed by cattle (22.6%)
and goats (18.6%). The proportion of dairy cross cows accounts for approximately 50%
of dairy products in the region. Dakawa village, which is situated in the Mvomero
District, is 40 km away from Morogoro Municipal. There are about 7,000 residing in
Dakawa. Despite the fact that Dakawa is more than two times larger than the average of
the villages in Mvomero District, the distribution of occupation of the labor force and the
industry is comparable with the district figures.
Special market opportunities in Dakawa
The Rural Livelihood Development Company (RLDC) is engaged to boost organic cotton
farming in the Morogoro Region. RLDC is a NGO funded by the government of Tanzania
in cooperation with Swiss Government through Swisscontact. RLDC is looking for
Microfinance Institutions (MFI) extending micro-credit schemes to small-holder farmers
so that they can afford to purchase agricultural inputs and improve efficiency in
marketing agricultural produce. For that purpose, EEA will customize their loan product
program to meet the specific needs of agricultural small scale business. For instance, a
loan product with a grace period and weather insurance could be an appropriate option.
Customer profile is based on survey results explored by Finscope, ―a comprehensive
national household survey focused on the financial services needs and usage across the
entire South and Southern African population‖ (Finscope, 2007). The TRIODOS Bank
highlighted following characteristics of the potential microfinance clients:
57% of the adult population is less than 34 years, and mainly rural-based (72%). In
addition, there are approximately 14 Million people under 16 years.
A large segment (54% overall; 45% of urban, 57% of rural) of the adult population has no
access at all to financial services, either formal or informal (overall, 9% have a formal
bank account (11% men, 5% women, 16% urban, 4% rural), 2% have access to semiformal
finance [NGOs, Saving And Credit Co-Operative Societies – SACCOs] and 35%
have access to informal finance like ROSCAs/ASCAs and moneylenders – these
categories are mutually exclusive). Only 20% of the population has access to formal bank
in a 1 hour walking distance.
This is generally low, and lower still for women and for people living in rural areas (92%
of the population has heard of loans, but 84% do not understand how interest rates work,
or collateral, guarantors, opening an account etc.; 27% have never heard of a savings
account). Beyond loans and savings, financial literacy is close to nil (e.g. on insurance,
Automatic Teller Machines). Nevertheless, 82% of the total population indicated that they
would like to know how to open an account in a financial institution. This indicates a
huge need for more as well as better communication regarding financial services with the
Sources of income
Only 4% of the population is employed in the formal sector. Most people make a living
from agriculture, either by selling food crops (36%), cash crops (12%), cattle/livestock
produce (9%), or livestock (11%). Others run an informal small business (28%), not
(directly) related to agriculture. A large majority of people (61%) go without cash income
at times. Many (28%) depend on getting money from family and friends.
Use of credit and loan facilities
Of those that borrow, most (38%) turn to family and friends. An additional 33% get loans
from kiosks, 23% borrow in-kind (e.g. livestock). Only 4% said that they have a loan
from a bank (5% of men, 1% of women). SACCOs and MFIs (Microfinance Institutions)
serve only a small percentage of all borrowers (9% and 6% respectively).
Use of savings facilities
Most people with money do not save it with a bank or financial institution. Of those who
save, four out of ten favor saving in-kind (even more so in rural areas) and three out of
ten say they keep money in a secret hiding place (similar for urban and rural). Another
interesting aspect is that of the people with a bank account (9%), many save with or
borrow from informal providers (48%), SACCOs (26%) or MFIs (15%) (Regarding
money lenders and market risk section 5.1 Competitor).
3. BUSINESS ENVIRONMENT ANALYSIS
The context in which EEA operates was explored by an environmental analysis that
gauges how foreseeable external challenges will affect their capacity to achieve their
The deregulation of the financial sector (in 1991) resulted in the privatization of the
National Bank of Commerce (NBC) and the Cooperative and Rural Development Bank
(CRDB), which were the dominant providers of rural finance. These institutions
decreased their participation in rural finance (Khijjah, 2004; Semboja, 2004;
Reweyemamu, et al., 2003). Several private banks were established but the majority of
them operate only in urban areas. In 2006, only 5% of the rural population had access to
bank services (Finscope, 2007). Although National Microfinance Bank aims to offer
micro-credits to micro-clients, from the month of January 2004, it allocated only 0.2 % of
loans to small scale farmers.
Access to credit seems to be a problem that equally affects rural farmers in all regions of
Tanzania. As indicated by Sarris et al. (2006), in 2004 more than 80% of the rural
households faced difficulties in accessing seasonal credits for purchasing agricultural
The extension of institutional finance to rural areas has been included among
developmental initiatives taken by the government and the development agencies to
eradicate poverty. Since the deregulation of the financial sector and the enactment of the
Cooperative‘s Act of 1991, there has been an increasing number of MFIs. In 2005, there
were about 1,899 MFIs. Although, SACCOs are the dominant MFIs, and as 69 % of them
are from rural areas, only 2 % of the rural population has access to their services. The
limited capacities of MFI‘s are among the reasons why they have not managed to solve
the problem of credit inaccessibility in rural areas (Randhawa and Gallardo, 2003). The
majority of the rural population still depends on informal sources of financial services
(Finscope, 2007), which are sometimes not reliable enough to make a significant impact
on income improvement and asset accumulation.
A summary of all relevant MFIs in Tanzania was provided by PRIDE Tanzania (PRIDE,
2007). Hereafter, besides PRIDE, the most influential NGOs are FINCA (Tanzania),
Small Enterprise Development Agency (SEDA) and Presidential Trust for Self-Reliance
(PTF). Smaller NGOs are YOSEFO, SELFINA, Small Industries Development
Organization (SIDO), Poverty Africa, Tanzania Gatsby Trust, the Zanzibar based Women
Development Trust Fund and Mfuko. Some minor institutions known as community
based organizations (CBOs) are dealing throughout the country. The following Banks are
providing financial solutions to the poor: Tanzania Postal Bank, CRDB Bank, the
National Microfinance Bank (NMB), Akiba Commercial Bank (ACB) and a few
Community/regional banks (namely Mwanga Community Bank, Dar-Es-Salaam
Community Bank, Mufindi Community bank, Kilimanjaro Cooperative Bank, Mbinga
Community Bank and Kagera Cooperative Bank).
The indicated total estimated demand for microloans is about eight million. Commercial
banks and Community banks together share 50,000 customers, while NGOs account for
220,000 customers. The rest are served by SACCOs, and many much more minor social
organizations with limited resources for their microfinance activities. The largest single
player in the NGO category with a market share of 29% is PRIDE, which is mainly due to
commercial and trade customers as classified by Abiah Kaaya, Director of SELF (Small
Entrepreneurs Loan Facility), a government microfinance wholesale fund. This
information is supported by the Bank of Tanzania‘s records (BOT, 2007).
