A Research Report Submitted to Mzumbe University – Mbeya Campus College in Partial Fulfillment for the Award of Bachelor Degree of Accountancy and Finance in Business Sector (BAF-BS) of Mzumbe University
The study was on the effectiveness of debt service among micro finance in Tanzania with reference to FINCA Tanzania the main objective of the study was assess effectiveness of debt servicing among Microfinance in Tanzania Specifically, the study intended to examine factors which determining customers’ awareness on loan procedures and repayment among entrepreneurs in Tanzania. Explore the competence of the loan officers over various lending models offered by the microfinance in Tanzania and Assess capacity and challenges of MFI to prevent loan default in Tanzania. The study used descriptive design sample size was 23 respondents. The sampling technique was simple random sampling where each member of the population had equal chance of being selected.
The findings of the study have shown the effectiveness of debt servicing among Micro Finance in Tanzania is impaired by the following factors: duration of the loan acquisition process; 91% of respondents have shown that delay in loan acquisition is making the business to be overtaken by the market demand, Limited awareness of the purposes of the loan; 83% of the customers are taking loans not for business but for solving family problems and fail to repay completely or total default. Limited competence of the credit officer; 72% of respondents indicated that lack of monitoring and follow up is also one of the causes of default. Risks of multiple loans, 65% of respondents have shown that having loans from different lenders is also one of the causes of default since the borrower find it difficult to balance repayment schedules of different lenders and varying demand for business and limited awareness on loan procedures; 44% of respondents have shown that majority good customers are running away as a result it diminishing the quality of the loan portfolio.
In the light of the above findings, the study therefore recommends to the microfinance that to be flexible and expedite loan delivery process to avoid possible unnecessary loan defaults. Borrowers should be trained before taking loans so that they can know purposes of loan and avoid possible defaults. Nevertheless, the credit officers should be trained on loan monitoring and customers should be allowed to take multiple loans and also loan procedures should be simple and accessible in timely fashion.