THE FACTORS AFFECTING FINANCIAL PERFORMANCE OF MICROFINANCE

INSTITUTIONS IN TANZANIA

A CASE STUDY

OF

MWANZA CITY COUNCIL

 CHAPTER ONE

RESEARCH OVERVIEW

1.0 Introduction

This chapter comprises the background of the study, statement of the problem, general and
specific objectives, research question, and significance of the study, limitation of the study,
scope of the study and the definition of the key terms.

1.1 Background of the Study

Worldwide; microfinance refers to the financial services provided to low-income individuals or

groups who are typically excluded from traditional banking. Most microfinance institutions focus
on offering credit in the form of small working capital loans, sometimes called microloans or
microcredit. However, many also provide insurance and money transfers, and regulated
microfinance banks provide savings accounts. Microfinance aims to improve financial services
access for marginalized groups, especially women and the rural poor, to promote self-sufficiency
(Daniel, 2023). Low-income people are neglected by their financial systems because they are
considered uneconomical to serve or too difficult to reach. According to the World Bank’s
Global Findex, 1.7 billion adults globally are financially excluded, living without formal credit
or savings. Microfinance seeks to address the needs of the unbanked by fostering economic
justice and financial inclusion for all.

In Asia; access to essential financial services can empower individuals economically and socially
by creating self-reliance and economic sustainability in impoverished communities where
salaried jobs are scarce. The benefits of microfinance in Asia includes small loans enable
entrepreneurs to start or expand micro, small and medium enterprises. Savings help families
build assets to finance school fees, improve homes such as install power or running water and
achieve goals. Insurance products can offset the cost of medical care. Money transfers and
remittances allow families to easily send and receive money across borders. Hundreds of
millions of low-income people have benefited from microfinance since its inception, with about
140 million borrowers served by the industry worldwide annually (Hornell, 2021).
In Africa; incomes in poor households are typically not only low, but also irregular. Poor people
need to be able to smooth consumption flows or finance larger expenditures, but they generally
lack access to banks and other formal facilities. Traditional financial institutions generally shy
away from this market, either because they are unaware of it or because they deem it
unprofitable. Poor households and individuals, for their part, have difficulty proving their
creditworthiness because they lack clearly defined property titles and other assets acceptable as
collateral. Their only alternatives are to seek loans from informal moneylenders or to draw on
savings, options that are costly and risky. Despite microfinance's global reach, the overwhelming
majority of its clients remain in Asia. The sector is growing quickly, but from a comparatively
small base. At the end of 2008, microfinance institutions in sub-Saharan Africa reported reaching
16.5 million depositors and 6.5 million borrowers (Kumar, 2017).

In Tanzania; micro-financing in Tanzania started in 1995 with SACCOS which are savings,
credit cooperative organization and NGOs. It has since then contributed to the increasing success
of international micro financing. Microfinance stills remains a relatively new in Tanzania since it
has not penetrated yet. Since 1995, microfinance has been linked to poverty alleviation programs
and women (Harvey et al., 2018). The government made efforts to ensure commercial banks
have continued to provide financial support to the small entrepreneurial business. However, a
microfinance National Policy was implemented in 2002 to encourage and support microfinances
in the country. Since the implementation, micro financing was officially launched and
recognized as a poverty alleviation tool. Due to its increase exposure and use in the nation,
commercial banks have developed interests in to offer microfinance. There are various
microfinance banks that functions as supporting institutions in the country that usually provide
microfinance services (Daniel, 2023).

These may include the CRDB, National Microfinance Bank, and AKIBA. However, there are
also other few banks that are concerned with micro financing in Tanzania such as the PRIDE and
SEDA, Tanzania Postal Bank and FINCA. Community and small banks have also expressed
interest in the same including the NGOs and other non-profit organizations. According to the
Survey conducted recently (2005) by the Bank of Tanzania, the ministry of Finance provided an
update of the microfinance practitioners’ directory including other basic information regarding
the institutions practicing micro financing as well as financial institutions, commercial banks,
SACCOS and NGOs and other credit institutions (Kumar, 2017).