There are about 1,600 mainly rural based SACCOs in the whole country serving an
estimated client population of about 130,000, most of whom are savers. According to
PRIDE, ―it is important to note that cooperative institutions in Tanzania have had a very
bad history as most were associated with financial mismanagement to the extent that they
lost peoples‘ trust and confidence. The cooperative based financial institutions therefore,
could not make any meaningful impact in the lives of their members as they operated at
very small scales due to funding constraints‖. Some improvements have occurred since
the government ―has been implementing a special program to resuscitate the cooperative
based financial institutions‖ (PRIDE, 2007). It takes time, however, before significant
impacts are shown.
Other suspicious providers of financial solutions to the poor are moneylenders. According
to the Finscope study, 35% of the Tanzanian adult population has access only to informal
financial services. Some studies have emphasized the need to consider the use and the
amount of credit offered to the clients when evaluating the impact of the MFIs on poverty
reduction. It was found that the higher the amount of a loan or the frequency of
borrowing, the higher the labor productivity (Hossain and Diaz, 1999) and the household
welfare of the recipients. However, the amount of credit, which for the case of the MFIs
increases with the frequency of borrowing, may not necessarily lead to poverty reduction.
This is so because some poor borrowers continue borrowing from MFIs to repay loans
from moneylenders, and hence are trapped into the ‗debt vicious cycle‘ (Chavan and
Ramakumar, 2002). This is an indication of increased vulnerability and poverty.
Microfinance Institutions in Tanzania with a special focus on Dar-Es-Salaam and
Morogoro Regions (BOT, 2005)
Bank NGO Financial
Tanzania Mainland 8 53 1 105 1601 45 1813
Zanzibar 0 4 0 0 82 86
Total 8 57 1 105 1683 45 1899
4 4 1 60 0 69
0 0 0 1 10 0 11
Average per Region in
2,65 5,25 80,0 2,25 90,65
3.2.Opportunities and Threats
Gongolamboto (Dar-Es-Salaam Region/ Ilala District).
The Ilala District has fewer MFIs than the average number per region in Tanzania
Mainland. The designated target areas around Gongolamboto are remarkable underserved.
In total, there are 17 MFIs in the district serving 144,153 clients (BOT, 2007). The total
demand of the adult populations who have no access to financial services is 720,000 (that
is 45 % out of the region adult population of 1.6 Million people, according to the
There are 94,000 people living in Gongolamboto, and the other three target areas. Of that,
28,000 of the adult population do not have any access to financial services (4,500 in
Gongolamboto, 6,900 in Chanika, 1,600 in Kinyerezi and 15,000 in Kivukoni). The
remaining 38,000 people who have access to a financial institution are served by 15
SACCOs and one NGO, as well as the National Microfinance Bank (one of few
commercial Banks who are involved in the microfinance business) putting together a
market share of about 10%. The NMB has a market share of 39 %, mainly in the
populated Kivokuni, where they have a large branch.
Based on these facts, the estimated demand of micro-entrepreneurs who are currently out
of the scope of reliable financial institutions is at least 10,000. They represent the most
vulnerable and poor people in the target areas that will, prospectively, not be served by
NBM because of missing collaterals. Initially using the Grameen Bank model of
microfinance, EEAs strengths are serving the most vulnerable and poor people who will
not served by financial institutions.
Dakawa (Morogoro Region/Mvomero District)
Apart from being excluded from the formal financial sector, Morogoro has fewer MFIs
than the average number per region in Tanzania Mainland. Mvomero District with their
280,000 residents hosted only one SACCO who serves 260 people within the whole
district (Morogoro, 2007). The adult population of Dakawa, which is situated in
Mvomero, is about 4.600 people and they are totally underserved by financial institutions.
SACCOs supplement their share of capital by borrowing from the formal financial sector.
The limited number of commercial banks in Morogoro/Mvomero might result in a limited
amount of money available to lend to SACCOs‘ members in this district. To avoid these
struggles, EEA needs sufficient capital to extend their business to Dakawa. That might be
possible in the year 2013 at the earliest. The main issues serving financial demand in the
rural areas are poor infrastructure and low population density. Dakawa is located along
the Morogoro – Dodoma highway. Market access for small scale farmers and small
traders is given in both direction, Dodoma and Morogoro Municipality. The branch will
be open in Morogoro Municipality which is a 45 minute drive to Dakawa. Located in the
regional capital, EEA will be able to replicate their lending program to other rural areas.
Out of the 4,600 people, who have no access to financial institutions, the demand for
microcredit is estimated at 1,200 micro-entrepreneurs. EEA expects to lend to more than
80 % of these smallholders within two years, from 2013 to 2014. After that, EEA intends
to replicate their program to other wards in Mvomero District.
4. CORRABORATION AND PARTNERSHIP
4.1. Global Network
Global Advisory Boards (GAB)
Shaping a vision is an ongoing effort, necessitating the oversight of the EEA Global
Advisory Board. In his role as the chair of the EEA Global Advisory Board, Jerry
Twombly works in collaboration with co-chairpersons in each individual country who
coordinate the linkage of EEA with individuals, organizations, businesses, and institutions
in their respective countries, currently the USA, Germany, and Spain (see the list of
Global Advisory Board in the Appendix).
4.2. Cooperating Partnerships
EEA relies on a wide-ranging web of partners across the globe that are committed to a
common purpose and are willing to invest resources – money, time and talents – to ensure
Locally and country-wide, EEA is joining the efforts of the Tanzanian local and central
government, especially with the department of Poverty Eradication and Economic
Growth, to serve grassroots people specifically, by helping to implement the policies so
that we serve the interests of the citizens, the less advantaged groups, and underserved
areas according to government vision.
Bank of Tanzania
The Bank of Tanzania is the implementing agency responsible for coordinating and
monitoring the flow of funds on behalf of EEA donors. The Tanzania Investment Center
and other relevant government ministries will ensure that the people of Tanzania are
served according to the vision and agenda of the Tanzanian government.
Grameen Bank, based in Bangladesh, has great interest in collaborating with EEA to
replicate its micro lending model in Tanzania. Grameen Bank is the premier international
banking model for the poor, with more than 7.5 million borrowers in 65 countries around
the globe, mostly in the developing world. Grameen Bank will offer consultancy during
the development, implementation, and monitoring of a micro credit program in Tanzania,
and providing direct or indirect technical support during the pilot phase of EEA micro
GEXSI LLP is a consultancy firm in London and Berlin that provides professional
development investment services. Their aim is to mediate social investments in lowincome
regions around the world, with a goal of the alleviation of poverty.
Genisis Institute is a leading European social business agency in Berlin that works as a
think tank, providing social solutions within an economic and business framework.
