Source Of Funding Microfinance Insitutions For Sustainability And Growth

Many pioneering MFIs all over the world have proven that they can deliver financial services to individuals and businesses that otherwise would not have access to financial services. However for many of these MFT's, the dependence on donor funds increasingly constitutes an obstacle to growth, and thus they are now turning to other, commercial sources of funds. The shortage of capital creates two major, interrelated problems for MFIs: (1) slower than optimal rates of growth due to shortage of funds, and (2) large operational deficits prior to institutional financial breakeven, which itself tends to limit sustainability and optimal growth. These operating deficits limit MFI access to capital, even at market rates. While there is an undeniable need for MFIs to access capital that would enable them to make a greater contribution towards poverty-reduction, commercial lenders and equity investors (whether private, or public) have difficulties in identifying viable microfinance investments, or do not yet see microfinance with the poor as a potentially profitable investment opportunity. This raises a key question: How can MFIs effectively identify and utilize the available resources of capital for their sustainability?This study aimed to identify the reliable sources of funding of capital available and their associated costs that can be utilized by microfinance institutions for their growth and sustainability. Further more the study analyzed the donors' impact and their role on development of the MFIs, Private source (Equity investment) and the utilization of profit (retained earnings for growth). The research also touched in detail the government efforts in the setting up rules and regulations for operations of MFIs in Tanzania. The study found that microfinance industry has started to grow in Tanzania, following the Government's efforts to implement economic reforms and the people's response in implementing economic activities aimed to improving the economical condition in the country. Growth has been generally accepted as an important element for better and deeper outreach, and profit as a necessity for sustainability and performance. It follows that MFIs need capital investments so as to take and implement the required strategic decisions. Equity investors, even in microfinance, however, often put a lot of importance on control, which can lead to the loss of autonomy of the MFIs when are depending much on donors and subsidies. Under the pretext of the MFI's need to reinforce their capital, some investors from developed countries take control and impose their own development strategy. Here growth is no longer perceived as a means to the end, but as an end, with profit being the aim. This view is often radically different from the initial mission of the MFI. It is therefore very important that MFIs, aiming to attract investments.