A Dissertation Submitted in a Partial Fulfillment of the Requirements for Award of Master of Business Administration in Corporate Management of Mzumbe University.This study wanted to understand the entrepreneurial capacity development for SMEs in Tanzania. To achieve this rationale, a total of 100 stationery entrepreneurs comprising 35% males and 65% females in Ilala Municipality were surveyed. The study was guided to achieve three objectives namely; to describe entrepreneurial competencies needed by SMEs entrepreneur, to describe how entrepreneurial capacity development contributes towards acquisition of competencies needed by SMEs entrepreneurs and to find out how entrepreneurial competencies are utilized for development of SMEs among entrepreneurs. The required data were gathered using closed ended questionnaires as well as by reviewing relevant documents. From the survey data, it was understood that survival of the stationery services depended on the level and background education and experience of entrepreneurs of stationery services. Also, it was understood that while profit and loss records of the stationery was explained by ones years in the stationery services, the same was not clear with the level and background education of the stationery entrepreneurs. Hence, related experience in entrepreneurship would account high rate of failure of the newly established business ventures in Tanzania. In order to develop stationery services, it was understood that the stationery entrepreneurs needed combination of three categories of competencies namely; the behavioral, managerial and technical competencies. These competencies were acquired through different means such as short courses, consultancies and community outreach services. Also, the study found that utilization of entrepreneurial competencies such as related education and knowledge did not guarantee entrepreneurs to establish profitable stationeries which is contrary with Sen’s Capability Theory arguing that individual possessing entrepreneurial education and knowledge is likely to be more successful than one who is not. The researcher recommends among other things that in order to develop SMEs entrepreneurs, capacity development should identify specific entrepreneurial competencies specifically entrepreneurship and business experience and ensuring enabling them to acquire them through short courses, consultancies or community outreach services.