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Loans provided by financial institutions are of vital importance for poverty alleviation in rural area in today’s era. The purpose of the study was to analyze the relationship between loan provided by financial institutions and poverty alleviation in Kilombero district, Morogoro, Tanzania. The study was guided by three specific objectives which include, determining the level of loans provided by financial institutions, to determine the level of poverty alleviation in Kilombero district, Morogoro and to establish if there is a significant relationship between loan provided by financial institutions and poverty alleviation in Kilombero district, Morogoro, Tanzania. Methods for data collection were questionnaire, interview and observation and documentary review especially on secondary data. Purposive and simple random sampling techniques were used with the sample size of 400 respondents
It was discovered that loan access in rural area from financial institution was very low, poor people do not have access to loan or difficultly access loan from financial institutions. Also it was found that the level of loan provided by financial institutions in rural area was very low and thus produced very low impact to these rural people.
The researcher concluded that loan accessibility in rural area was determined by demographic characteristics of people, membership of social organization, required security (collaterals), level of income, lender-borrower distance, repayment period and transaction costs. These determinants adversely affected the rural people. Most of financial institutions are located in town far from rural people and most of these rural people do not have enough collateral to support their loans. The loans bear high interest rate. In regard to the research findings, the researcher recommended that financial institutions should critically and strategically consider loan provision in rural area; they should encourage poor to borrow by revisiting the collateral conditions and reducing interest rates. They should increase access of these loans with affordable interest rates and with no collateral requirement, since most of them can afford the requirements of collateral. |
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