In the effort to avoid duplication of services, and to acknowledge the need for a multidimensioned
approach to achieve success, EEA continues to build relationships with
existing national and international organizations and bi-lateral development donors. Also,
financial institutions in the country, specifically the Tanzania Investment Bank, and Self
Project, National Economic Empowerment Council etc. have shown great interest in
4.3. Regulatory Policies
The following regulatory policies play an important part in shaping EEA‘s institutional
The National Microfinance Policy (NMP), enacted by the government in May 2000 and
incorporated in the Banking and Financial Institutions Act 2006, aims to enable the
increasing microfinance industry to become more sustainable and reliable. With this
policy, the government was relieved of its responsibility as the key player in delivering
financial solutions to the poor. Since then the formal private sector has been the main
provider of microfinance services. Those are required to apply these financial principles
in running their business. Beside to the NMP following other policies are in place:
The National Strategy for Growth and Reduction of Poverty (known as
MKUKUTA). These strategies are executed by the department of Poverty
Reduction and Economic Growth. Their targets are as followed:
o Increasing economic growth
o Reduction of income poverty
o Improving the quality of life
o Social well-being
o Strengthening governance and accountability
Small and Medium Enterprises Development Policy, Ministry of Industry and
National Land Policy (1995)
A distinguished licensing system is in place to regulate financial institutions based on
minimum capital requirements:
Minimum Capital Requirements2
Financial Institution In Tsh In USD
Commercial Bank 5 Billion 3.743.916
Regional Unit Commercial Bank 200 – 50 Million 149.756 – 37.439
Non-Bank Financial Institution 100 – 50 Million 74.878 – 37.439
Micro Finance Company 800 Million (national) 599.026
2 Remark: Until end of 2007, no microfinance company had yet been licensed. The NGOs PRIDE and
FINCA are currently in a transformation process that will be finalized probably by the end of 2009.
200 Million (1 branch) 149.756
Financial Cooperative 800 Million in savings and
In addition, following regulatory and supervisory frameworks are established in which
EAA will adhere to:
The Bank of Tanzania Act (2006)
The Banking and Financial Institutions Act (2006)
The Companies Ordinance (1993)
The Microfinance Companies and Microcredit Activities Regulations (2005), that
regulate microfinance activities under the supervision of the Bank of Tanzania,
with special respect to financial reporting, product design, risk management,
controlling, pricing, etc.
Capital Adequacy Regulations (2001)
Banking and Financial Institutions Regulations (1997)
Regulations for: liquidity management, risk management, internal control and
4.4. Transformation into a Microfinance Company (MFC)
The institution is considering formalization when it passes the capital requirement from
BOT. The board evaluates the opportunities and risks associate with the different options
available. In the hope of attracting a significant flow of client savings and domestic and
international debt and equity funds, EEA is considering changing their legal status to that
of a formally licensed financial intermediary in year 2012, initially with one branch and
progressing to two in the future.
The Financial Committee (see section 5.4), which works under the governing board,
evaluates the costs that are likely to result in the context of banking regulatory structure.
The Financial Committee will incur both up-front and ongoing costs, and these costs are
likely to be substantial. The evaluation will entail costly feasibility studies of the
alternatives and extensive consultations with lawyers and accountants. Registering as a
formal financial institution involves legal and filing fees. Once EEA attains a formal
status, the regulations governing the licensed financial intermediaries will lead to greater
professionalization, for example, through conformity to more rigorous standards of
provisioning and asset valuation. Regulations may also impose significant constraints,
restricting the hours and days of operation, requiring advance approval for opening new
branches, and setting requirements relating to the compensation, hiring, and termination
of employees. A microfinance institution that changes its status will generally face
significant additional supervisory requirements, such as an internal audit department and
expanded reporting. For that purpose, EEA is considering hiring an internal auditor and
an additional accountant in 2012.
Significant capital reserve requirements are necessary, for example, Tsh 200,000, in the
transformation year and Tsh 800,000 when EEA will open a second branch in Dakawa
under legal status. Most significantly, EEA operates as a tax exempt nongovernmental
organization but will lose that status and have to begin paying taxes on its earnings when
they become a formal limited institution.
5. INSTITUTIONAL ASSESSMENT
EEA is still in a start up phase and has no historical data to be assessed. The following
institutional capacity model is carried out of the market study and the environmental
analysis. It is a five year projection plan, considering the EEA milestone transforming to a
microfinance company in 2012, to be allowed to collect savings for the purpose of
becoming self sustained at the end of the projected period.
5.1. Credit and Savings Program
Defining EEA’s Financial Products
At the end of 2008, EEA started a pilot program and offered a single loan product,
Solidarity Small Business Loan, and had no voluntary savings products. The institution
required all borrowers to maintain monthly compulsory savings, which is treated as part
of the loan product. According to the pilot results, EEA intends to follow up with this
loan type but plans to introduce new loan product in year four when they extend their
business to Dakawa. The product should be customized based on the needs of agricultural
small scale businesses. Because of the late introduction and the very low financial impact,
it is not designed as an individual product in the existent business plan.
EEA intends to convert to a nonbank financial institution in year three, which will make it
eligible to collect savings deposits. Its management expects to offer two voluntary
savings products: a voluntary savings account, called ―Passbook Savings‖ that replaces
the current compulsory savings, and a range of term deposits to be modeled as a single
product called ―Fixed Deposits‖.
Setting EEA’s Loan Amounts and Repayment Conditions
At the beginning of 2010, EEA will offer a single loan product in Gongolamboto, Dar-EsSalaam
Region, Ilala District. Clients are required to form groups of five, and each client
will receive a loan amount based on their need. In accordance to the Grameen Bank
model, EEA decided not to require group guarantee. That means that no group member
will cosign for the others. All loans require biweekly payments. EEA will not offer a
grace period on repayments. Contractual loan terms varied between 8 and 12 months, it is
projected that in general clients took an extra month to fully repay their loans.
Loan Cycle Average Amount
Amount year 2
First 200.000 300.000 9
Second 300.000 450.000 9
Third 450.000 600.000 11
Fourth 600.000 750.000 11
720.000 1.000.000 13
Average loan amounts are expected to increase annually by the rate of inflation. Initial
annual client retention rate is to be estimated at 80%, and will increase gradually up to
90% from year three to five.
Defining EEA’s Compulsory Savings Requirements
EEA require clients to save 20 % of their requested loan amount before disbursement.
The primarily purpose of compulsory savings is to cover any default risk. These savings
will be held at the Corporative Rural Development Bank (CRDB). Because of the fact
that EEA didn‘t pass the capital requirement of the Bank of Tanzania as of yet, the
company is not legally allowed to hold savings deposits. When EEA converts to a
nonbank financial institution in the third year of its strategic plan, it intends to eliminate
the compulsory savings requirement. In month 25, EEA will replace compulsory savings
with their voluntary Passbook Savings product and their Fixed Deposits.
