Entry #30 Group-Lending in Tanzania: A Foundational Tool in Microfinance

Written by: Paulette Stenzel

Primary Source: Mariposa Paulette

Group lending in the village of Naitolia, Tanzania.
Entry #30  Group-lending in Tanzania

I visited the village of Naitolia in Northern Tanzania (near the Serengeti) in May of 2016 on a Michigan State University (MSU) faculty team. Our visit was part of an on-going Tanzania Partnership Program (TPP) that MSU has conducted for over five years, and our objective was to explore the potential to assist citizens of Naitolia through microfinance.  During our visit, we learned that citizens of Naitolia are already involved in one of the most basic forms of microfinance:  group-lending.  It is a tool involving extremely small loans among members of a group.  The loans are not enough to support significant entrepreneurial projects, but they are a “first step.” 

My work with microfinance prior to my visit to Naitolia involved loans to small entrepreneurs who were already engaged in business.  For example, our own Michigan State University-based Spartan Global Development (SGDF) fund (a Registered Student Organization – RSO) recently made a $1,500 loan to a cooperative of coffee farmers in Guatemala for the purchase of a coffee roaster. (See http://www.spartanglobalfund.org/.)  SGDF also contributes to loans through KIVA in $25 increments.  (See https://www.kiva.org/.)  Additionally, we recently contributed to a loan to a farmer in Ecuador to help him buy organic compost and fungicides for his tomato fields.   (I say “we,” because I am the advisor to SGDF, and I serve on the board of directors for the 501(c)(3) organization that is a companion to the RSO.)

In Tanzania, I learned about more basic financial and educational needs that are met, at least in part, through group lending.  People in in Naitolia and other villages of Tanzania have limited access to cash and seldom have access to credit.  Yet, to develop their economy, folks will need financial skills and experience with credit.   Therefore, the international non-governmental group (NGO) ORGUT, set out to help villagers through a program called the “Village Community Banks ICOBA Program” (VICOBA) which operated from April 1, 2008 to March 31, 2011.  The project set was designed to create 2000 VICOBAs to serve about 60,000 people in rural Tanzania.  Through the program, ORGUT sent trainers to hundreds of villages.  In turn, the trainers assisted villagers in setting up and running lending groups.  (For more about ORGUT see http://www.orgut.se/.    To learn about VICOBA, see Structure and principles of VICOBA, Social and Economic Development Initiatives of Tanzania (SEDIT) VICOBA, http://www.seditvicoba.or.tz/index.php/what_we_do/.)

Naitolia is among the villages served by the program.  In Naitolia, as well as other villages, some groups are made up of men only, some are co-ed, and others are women only.   Most have about 15 to 25 members.


Citizens in rural villages of Tanzania have no access to banks, and, traditionally, they avoid debt.  Therefore, through the group-lending program, Naitolia’s citizens are learning new ways of handling money.   In the absence of banks, each group’s funds are kept in a safe designated for that group only.  It is only opened during the group’s meetings, and multiple keys are required to open the two or more locks.  Each key is held by a different group leader.

Members invest, as able, in the group’s fund.  Each member carries a book in which his or her investments, loans, and payments are recorded.  The “Teach your Self” message shown in my photo of the front cover of an individual’s book reflects the basic premise of lending groups in Tanzanian villages.  Participants are learning in community.
Another photo shows an inside page of a personal group-lending book.  Note that the words in the lending book are in Swahili, one of the two official languages of Tanzania, with the other being English. Yet, many people cannot read and write.  Therefore, this group also records the purchase of a share with a fish stamp.

Naitolia’s lending groups deal in amounts that are tiny from the perspective of citizens of the U.S.  For example, 2,000 TZ (Tanzania shillings) =  $0.91 U.S.  The amounts recorded on the page in the photo, therefore, are 200TZ= .09 U.S. and 100 TZ= 0.045 (4.5 cents). For this particular lending group, a person who has invested 2,000 in the group may be eligible for a loan of up to 6,000 TZ ($2.70 U.S.)   Loans are made internally to members of the group.  For example, a woman whose husband has passed on or abandoned his family may borrow funds to feed her family.

The longest repayment period permitted is usually four months.  Groups disband after about a year, at which time members who have invested in shares receive their principle plus a portion of any interest collected.  Interest is calculated according to the number of shares each owns.

My photos show interaction at a meeting of one of Naitolia’s lending groups.  On our trip we met Mosesi Tayi Kisila, the trainer for the lending groups in Naitolia.  He is pictured in two photos with Dr. Diane Ruonavaara, director of MSU’s TPP.  I want to honor and recognize Mr. Kisila’s devotion to his fellow citizens. When ORGUT’s three year project ended in 2011, his pay ended, yet he continues to counsel the groups.

In summary, lending groups serve multiple purposes.   Members learn to keep records, calculate interest, and make decisions about lending. Simultaneously, they provide regular social interaction among members as they learn to trust each other with their investments.  Lending groups are a small, yet important, beginning step that can help citizens of rural villages prepare to enter a wider financial world that, in the future, could include more substantial loans to fund their developing businesses.

copyright© 2016 by Paulette L. Stenzel for text and photos. All rights reserved.   

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Paulette Stenzel
I am a mom, teacher, learner, writer, lawyer, violinist, environmentalist in process, traveler, and avid reader. My professional title is Professor of Sustainability and International Business Law, and my passions are interwoven with my professional work in sustainability, Fair Trade, microfinance, and related areas.