42 The African Finance Journal Volume 7, Part 2 2005 PROBLEMS AFFECTING THE GROWTH OF MICROFINANCE INSTITUTIONS IN TANZANIA J. Mukama, T. Fish and J. Volschenk University of Stellenbosch Business School INTRODUCTION Microfinance services in Tanzania have existed for some years, yet for a number of reasons, have not been able to reach the majority of low income Tanzanians. Without the prioritisation of the factors that impede the growth of these microfinance services, solutions might have no significant impact on growth in the sector if they are not correctly targeted. Establishing an efficient and growing microfinance system is central to serving the low income segment of society effectively while also contributing to economic growth (UNCDF, 2005; Ravicz, 1998). Therefore the identification of the major problems affecting growth of MFIs will provide guidance on how microfinance service providers should prioritise their activities. Moreover, the ranking of such problems could assist regulators, supervisors and the government focus on resolving issues of greater importance rather than those that would have a minor impact (Volschenk, 2002: 12). Key words: Tanzania, Microfinance, Regulation JEL Classification G28, G21, O55 Correspondence to Jako Volschenk University of Stellenbosch Business School jakov@acia.sun.ac.za ABSTRACT This paper examines the factors that inhibit growth in the microfinance sector in Tanzania by measuring the perceptions about such issues among Microfinance Institutions (MFIs). The most important include the educational levels of clients, lack of capital to lend to clients and staff related incentives and skills development. These findings indicate phenomena that deserve consideration from legislators. Also prominent is the dual nature of the finance sector, with the conventional banking institutions experiencing factors differently to the Savings and Credit Co- operative Societies (SACCOs), which by their nature have a lower cost structure and have better information about their own clients, but lack sufficient access to loan capital.