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to poor and low-income households and their micro enterprises Pilipinas(2002). Microfinance does not only cover financial services but also non-financial assistance such as training and business advice.

The principal providers of financial services to the poor and low income households in the rural and urban areas of Tanzania consist of licensed commercial banks, regional and rural unit banks; savings and credit cooperative societies; and several NGOs whose micro-credit delivery operations are funded and supported with technical assistance by international donors.

1.2. Micro and Small Enterprises (MSEs)

There is a wide range of definitions for MSEs, but for the purpose of this study, a SME is defined as a productive activity either to produce or distribute goods and or services, mostly undertaken in the informal sector. A typical micro enterprise employs fewer than five workers, usually family members and has very limited fixed assets.

A small enterprise on the other hand, employs more than five workers and most of them are in a formal sector with much higher fixed assets compared to micro enterprise. According to the Small and Medium Enterprises Development Policy, small enterprises are formal undertakings engaging between 5 and 49 employees, or with capital investment ranging from Tshs. 5 million to Tshs. 20 million17.

1.3. Microfinance Policy

Microfinance in Tanzania is one of the approaches that the government has focused its attention in recent years in pursuit of its long term vision of providing sustainable financial services to majority of Tanzanian population. In Tanzania, before the current financial and banking restructuring took place, most of financial services for rural, micro and small enterprises were offered by the National Bank of Commerce (NBC) and the Co-operative and Rural Development Bank (CRDB).

Since 1991, the government has been implementing financial sector reforms aimed at putting in place a competitive, efficient and effective financial system. Although the reforms have had reasonable success in bringing about the growth of competitive and efficient mainstream banking sector, it

has not brought about increased access to basic financial services by the majority of the Tanzanians, particularly those in rural areas.

The realisation of the above shortcoming led to the Government's decision to initiate deliberate action to facilitate alternative approaches in the creation of a broad based financial system comprising of a variety of sustainable institutions with wide outreach and offering diverse financial products (ibid). The government's choice of microfinance was influenced by the conviction that, given adequate attention, microfinance has the potential to contribute considerably to the economic development of the country because it is more adapted to the needs of the low-income population which makes up the majority of Tanzanians.

1.4. Types of MFIs Surveyed and Lending Methodologies Used

The study covered various types of MFIs, which range from merger, self finance/informal sources of finance to formal sources like credit/savings institutions, microfinance bank, and private commercial banks. Among the surveyed institutions the majority (43.2%) were credit and savings institutions, 18.9% credit only (not-for-profit organisations), 8.7% microfinance