Access to credit: Who borrows, where and why?

ACESS to financial services remains a key issue in most countries. While a large portion of the population in developed economies has access to bank accounts and other financial services, it is not the same for developing countries.

It is proved that having access to financial services is essential for economic growth and poverty reduction. When people have access to formal financial services, they can save money securely, access credit for investments or emergencies and better manage their financial lives.

The 2023 Tanzania FinScope Report launched in July 2023 indicates that Tanzania has made progress in financial inclusion since the last survey of 2017. The statistics indicate that the percentage of adults in Tanzania having a bank account has increased from 16.8 per cent in 2017 to 22.2 per cent in 2023.

The same report indicates that 53.5 have accounts with other formal financial institutions other than banks, leaving 18.7 per cent excluded from financial services.

While the statistics are still very low, most Tanzanians use informal financial services and mobile money to meet their financial needs.

According to the FinScope Report of 2023, 72 per cent of the adult population have access to mobile money services, compared to 60 per cent in 2017. Our key focus in this week’s article is access to credit, which is used as one of the measures of financial inclusion. We will address the borrowing status, who borrows, where they borrow from, and the purposes of borrowing.

Who borrows?

Of 34.1 million Tanzanian adults aged 16 years and above in 2023, the report indicates that only 34 percent reported having borrowed in the past 12 months. Credit uptake in Tanzania is very low, as borrowing is considered bad. Most borrowers do not borrow from formal institutions, making it difficult to have precise data on this measure of financial inclusion.

Where do they borrow from?

According to the FinScope 2023 report, of those who borrowed in the past 12 months, 67 percent borrowed from family and friends. In many developing economies, the concept of community support is strong. Family and friends often play a crucial role in providing financial assistance during times of need. Borrowing from family and friends is common and these loans may come with more flexible repayment terms and lower interest rates than formal institutions. This remains a key source of credit to many in Tanzania. These informal lending practices reduce the demand for loanable funds from financial institutions but simultaneously increase the follow-up burden on family and friends who lend to each other.

Another major source of credit is saving groups. Savings groups are a form of informal financial service where individuals pool their savings and take turns borrowing from the collective fund. Each member contributes a fixed amount regularly, and the accumulated sum is given to one member at a time. This system allows members to access credit without involving external lenders and is particularly popular in rural communities. These groups are common even in the workplace in formal organizations, including commercial banks. According to the report, 17 per cent of those who borrowed, borrowed from saving groups.

The report further indicates that mobile money and banks provided credit to 6 percent and 3 percent of all borrowers in the past 12 months. Mobile money services enable individuals to deposit, withdraw, and transfer money using their mobile phones. Many mobile money providers also offer small, short-term loans to their customers based on their transaction history and mobile phone usage. The process is simpler regarding requirements and documentation than bank loans, so more people who need small sums opt for mobile money borrowing.

Other sources of credit that individuals use include microfinance (4 per cent), SACCO (1 per cent) and 3 per cent and 1 per cent claimed to have obtained credit from their employer and government, respectively. Looking at the structure of the credit market, more than 84 per cent of the borrowers borrow from informal sources, which might indicate the underdevelopment of the credit market in Tanzania, which requires fintech to focus on.

Why do they borrow?

Sometimes, individuals may face financial challenges for various reasons, such as job loss, unexpected expenses, or other financial hardships. Borrowing money can help them cover their day-to-day living expenses during these difficult times. 30 per cent of the borrowers pointed out that they borrowed for this purpose. This indicates that many borrowers do not invest the proceeds into productive activities, making it difficult to repay the loans.

Another major reason for borrowing pointed out is to cover different medical emergencies. 18 per cent reported having borrowed in the past 12 months to cover medical bills. This is because health insurance plans do not yet cover many people, and they must pay cash for their medical bills. Other non-medical emergencies cater for 13 per cent of all borrowers. These emergencies are mainly funeral expenses which come with no preparation, and most individuals do not have insurance to cover these expenses. Others borrowed to finance education investments (8 per cent), farming (10 per cent), starting or expanding a business (3 per cent), to cover other business expenses (6 per cent), and investing in housing (3 per cent).

In conclusion, access to credit remains a critical challenge in Tanzania, with only a minority of adults having borrowed in the past 12 months. While progress has been made in financial inclusion, most borrowing still occurs through informal channels, such as family, friends, and savings groups. This reliance on informal sources highlights the underdevelopment of the formal credit market in the country. To achieve greater financial inclusion, Tanzania needs to focus on expanding access to formal financial services, fostering the growth of microfinance institutions, and leveraging fintech innovations. Empowering individuals and businesses with access to formal credit can catalyze economic growth, alleviate poverty, and provide Tanzanians with a more stable financial future. By addressing the barriers to credit uptake and promoting responsible borrowing practices, Tanzania can unlock its full economic potential and foster a more financially inclusive society for all its citizens.

Author: Mr. Godsaviour Christopher is A PhD. Candidate at the University of Agder, Norway, and a researcher at the Center for Banking and Financial Services Research (CBFSR) at UDBS. ( and +255753218577)

Related Articles

Back to top button