Presented at the Poverty Policy Week Mwal . Nyerere International Conference Hall - Dar es Salaam

1. Presented at the Poverty Policy Week Mwal. NyerereInternational Conference Hall - Dar es Salaam The Case of Village Community Banks (VICOBA) SCALING UP BEST PRACTICES IN MSMEs FINANCING AND MAXIMIZING POTENTIAL OPPORTUNITIES FOR SUSTAINABLE PRO-POOR AND INCLUSIVE GROWTH By Mr. Filbert Sambagi (SEDIT EXECUTIVE DIRECTOR) seditvicoba@yahoo.com- www.seditvicoba.or.tz +255 754 618809

2. Economic Status in Tanzania Tanzania is among the developing countries in the world, however, the government and its people are struggling to reduce poverty and improve their economy. Background The Tanzania economy is characterized by a small segment of large firms made up of subsidiaries, franchisees and a few state owned companies and very large segment of micro-enterprises dominated by very small enterprises most of which are informal. An insignificant small and medium sized enterprises segment separates the two segments. Therefore sustainable scaling up of best practices should focus MSMEs most of which are informal for the sake of filling the so called “the missing middle”.

3. SMEs/Informal sector development potentials and opportunities • It is estimated that about a third of the GDP in Tanzania originates from the Small and Medium Enterprise (SME1) sector. • A large majority of these (98%) are micro enterprises/informal (employing less than 5 people). SME sector plays a crucial role in the economy. • Since SMEs tend to be labor-intensive, they create employment at relatively low levels of investment per job created.. SMEs play a fundamental role in utilizing and adding value to local resources • Through business linkages, partnerships and subcontracting relationships, SMEs have great potential to complement large industries requirements through symbiotic relationship.

4. Enabling Environment Catalysts Actors Instruments • Central & Local Government • Private Sector • NGOs • Development Partners • Macro (Policies) • Meso (Capacity building) • Micro (Facilitation) • General Policy Framework • Regulatory Framework • Infrastructure • Facilitating Institutions –BDS • Facilitating Inst. – Finance • Technical and Managerial skills • Business Culture SMEs development model

5. Access Strand – Definitions by Finscope 2009 • FORMALLY INCLUDED • Includes people hold an account with a financial institution such as a commercial bank, community bank or insurance company that is supervised by a financial services regulator and pension funds • SEMI-FORMAL • Includes users of products offered by formally registered institutions but not supervised by a financial service regulator eg. SACCOs, MFIs, Mpesa etc.. • INFORMAL • Includes people who use products offered by informal associations or groups. E.g.. ROSCAs, Village Community Banks (VICOBAs), Village Savings and Loans Associations (VSLAs), other community based savings groups, family and friends, small businesses and money lenders. • TOTALLY UN-SERVED: • Includes people who have no dealings with, and are excluded from any of the segments above.

6. Access to Finance - The status in Tanzania Financial access Strand 2009 - 2006

7. Access to Finance - The status in Tanzania Informally included strand

8. Access to Finance - The status in Tanzania Reasons for not having savings and investment products

9. The VICOBA Approach as promoted by SEDIT SEDIT Is a non-governmental, non-political, non-religious organization which has been established with the mandate of bringing social and economic development for the majority poor Tanzanians in rural and urban areas. Sustainable Pro poor and Inclusiveness VICOBA (Village Community Banks) The Village Community Banks (VICOBA) is a development model , that employees holistic approach. It is the replication of MMD (Mata MasuDubara) model. MMD which means Women on the Move towards development was promoted by Care International in Niger in 1991 being an adoption of African traditional self help practices.

10. Structure VICOBA model operates through self selected groups of people of 25-30 members who are essentially in smaller groups of fives called collateral groups (these acts like pressure groups in loans payments and guarantee systems). VICOBA (Village Community Banks) Once it is formed, members elect the group management committee leaders among themselves; and there after the whole group undergoes training on business management, entrepreneurship and group management

11. VICOBA Structure… continues For around 16 weeks, the group attends banking and training. The banking operation starts by pre determining a group share value, of which can Tsh.1000, 2000, 5000 etc, depending on the economic status of the group members. Each member has to buy between 1-3 shares per week plus other pre determined health, education and group operations funds contributions. Thereafter, group is linked to formal financial service provider-commercial bank. VICOBA Training Phases SEDIT has a developed a special package for training VICOBAs with well-defined curriculum. Training is a sustain inability pillar that forms the major strength of VICOBA model

12. VICOBA Training Phases… continues • Phase I: Introductory phase: 2 – 3 weeks Objective: To sensitize the local authorities and the community acquaint them with the basic characteristics of the VICOBA methodology and recruit them into the program and form groups. • Phase II: Intensive Training phase: 4 months Objective: To enable group members understand clearly how to manage their group activities and provide business management skills to enable them select, plan and manage their IGAs profitably.

13. VICOBA Training Phases… continue III Development phase - 4 months Objective: Assist the group to become self-governing The group members at this phase are taking loans and reimbursing accordingly. It is a high time as well for other integrative training like appropriate skills, governance, agribusiness etc IV Maturity phase - 3 months Objective: Assist the group to become independent from the project The Field Agents visits the groups at the end of three months. At that time, they will do a final evaluation of the group. Based on this evaluation, decision is done on whether the group is ready to be independent, or if it still needs assistance. Based on the evaluation results the Field Agent can estimate appropriate time, and determine type of and magnitude additional assistance to the weak groups.

14. SEDIT ‘s SUCCESS TO SCALE UP

15. Due to the support from international organizations, government and companies in implementing SEDIT has impliemented several VICOBA programs For about 8 years SEDIT has conducted different VICOBA projects with the support from partners like FSDT for 20 districts, WWF 5, SONGAS 2 districts, UNDP/Ministry of Finance – Poverty eradication Department 6 districts. SEDIT ‘s SUCCESS TO SCALE UP Over 4000 VICOBA groups with 120000 members, with loan fund of over Tzs.80Bil. from rural areas, 60 % being women. Also there are about 500 paraprofessionals trained by SEDIT as VICOBA FTs Over 50 institutions have been capacitated to run VICOBA projects including local government institutions and NGOs Linkages of VICOBA groups to other service providers particularly agribusiness, health, simple technologies, education and good governance has been successful and between groups.

16. Huge demand against resources • Training more groups • Capacity building networks • Reaching new areas, sensitization and formation of new groups. CHALLENGES IN SCALING UP VICOBAs FOR INCLUSIVE GROWTH Standards and quality management Political interference in the VICOBA groups and the model Missing recognition for linkage with forma sector due to Informality Absence of institutions for linkage to provide services like simple technologies Timely information flow and gathering of data.

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