Setting EEA’s Pricing Structure
EEA charges 30% annual interest using flat balance calculations. EEA also charges an
upfront commission fee of 3% on all loans at the time of disbursement. All lending has
been transacted in local currency, with no indexing to external values. The management
decided to take a lower interest rate than the market average, which would attract more
customers at the beginning and is in accordance to the Poverty Reduction Strategy of the
Tanzanian government. If the profitability projections turn out to be unacceptable, it will
re-price the loan product again.
Setting the General Parameters for EEA’s Compulsory Savings Products
The compulsory savings pay the depositors interest at 12.5%. The clients do not have an
individual saving account. EEA collects the savings from their clients and deposits it as
accumulated amount on their business account at the CRDB Bank. EEA pays out the
interest (minus a commission of 2%) when the loan is fully repaid or in year three when
their clients open voluntary saving accounts. Access to the compulsory savings is blocked
while the client has an outstanding loan and can be seized by EEA if the client fails to
repay the loan. The funds are not otherwise available for EEA‘s use.
Defining EEAs Voluntary Savings Products
Starting in year three, EEA plans to begin offering two voluntary savings products.
Passbook Savings will pay interest ranging between 2% and 6%, depending on the
deposit amount, with an average rate expected to be at 4%. Fixed Deposits will pay
interest ranging between 7% and 10%, depending on the term, with the average rate
expected to be 8%. These prices are above the current market rates (BOT, 2007).
EEA decided that a specific percentage rate of any savings deposits be placed in shortterm
reserve deposits, to handle ongoing depositors withdrawing, with the rest available
for on-lending at the institution‘s discretion. EEA‘s management expects to establish a
reserve of 40% of Passbook Savings and 25 % of Fixed Deposits.
5.2. EEA’s Marketing Channel
EEA’s Initial Balances
EEA projects that it will have 200 active clients at the end of 2009, all with Solidarity
Small Business Loans. Referencing EEA‘s balance sheet, it is determined that EEA will
have a gross outstanding balance for its single loan product of Tsh 40,000,000 at the
beginning of the five-year projection.
Projecting EEA’s Active Loans
EEA‘s market study showed that the institution has the potential to grow from 200 to
9,000 clients in the current market area Gongolamboto by the end of its five-year plan. In
addition, EEA intends to open a second branch office, in Dakawa, in January of 2013.
This branch is expected to expand to 1,000 clients by the end of 2014, bringing the total
number of clients to 10,000.
The projection models multiple branches using a consolidated approach. It had chosen to
project credit activity by the number of active clients rather than by the number of new
clients each month to calculate a reasonable cycle time for each segment.
EEA’s Projected Number of Active Loans (2010 – 2014)
Branch Initial 2010 2011 2012 2013 2014
Gongolamboto 200 1.200 3.000 5000 7.000 9.000
Dakawa 0 700 1.000
Total 200 1.200 3.000 4.500 7.700 10.000
16,1% 7,9% 4,3% 3,7% 2,2%
EEA’s Projected Term Loan Portfolio
1 7 13 19 25 31 37 43 49 55 61
Value of Portfolio (constant Tsh)
Portfolio by cycle (real)
First cycle Second cycle Third cycle Fourth cycle Fifth cycle Sixth and future
EEA’s Projected Term Loan Income
1 7 13 19 25 31 37 43 49 55
Amount (real Tsh)
Term Loan Credit Income (real)
Interest, init port Interest, rate change Interest, current rate Upfront Fee 1
Upfront Fee 2 Ongoing Fee Indexing
Analyzing EEA’s Customer Retention Rates
Confident that the Grameen Bank model and the special trained staff will address their
clients‘ needs, EEA‘s management expects a relatively high customer retention rate from
80% up to 90%. The management reviewed their loan-demand projections. They saw that
EEA will need to attract about 12,290 new clients in the next five years to reach its
expansion targets, and that only 2,290 of these clients will drop out during the five years.
Therefore, high client retention will need to be a primary goal in the coming years.
Projecting EEA’s Compulsory and Voluntary Savings
At the end of 2009, EEA‘s borrowers would have Tsh 8,000,000 of compulsory savings
on deposit at CRDB – an amount projected to grow to Tsh 225,120,000 by the end of year
two. When EEA begins offering voluntary savings in their branch in Gongolamboto in
the first quarter of year three (after terminating the compulsory savings requirement in
month 37), management estimates that 60% of borrowers will transfer a significant
portion of their compulsory savings to the new voluntary savings accounts, either to a
passbook or to a deposit saving account. For the passbook saving account, management
estimates an initial average balance of Tsh 40,000,000 that will grow to about Tsh
221,000 at the end of year five. The same applies to the Term Deposit. The initial average
balance is estimated significantly higher and accounts for Tsh 300,000 increasing to Tsh
467,000 at the end of year five. The number of savers is predicted to be significantly
lower. This is because of the fact that customers take time to save sufficient capital
reaching the minimum deposit requirements of a Fixed Deposit account. In addition, the
savers will have limited access to their capital for an agreed time period.
As client confidence and awareness increase, the percentage of borrowers with voluntary
savings is projected to increase up to 80% in year five. In addition, EEA expects nonborrowers
to open Passbook Savings and Term Deposits accounts, starting in year three
as well. For Passbook Savings, EEA estimates 100 new accounts a month during the first
half of year three and then a 5% monthly increase in accounts from the beginning of the
second half of the year until the end of the five year plan. For Term Deposits, the initial
number of savers is estimated at 10% of the borrowers in year three, increasing slightly
with 1% in year four and 2% in year five.
EEA’s Projected Voluntary Savings (by amount of Deposits)
1 7 13 19 25 31 37 43 49 55 61
Amount of Deposits (constant Tsh)
Amount of Deposits, by product (real)
ALL Savings Products
Passbook Savings Fixed Deposits Compulsory Savings
5.3. Board and Management
EEA embraces the organizational leadership model with a leadership team capable of
formulating and shaping a coherent vision combined with a management team skilled in
implementing and rejuvenating the vision over time. This team is comprised of an
Executive Director working closely with Governing Board chair, Advisory Board chairs,
advisors and members committed to constructing and executing the strategies. The
Managers are responsible for the implementation and management of the vision,
specifically in the areas of microfinance, education, social business, research, and
entrepreneurial education. The management of the corporation is vested in the Governing
Board members are nominated and appointed for staggered terms of three years. Board
members serve a maximum of three successive terms; initial terms would be for three,
six, on nine years. A full board meeting would occur annually in the month of April
supplemented by quarterly conference call meetings. Every third year the annual board
meeting take place in Tanzania. The board members represent groups deemed critical to
managing a micro‐finance organization, banking, legal, accounting, education, pastoral,
business, organizational development, government, financial planning, and women are
well represented in the board. Three members come from Tanzania, in which one of them
represents MFI clients of the EEA. The Board delegates responsibilities for day-to-day
operations to the corporation‘s Executive Director and Committees. The board receives
no compensation other than reasonable expenses.
