Academic journal article International Journal of Business

Rural Household's Intention to Use Microfinance in Tanzania

Academic journal article International Journal of Business

Rural Household's Intention to Use Microfinance in Tanzania

Article excerpt


Microfinance, which include micro-credit, savings and micro-insurance (Consultative Group to Assist the Poor, 2012) is an economic development approach used by the government to assist households who are not qualified for conventional financial schemes (Ashraf and Ibrahim, 2014; Yuge, 2011). Microfinance has been a successful tool in helping low-income households to accumulate assets, boosting their incomes and eventually improving their standard of living. Despite of the implementation of various financial promotional campaigns activated by private and public sectors, the adoption rate of microfinance among the households was low in developing countries, for example 22% in Tanzania and 24% in Sub-Saharan Africa compared to 50% in the worldwide (Demirguc-Kunt and Klapper, 2012; Bank of Tanzania, 2013).

In Tanzania, most of the households who are not qualified for conventional banking services live in rural areas (National Bureau of Statistics 2013). Despite of the diverse government efforts to facilitate provision of financial services in the rural areas, yet the poverty level in Tanzania is high (28.2%) compared to other African countries like Uganda and Botswana (FinScope, 2013). Moreover about 90% of the poor people live in the rural areas. Therefore, microfinance could enable rural households to boost their income through improved agricultural output by employing modern farming techniques. In Tanzania agriculture is considered to be the backbone of the economy because it contributes large proportion of the Gross Domestic Product (GDP), employment, raw materials for industries and national food security (Ministry of Agriculture Food Security and Cooperatives 2015).

Formal microfinance services are provided by licensed commercial banks, non-bank financial institutions, savings and credit cooperative societies (SACCO) and financial non-government organizations (NGO) (Triodos Facet 2007). To enable more targeted users to meet the minimum requirements for the financial services, the service providers encourage the potential users to apply microfinance services such as micro-loans in groups, rather than individually. Low adoption of microfinance could be plausibly caused by the following reasons: the fear of losing personal assets if they fail to settle their own or other group member's outstanding loans (termed as perceived barrier) and thereby increases their unfavourable attitude towards the use of microfinance which in turn reduces their intention to adopt microfinance (Bank of Tanzania, 2014; Mahlanza, 2015).

Secondly, limited knowledge of the benefits that could be acquired from the usage of microfinance could cause the rural households to develop unfavourable attitude towards microfinance and this could eventually decrease their intention to adopt microfinance too (FSDT, 2014). Thirdly, social pressure that need to be borne by households as a result of negative opinions given by people who are important to them (termed as subjective norm) may affect the household's intention to adopt microfinance services (Chogo and Sedoyeka, 2015). The lack of basic financial knowledge on how to utilise the microfinance services (termed as perceived behavioural control) to increase their farming or business outputs could reduce the household's adoption intention of microfinance as well (Bank of Tanzania, 2014). Therefore, this study intends to achieve the following objectives in order to address the problems above.

A. Research Objectives

1) To examine the direct effects that can be generated by perceived barriers, perceived benefits, attitude, subjective norm, and perceived behavioural control on households' intention to use microfinance in Tanzania; and

2) To investigate the mediation effects of perceived benefits and perceived barriers on households' intention to use microfinance through attitude.


Microfinance studies in Tanzania tended to focus on solving issues related to the impacts that can be generated by microfinance to studied community, loan repayment behaviours, savings behaviour, and factors that could limit the growth of microfinance institutions (Mukama et al. …

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