A Report Submitted in Partial/Fulfillment of the Requirements for Award of Master of Accounting and Finance (MSc A&F) of Mzumbe University
The major problem faced by microfinance institutions has largely been lack of self sustainability which calls for borrowing externally. These difficulties faced by Microfinance institutions (MFIs) have triggered a great deal of researches on ways through which these problems can actually be addressed. Concern form the financial providers has always been whether the money that they provide will be repaid together with the interest thereon. Addressing this concern, several agencies have been established to help rate the MFIs according to their credit worthiness. This research therefore had the main objective of assessing the factors considered in the ratings of the MFIs and the applicability of these ratings in Tanzania.
With specific objectives of seeking to assess the contribution of social factors in ratings, assessing the applicability of the ratings in the Tanzanian context and assessment of procedures followed in ratings, the study deployed secondary as well as primary data.
The research deployed the qualitative research approach and borrowing some quantitative measures by applying the ordinal/ordered logit model for the analysis of secondary data while the primary data were mainly analyzed using the percentage.
The study found that only the financial factors are considered when rating the MFIs and that social factors have got no bearing at all in the rating that an MFI assigned. The researcher also found out that the rating system can be put into use in the MFI industry in Tanzania and therefore recommends that an agency is established that will help rating the Tanzanian MFIs and therefore getting rid of the current system of issuing the maximum liability certificate.