Dr. Jasson Kalugendo is the Founder and Executive Director of EEA. Born and raised in
Tanzania, he has worked internationally in Rwanda, Kenya, Tanzania, and the United
States. Most recently, Dr. Kalugendo formed and operated All Nations Ministry, a
program serving the spiritual, economic and social needs of a culturally, racially, and
economically diverse community, particularly children, teens, single moms, and victims
of crime living in Antioch, Tennessee. At the same time, Dr. Kalugendo served as parish
pastor for the Lutheran Church where he also managed the church bookshop and acted as
communications director, newsletter editor, strategic planner, and leadership trainer.
Dr. Kalugendo obtained his Doctoral Philosophy degree from Concordia Theological
Seminary, Indiana, USA where he devoted much of his time to studying the sociological
patterns of bonding and bridging social capital. He holds two degrees in public relations
and social communication from Daystar University, Nairobi, Kenya, also taking classes in
social work. Dr. Kalugendo has participated in strategic planning, leadership
development, and organizational management seminars.
Jerry Twombly is the Co-founder and President of EEA. He became intrigued with
national development practices in 1970 while working as a professor at Word of Life
Bible Institute at Schroon Lake, NY. In addition to his teaching experience, Jerry
Twombly has worked in public relations, student recruitment, and fund-raising. In 1973,
he returned to Grace Theological Seminary to pursue post-graduate studies where he
assumed a position in the development office in exchange for a salary and free tuition.
During nearly 40 years of working with Christian ministries and organizations in all 50
states of America, five of nine Canadian provinces, and several countries around the
world, Jerry Twombly assisted 3,500 clients to raise over USD 2 billion for programs and
Dirk Sander is a Social Business and Microfinance Consultant trained and examined by
Grameen Trust in Bangladesh. He has worked for 17 years in varied executive functions
for Citibank Germany. His most recent positions include a Credit and Risk Manager and a
Branch Manager. Dirk Sander coordinates EEA‘s German Advisory Board.
Vicente a Jose Boixareau coordinates the vision of EEA in Spain. Mr. Boixareau has a
MBA degree from CUNEF & Universidad Complutense, Madrid and is currently
pursuing a PhD in economics and finances. He is a researcher and lecturer on economics
at the CIIF International Centre for Financial Research and Finance Department, IESE
Business School Spain in Madrid, and has been a researcher with the Departments of
Finance in Germany, France, and Bangladesh.
National Advisory Board Tanzania
A National Advisory Board (NAB) in Tanzania provides oversight to local EEA
operations. The chairperson, Elias Mashasi, was an Executive Director with parastatal
organizations in Tanzania for 20 years and spent the last 10 years working with
International Labor Organization.
5.4. Roles and Responsibilities of the Board Management
The Board may create committees as needed, such as community Relations, Cultural
Outreach, Research and Publication. There are two outstanding Committees: Executive
and Finance Committee. The Governing Board appoints all Committee chairs who must
be members of the Board.
The Executive Committee
The Executive Committee reviews the performance of the Executive Director. Except for
the power to amend the Articles of Incorporation and Bylaws, the Executive Committee
have all power and authority of the Governing Board in the intervals between meetings of
the Board of Directors, subject to the directors and control of the Board of Directors. The
Executive Director is responsible for hiring and supervising. The Executive Committee
shall serve as a vital committee and is responsible for developing a personnel policy.
The Treasurer is chair of Finance Committee, which include three other Board members.
The Finance Committee is responsible for fiscal control, development and reviewing
expenditure procedures, and a fundraising action plan and organization annual budget.
The Board of Directors must approve the budget and all expenditures must be within the
budget. Any major change in the budget must be approved by the Board of Directors or
Executive Committee. The fiscal year shall be the Calendar year. Quarterly reports are
required to be submitted to the Governing Board showing income, expenditure and
pending income. The financial records of the Corporation are public information and shall
be made available to the Governing Board members and the public.
5.5. Institutional Resources and Capacity
Defining EEA’s Staffing Categories
EEA refers to members of its field staff as ―Loan Officers‖. The company opted for
salary and benefit adjustments at the beginning of each fiscal year, because EEA’s board
generally grants an increase equal to the inflation rate. In addition to its loan officers,
EEA considers its ―Credit Supervisor‖, ―Bookkeeper‖ and ―Operations Manager‖ part of
the Branch-related staffing. All other existing staff are considered Head Office staff. In
January 2013, when another branch office is to be opened, EEA will shift the operations
manager to the position of branch manager of the old branch and hire a branch manager
for the new one. So the job title includes both positions – “Operations/Branch Manager”.
Also, a bookkeeper will work in the new branch. Starting in year three, when savings
products are introduced in Gongolamboto, that branch will add the following positions:
―Teller‖ and ―Security Guard‖. One year later, when a new branch is opened in Dakawa,
additional Tellers and Security Guards will be hired. The credit supervisor will also be
hired in year four, when the second branch is to be opened. His role is to empower the
sales staff and to review the credit decisions. A large branch like Gongolamboto that will
need more than 40 employees should be supported by additional supervision functions.
For administrative-level staffing, EEA entered the following positions: ―Executive
Director‖, ―General Manager‖, ―Chief Accountant‖, Assistant Accountant‖, MIS
Supervisor‖, ―Internal Auditor‖, Human Resource Manager‖, ―Saving Director‖,
―Secretary‖, and Driver‖. (For detailed job specifications see attachment).
Defining EEA’s Operational Expense Categories
For Branch-related operational expense categories, the staff specifies ―Rent‖, ―Utilities‖,
―Transportation‖, ―General Office Expenses‖, ―Staff Training‖, ―Borrower Training‖, and
―Repairs, Maintenance and Insurance‖. For Head Office operational expense categories
they enter ―Rent,‖ ―Utilities,‖―Transportation,‖ ―General Office Expenses,‖ ―Repairs,
Maintenance, and Insurance,‖ ―Professional Fees and Consultants,‖ ―Board Expenses,‖
and ―Staff Training.‖
Projecting EEA’s Branch Resources and Capacity
Projecting EEA’s Branch-related Loan Loss Provisioning
EEA estimates that its portfolio, at risk for more than 30 days, will be 10%. It projects
write-offs of 2.2% of its portfolio and decided to use this write-off rate for all future
projections. The loan loss reserve, as of December 2009 on the balance sheet, is to be
estimated by Tsh 1,200,000.
Defining EEA’s Branches
EEA plans to open its first branch in Gongolamboto in third quarter of 2009, and
indicates that a second branch will open in the beginning of year four in Dakawa.
Setting the Links for EEA’s Loan Officer Projections
EEA’s lending methodology (Grameen Model) permits experienced field staff to work
with a caseload of 350 clients. Loan officers generally take 12 months to move up to the
senior level and a full caseload. Beginning staff generally work with 25% of a full
caseload, secondary staff with 50%, and intermediate staff with 75%. EEA generally hires
new loan officers in groups of at least three in order to coordinate staff orientation and
training. At the beginning, EEA will have two loan officers, one of whom will have been
with EEA for 12 months (i.e., senior level), and one which will be newly hired.
