Financing the in-between sector: Designing and evaluating targeted SME lending in Tanzania

Employment growth in Tanzania has been driven by small, often informal, manufacturing firms. Many formal and informal micro, small and medium enterprises (MSMEs) are similarly productive to larger formal firms and are likely to have significant growth potential. However, access to finance is one of the main obstacles these firms face. The literature on MSMEs in Africa still tends to generalise them as informal and unproductive whilst past interventions have largely focused on training programmes and business plan competitions, which have yielded mixed results and may not be scalable.

This project aims to help high-potential small firms to overcome this obstacle through targeted lending. SIDO (Small Industries Development Organization) is a government agency that provides training and small loans to MSMEs. Many of SIDOs clients across mainland Tanzania have outgrown the maximum loan size offered by SIDO but cannot yet access credit from commercial banks. Meanwhile NMB, Tanzania’s largest commercial bank, aims to expand SME lending through innovative approaches. NMB has agreed to design a loan product targeting high-potential SIDO firms, drawing upon the information SIDO possesses about its clients.

The project addresses the need for policies that differentiate between MSMEs with growth potential and those who cannot or may not aim to grow. There is a need to make commercial loans more accessible for the MSMEs who can benefit from them and successfully identifying these firms reduces the risks banks face in MSME lending. If the loan product performs well, it can thus reduce the barriers to finance that MSMEs face and provide insight to financial institutions and policymakers on how to expand MSME lending through targeting the firms that can benefit from and repay loans.

The project will work with NMB and SIDO to design and pilot a loan product targeted to SIDO’s clients that exhibit growth potential. Firms will be identified using SIDO’s internal data about credit history and firm performance. After baseline data is collected, firms who meet a set of criteria will be invited to apply for the loan from NMB. If the pilot succeeds, which depends on the number of firms who apply for and receive the loan and their performance over the following year, NMB will roll out a similar loan product across Tanzania, enabling a full evaluation to conducted.


  • Research in progress.

    Project last updated on: 19 Sep 2017.