RESEARCH ON POVERTY ALLEVIATION Research Report No. 98.1Liberalization policies implemented in Tanzania after the mid 1980s have created some impetus to the growth of informal and semi-formal finance and credit operations in the country. This study set out to investigate the modus operandi and performance of some selected informal and semi-formal credit arrangements in two regions of the country (Mbeya and Iringa). Data for the study were collected between January to March, 1996 from a total of two hundred farmers (the majority of whom used informal and semi-formal credit), ten informal lenders, ten input stockists and fourteen semi-formal lenders (including NGOs). Survey information collected by the study indicates that the main sources of informal credit for smallholders are: relatives, neighbours and friends, shop owners and businessmen, and medium and large scale farmers. Such credit is used for both consumption and production activities. Overall, informal lending is still far from being a specialized activity, rather it is a side activity integrated into the enterprise undertakings of various farmers, businessmen and shop owners. A variety of semi-formal lenders are operating in the rural areas mainly providing production credit (often accompanied with some training, supervision, and interest on loans which are generally lower than commercial rates). Some of the semi-lenders target specific groups such as women, youth, farmers of certain crops etc. Most of the semiformal credit channels studied have poor records of loan collection partly because such programmes were being set up without elaborate procedures for education and collection of loans from farmers. Both informal and semi-formal credit access are linked with the attempt to alleviate poverty in several ways including: ability to cultivate larger farms, getting higher crop yields, and better food security status than before (or in comparison to farmers without credit access). Thus more efforts should be made by Government and relevant institutions to promote the development and growth of informal as well as semi-formal credit channels for them to be more effective tools in the efforts to alleviate poverty.