Projecting EEA’s Automated Branch-related Staffing Levels
At the beginning, EEA intends to start with two loan officers, one bookkeeper and one
operations manager. To ensure efficiency and to serve with a high grade of safety and
quality, the company planned to hire:
one credit supervisor for every 12 loan officers, starting after a total of 12 loan
officers are hired;
one branch manager and one bookkeeper for each branch that opens;
one teller for every branch that offers voluntary savings;
one security guard for each branch that offers savings, starting in year three.
The cost for each position – including salaries, benefits and payroll taxes – as of January
2010 is estimated in the following table. The model will automatically increase the
salaries by the inflation rate in the first month of each fiscal year.
Staff Position Monthly Salary (Benefits are included) / Tsh
Loan Officer, Entry level 333.875
Loan Officer, Intermediate level 420.200
Loan Officer, Senior level 534.200
Operations/Branch Manager 801.300
Credit Supervisor 1.200.000
Security Guard 267.100
Projecting EEA’s Branch-related Other Operational Expenses
To generate projections of EEA’s Branch-related other operational expenses, the company
distinguished the Branch-expenses from administrative-expenses categories opting for
automated projections as they enter the following Links:
Category Expense Amount/ Tsh Inflation
Rent 659.250 per branch per month Monthly
Utilities 263.700 per branch per month Monthly
Transportation 65.000 per officer per month Monthly
General office expenses 135.000 per branch employee per
659.250 per branch per month Monthly
Staff Training 70.000 per branch employee per month Monthly
Borrower Training 1000 per borrower per month Monthly
Misc. expenses (% or
8% of total branch other operational
Entering Initial Balances for EEA’s Branch-related Fixed Assets
EEA entered initial balance information for the following Branch-related fixed assets, as
of the end of 2009:
Asset Purchase Amount Remaining Life
Two computers 1.000.000 1
Assorted office furniture 750.000 3
Three employee furniture groupings 200.000 4
One Photocopy 2.000.000 1,5
One Money Detector 300.000 2
Two Motorcycles 3.900.000 2
Planning EEA’s Fixed Asset Acquisitions at the Branch Level
EEA decided to link each fixed asset category to a key output of the model in order to
automatically generate its fixed asset acquisition schedule. They estimate that a branch
office needs one computer for every four Branch staff. EEA plans to purchase one set of
general office furniture for each branch office. They linked employee furniture groupings
to the number of Branch staff, using a ratio of one unit of furniture for each Branch staff
person. For other assets categories they specify an ―MIS‖ system to be introduced in year
Projecting EEA’s Administrative Staffing Levels
At the beginning of 2010, EEA’s administrative staff will consist of an executive director,
a chief accountant, a secretary and a driver. In addition, the institution plans to hire an
MIS manager at the beginning of year three to supervise the new management
information system, a savings director in the third quarter of year two to prepare for the
new services to be offered in year three, and a human resources manager at the beginning
of year two to work with the growing number of staff. Starting in the third quarter of year
two, when EEA prepares to transform to Microfinance Company, they will hire a general
manager that will take over the executive responsibility for the formal microfinance
institution, and an Assistant Accountant. When EEA becomes a legal Microfinance
Company in year three, they will hire an internal auditor to ensure appropriate controlling
Projecting EEA’s Administrative Salary and Benefits Expenses
Just as for the Branch staff, the salaries of EEA’s administrative staff is considered equal
to market rates. The staff estimated monthly salary and benefit costs for administrative
staff are as follows:
Staff Position Monthly Salary (Benefits are included) / Tsh
Executive Director 3,872.950
General Manager 3.205,200
Chief Accountant 1,068,400
Internal Auditor 800,000
Assistant Accountant 667,750
MIS Supervisor 1,068,400
Human Resources Manager 1,068,400
Saving Director 1,068,000
Projecting EEA’s Other Operational Expenses at the Administrative Level
EEA prepared the following budget estimates for other operational expenses at the
Category Expense Amount/ Tsh Inflation
Rent (Head Quarter Office) Subsidized by other partners
Utilities Tsh 500.000 per month Monthly
Transportation Tsh 35.000 per administrative employee
General office expenses Tsh 135.000 per administrative
employee per month
Repairs, maintenance, insurance Tsh 131.850 per month Monthly
Professional fees, consultants Tsh 1.000.000 per month Annually
Board Expenses Tsh 540.000 per month Monthly
Staff Training Tsh 150.000 per administrative
employee per month
Miscellaneous expenses (% or
5 % of total administrative other
Developing EEA’s Fixed Asset Acquisition Plan at the Administrative Level
To begin the fixed asset analysis at the administrative level, EEA entered the following
information about the institution’s existing assets:
Asset Purchase Amount/ Tsh Remaining Life/ years
Two Computers 2,000,000 1.5
One Assorted office furniture 1,500,000 4
Accumulated depreciation, total (1,642,000)
EEA budget for the purchase of six additional computers in months 13, 19, 25, 31, 37 and
49, whenever EEA expect to hire new administrative staff members (e.g. Human
Resource Manager is expected to be hired in the beginning of year two). They also
budgeted for the purchase of additional office furniture grouping in month 19, when
administrative staff accounts for more than five members. These purchases are in addition
to the automatic replacement of fully depreciated equipment that is projected by the
Analyzing EEA’s Land and Buildings
In 2009, EEA owned no land or buildings and had no plans to acquire any during the next
Analyzing EEA’s Other Assets
EEA’s strategic plan identified an urgent need to upgrade the MIS system, and budgeted
Tsh 70,000,000 in month 13. The MIS is treated as an asset and amortized over a fiveyear
Analyzing EEA’s In-kind Subsidies
Through partnership with other stakeholders, EEA receives free rent for their Head
Quarter office during the projected period. EEA estimates the value of this support at Tsh
8,016,000 for year one. With regards to the inflation, they project it will increase to Tsh
10,625,625 in year five. EEA entered these figures initially as their monthly equivalents
of Tsh 668,000 a month for year one. While this rent subvention is not an actual expense
for EEA, it is factored into the financial profitability calculations.
EEA’s Projected Expenses
1 7 13 19 25 31 37 43 49 55
Amount (real Tsh)
Br.Staff Other Br. Exp H.O. Exp. Depreciation Loan Loss Cost Funds Adjustments
EEA’s Projected Total Income and Expenses
1 7 13 19 25 31 37 43 49 55
Amount (real Tsh)
Income and Expenses (real)
Total Income Expenses
5.6. Risk Management and Controlling
EEA identified following main risk categories: credit, liquidity, and operational Risks.
Credit risk is defined as a potential loss that is indicated when a borrower fails to repay a
loan. EEA‘s risk prevention and collection strategy depend on the reason for the
imminent default: unwillingness or financial distress. Group lending methodology3
up-front compulsory savings will decline EEA‘s credit risk. Biweekly collection
procedures and trainings are parts of an early risk recognition system based on ongoing
customer evaluation provided by the loan officers. Different approval levels (group
member – loan officer – branch manager –credit supervisor) should ensure a high quality
loan application process. A borrower who is in financial distress and is willing to repay
their loans will be transferred to a flexible loan. A flexible loan reduces the installment
size and extends the maturity depending on the customer payment ability. In 2012, when
EEA will be legalized as Microfinance Company, an internal auditor will be hired to
implement a risk management system following the Basel II requirements and the
national banking regulators.
Liquidity risk management will be done by the Finance Committee which ensures that
funding commitments and deposits withdrawal can be met on time. For that purpose,
EEA has considered a sufficient liquidity margin in their model (section 5.7 Financing
3 Group lending approach provides moral support and social network but not a financial support to an
Operational risk is a main issue for a start up in finance with their limited resources.
Employees who are overloaded, undertrained or underpaid are the primary driving force
behind errors, fraud and mismanagement. EEA decided to serve and educate their
employees from the beginning in a competitive manner. This serves to increase their
identification with the company. To ensure proper operational procedures, reasonable
controlling systems will be developed from the beginning and will be managed by the
Executive Committee. An operational margin is implemented in the model to handle any
operational losses and liquidity gaps (see section 5.7 Financing Strategy).
5.7. Financing Strategy
Identifying EEA’s Sources of Financing
Management prepared the following summary of EEA’s financing sources. EEA has the
following grant commitments and pledges:
World Vision has pledged Tsh 3,300,000 unrestricted.
Better Place. The internet grant collection platform has provided Tsh 691,000,
Individual Investors. They have pledged Tsh 13,350,000.
EEA also has initiated discussions to commitments for grants from the following
GLS Treuhand (Foundation). GLS Treuhand is a foundation of a German Social
Bank who promotes small projects in poverty eradication activities worldwide.
The foundation managed a small grant portfolio of three million US dollars. EEA
estimates a grant commitment of about Tsh 75,000,000, starting in month seven,
2010, restricted for initially operational costs.
SELF (Small Entrepreneurs Loan Facility). SELF is a Tanzanian wholesale fund
and has additional grant funds available to subsidize microfinance institutions
technology and equipment. It normally provides small grants subjected to office
equipment. EEA estimates an initially grant of Tsh 13,350,000, restricted for other
GTZ (Society of Technical Cooperation). The German GTZ is an international
cooperation enterprise for sustainable development with worldwide operations.
GTZ promotes complex reforms and change processes, often working under
difficult conditions. Its corporate objective is to improve people‘s living
conditions on a sustainable basis. EEA expect a grant of Tsh 70,000,000 to
purchase and introduce a MIS System at the beginning of year two.
EEA needs to receive portfolio restricted loans, and estimates for the third quarter in 2009
a initial loan of about Tsh 40,000,000 at zero percent to expand their pilot program to 200
borrowers in Gongolamboto. It is reflected at the initial outstanding amount, at the
beginning of the projection period.
EEA restricted the use of savings to loan portfolio financing. The management
established a liquidity margin for portfolio of 25% of monthly loan disbursements, and a
liquidity margin for operations of 33% of monthly cash expenses. EEA is expecting an
initial market rate cost of funds of 20%. This is a precaution estimate. Some commercial
Banks in Tanzania offers lower interest rates. This rate is expected to decrease down to
16% when the company becomes a formal financial institution and has sufficient means
in year three. EEA considers any interest rate that is at least 85% of this value to be
Projecting EEA’s Financing Flows
EEA modeled the institution’s financing strategy by entering all confirmed and likely
financing receipts and repayments. All loan payments are entered as negative numbers:
• Unidentified sources. The initial loan amount of Tsh 40,000,000 that is need to
serve 200 clients in third quarter 2009 will be repaid in October 2010. A new fund
of Tsh 150,000,000 with a supposed maturity of two years is expected in January
2011 and entered in the model. EEA will make monthly payments.
• Oikocredit. EEA is scheduled to receive its first disbursement of Tsh 200,000,000
in January, 2011 with a supposed maturity of three years. EEA will make monthly
payments. No new funds are expected.
• Vision Microfinance Fund. EEA has started the discussion with Leopold Seiler,
Portfolio manager, and expects a fund of 100,000,000 in January 2011, with a
supposed maturity of two years. EEA will make monthly payments. No new funds
• SELF. EEA would negotiate a onetime disbursement of Tsh 50,000,000 with a
supposed maturity of two years in January, 2011. EEA will make monthly
payments. No new funds are expected.
EEA anticipates experiencing a funding shortfall in the beginning of 2010. The following
years also show shortfalls, with the exception of year five. In addition to the indicated
fund sources, EEA is forced to request unrestricted grants for:
• Year one: Tsh 280,000,000
• Year two: Tsh 190,000,000
• Year three: Tsh 180,000,000
• Year four: Tsh 200,000,000
EEA management philosophy is to gain self sufficiency within five years. For that
purpose, the management restricts the fundraising portion with a declining percentage of
100% in year one down to 55%, in year two, 50% in year three and 30% in year four. In
2014, EEA does not expect to require any more grants.
In year four, EEA plans to open a new branch in Dakawa. Under the National
Microfinance Policy, EEA is requested to raise capital amounting to Tsh 800,000,000 to
become a nationwide operating Microfinance Company. To increase their equity and to
strengthen their customer retention, EEA will introduce a compulsory membership model,
where each new borrower will pay Tsh 13,255 with an annual distribution of dividends,
starting in year three. Projection shows that additional equity funding sources are needed.
The following equity funds and banks meet the EEA principles and would be appropriate
• Dexia Micro-Credit Fund (DMCF).
A commercial investment fund with a special respect to social impacts. Focus on
micro-entrepreneurs in emerging markets.
• Vision Microfinance Fund.
A fund with a double bottom line strategy, to maximize the risk return profile for
the benefit of the investor and to strengthen the social impacts for micro, small
and medium enterprises in emerging and least developed economies.
• Impulse Microfinance Investment (IMI).
Similar to VMF, IMI manages their portfolios with a bottom line strategy. It
invests in financial markets in developing countries and channels private
investment funds to the microfinance industry.
• PAX Bank.
• A German church bank with high amount of interest to develop the microfinance
• National Economic Empowerment Council (NEEC)
EEA expects to gain from each investor Tsh 70,000,000 in year three. After increasing
EEA‘s capital, the revised graphs below show that EEA will achieve full financial
sustainability from month 43, ending by year five at 143% in operational, and 131% in
EEA’s Projected Sustainability
1 7 13 19 25 31 37 43 49 55
Operational and Financial Sustainability
Oper. Sust. Fin. Sust.
EEA will not establish any long-term investments during the first five years. EEA will
earn 3% interest on cash deposits. It earns 5% on short-term investments, 12.5% on
savings reserves and would earn 12.5% on long-term investments if it had any. All rates
are based on current market rates. EEA will generate nearly Tsh 173,000,000 (round up)
in investment income over the five-year period.
6. FINANCIAL PROJECTIONS
Financial projection plan was made with a Microsoft Excel spreadsheet developed by the
Consultative Group to Assist the Poorest (CGAP) and Women’s World Banking (WWB).
1. List of Global Advisory Board
U.S. Advisory Board
Initial US Advisory Board members, working under the chairmanship of Jerry
• Pastor Mike Wekelund, New Life Lutheran Church, 15-years experience as Latin
America missionary. He also runs his own business.
• Reverend Randy Mutter, Pastor of Adams United Methodist Church, formerly a
Construction Manager, CLK Multifamily Management
• Dr. Harry Gates, chaplain coordinator at Skyline Medical Center, pastor to
Nashville Cowboy Church and Ranch House, and Vanderbilt University MBA
graduate in Economics
• Tom Bolt, Retired, former Financial Planner
• Ben Baggett, self-employed, Appraiser
German Advisory Board
Initial Germany Advisory Board members, working under the co-chairmanship of Dirk
• Dr. Maritta Koch-Weser, former director of World bank, now CEO of Gexsi
• Dr. Sven Remer, Program Executive, Institute of Social Banking, GLS Treuhand
• Stephan Siegel, Risk & Scoring Manager for American Express, formerly Head of
Credit Scoring, Citibank Germany
• Heike Uhl, International Auditor & Consultant: Fabel, Werner & Schnittke GmbH,
started several projects in Africa, speaks Swahili
• Nicola Tofaute, Start up Consultant for women and currently project leader
literacy program for German Adult Education Association (DVV)
• Dr. Denitsa Vigenina, Risk Manager for Citibank in several countries, Involved in
a microfinancing in London, currently Manager of Business Strategies for SEB
• Ulrich Merkes, a freelancer and a former manager of Deloitte, Currently works for
National Advisory Board Tanzania
• Shoe Sussan Katende, advocate at a Tanzanian law firm MLC, prior employee of
United Nations High Commissioner for Refugees -Tanzania. UNHCR;
• Deogratias Mutalemwa, Development Economist with extensive experience in
government affairs, rural development, public policy, and development lending
operations, including nearly 20 years in the Ministry for Finance for the
Government of Tanzania, 10 years as director of International Cooperation and
Co-financing for the African Development Bank in Belgium, and, since retirement
in 1997, senior research fellow and coordinator for the Tanzania Participatory
• Revelian Shemelelwa, Masters of Science in Agribusiness, consultant in
microfinance and social business research, planning, marketing and management;
• Paul Simon, CPA, deputy for the Treasury Department of an Evangelical Lutheran
Church in the North Western Diocese of Tanzania.
2. Job Descriptions
3. Characteristics of the Target Audience
This project focuses on the poor, especially women. Why women? Women and children
are the most vulnerable. Furthermore, they often run the risk of attack and abuse—one
woman informed an EEA interviewer that she had been raped and humiliated when she
arrived at the dump before other women. Women will take any opportunity to help their
families survive even if it means being involved in activities that could potentially
humiliate them. Women often are left to reclaim discarded items in exchange for small
change. For example, the only recourse available to one poor women EEA interviewed,
was collecting plastic bottles at the dump, an area rampant with contagious disease. The
bottles were then sold for mere change. Even after spending the whole day collecting,
washing, and selling the bottles, the women earn less than $1 a day. Young girls work as
maids or are pressed into service as sex-workers, while boys are often involved in child
labor and petty criminal activity.
Designation Experience and skills
Minimum of 7 years working in community development, financial institutions,
organizational leadership and planning with at least Masters degree of higher
Minimum of 5 years working in community development, financial institutions,
Marketing with at least Master‘s level in social science, finance, or economics
Minimum of 5 years working Accounting field. CPA holder or its equivalent.
Minimum of 2 years experience working in accounting activities
Possess at least Advanced Diploma or Degree in Accountancy and Finance.
Minimum of 5 years experience working in Human Resources Activities.
Possess at least Postgraduate or Mater‘s degree in Human resource and Public
Internal Auditor Minimum of 5 years experience working in audit departments in Financial
institutions. Possess at least advanced Diploma or Degree in Accounting &
MIS Supervisor Minimum of 3 years experience working in IT Activities in Financial institutions.
Possess at least Diploma in Computer Science or Information Technology.
Minimum of 5 years experience working in operation/field Activities in
social/Financial institutions. Possess at least advanced Diploma or Degree in
Social Science/ Administration.
Possess at least advanced Diploma or Degree in Social
Science/Administration.Possess at least advanced Diploma or Degree in Social
Science and Accountancy
Drivers Form IV/VI certificate with Class C Driving Licence.
Form IV/VI certificate and attended military training
Secretary Must have a Diploma or Advanced Diploma in Secretary and Computer Studies
from a recognized institution.
Must have at least 2 years experience as secretary & Data Clerk
Must posses‘ knowledge in computer a application such as Microsoft Excel,
Microsoft Word, Microsoft Access, Microsoft Power Point.
The majority of women, unlike men, interviewed by EEA in Dar-es-Salaam discussed
how painful it is for them to send their children to school each day with only the meal in
their bellies and no shoes on their feet. The experience EEA obtain through the
community reveals that a men often hide money from their families for their own desires.
Even if his family might be struggling, a man may spend money in other areas that fulfills
his own desires, without considering family‘s needs. Therefore, women need to be
empowered so that they can transform their families.
A second audience category is the poor (especially farmers and young people) who
cannot receive loans from other financial institutions or grantors – such as an employee.
These people live on less $1 a day. It is not necessarily that the poor do not want to do
something to improve their lives. Economic and cultural structures have caused them to
develop a mindset of ―EEA does not have a way out.‖ Profit-motivated financial
institutions are less inclined to help the poor because the poor lack collateral as well as
the experience of handling loans. Professor Muhammad Yunus, whose work focuses on
the poorest of the poor, argues back by saying that the poor pay back the loans. He has
found that the poor have their own plans, agendas, and business ideas, but they do not
have access to financial services.
The third group includes nursery, primary and secondary school teachers, nurses from
dispensaries, hospitals and other private sectors of employment as a means of boosting
self-employment among them. The goal is to encourage the passage of their newfound
education to the people they teach and serve. Per month, these people earn a basic salary
or a bit higher. They need to be encouraged to participate in income-generating projects.
EEA‘s goal for these groups is to see them grow their entrepreneurial skills so that they
can be successful business people and transfer their skills to their families, including their