1.2 Statement of the Problem

Tanzania reached an important milestone in July 2020, when it formally graduated from low-
income country to lower-middle-income country status. Tanzania’s achievement reflects
sustained macroeconomic stability that has supported growth including the microfinance
institutions (Hornell, 2021). Recent and well-publicized cases of over-indebted households and
interest rates approaching those charged by loan sharks have contributed to a more critical view
of microfinance and of microcredit in particular. There is also a more fundamental critique.
Some argue that channeling scarce resources into unproductive micro-enterprises in the informal
sector may actually be detrimental to sustainable development and industrialization. This is
because tiny businesses contribute little to building an economy's productive capacities, or to its
structural transformation (Kotler, 2023).

With rapid growth of financial performance comes closer scrutiny. Yet it has proven difficult to
measure the actual impact of micro-finance on poverty. Proponents often rely on case studies and
anecdotes. This has prompted leading scholars to conclude that strikingly, 30 years into the
microfinance movement we have little solid evidence that it improves the lives of clients in
measurable ways (Hornell, 2021). Still, microfinance institutions in Tanzania lack the capacity to
match the needs of the poor. They suffer from structural weaknesses. The support services for
them are of uneven quality, if they exist at all. And supervisory and coordinating bodies often
have only limited resources.

Tanzanian government, in cooperation with external development partners, could therefore play
a fundamental role in consolidating and sustaining the microfinance sector by providing
appropriate policies and regulatory and legal frameworks. They can also protect the poor and
build confidence by establishing refinancing institutions and deposit insurance schemes. It is
unreasonable to expect microfinance to fundamentally transform the economy. And it cannot
replace progressive social and economic policies for structural transformation, poverty reduction
and job creation. But in light of the country’s persistent poverty, it can play an essential part for
the foreseeable future in providing basic financial services to the poor, and thereby help advance
Tanzania's development goals. This study therefore, aims to analyze the factors affecting
financial performance of microfinance institutions in Tanzania, a case study of Mwanza city
council.

1.3 Research Project Objectives

1.3.1 General Objective

The main objective of this study project is to analyze the factors affecting financial performance
of microfinance institutions in Tanzania, a case study of Mwanza city council.

1.3.2 Specific Objective

The following are the specific objectives of this project;

a) To examine the competence of the microfinance institutions key players for better
financial performance in Tanzania.
b) To evaluate the polices and regulations governing the microfinance institutions in its
operations for better financial performance of Tanzania.
c) To find out the strategies in place to ensure effective contribution of microfinance
institutions in better financial performance of Tanzania.
1.4 Research Questions

The following are the project objectives of this study;

a) How is the competence of the microfinance institutions key players for better financial
performance in Tanzania?
b) What are the polices and regulations governing the microfinance institutions in its
operations for better financial performance of Tanzania?
c) What are the strategies in place to ensure effective contribution of microfinance
institutions in better financial performance of Tanzania?
1.5 Significance of the Study

a) To the Government

The findings and recommendations of this study will help regulators and policy makers in
providing formulation of roles and procedures and implementation that will help in boosting
microfinance institutions as well as help to boost the economy of Tanzania.
 b) To stakeholders
This study will give insights to the personnel who prepare the economy policies and procedures
to ensure that they are useful in bringing the positive changes to the microfinance institutions in
the Tanzania country. They will be able to perform according to their desired standards and with
less cost for the development of an organization especially in the microfinance institutions since
the challenges that faced in microfinance institutions and its management will be reduced.
c) To the researcher

The study will be a source of other researchers in various universities that will inspire other
researchers and other scholars in the future who would have intention to conduct a research study
in a similar context can use the findings and recommendations of this study. Therefore, this study
may be used as a point of reference by other researchers.

1.6 Scope of the Study

The research will take place from May, 2023 to July, 2024 for its completion. It will assess on
the contribution of microfinance institutions in the better financial performance in Tanzania, a
case study of Mwanza city council. The study will be conducted in Mwanza, Tanzania and it
will cover the materials and information collected from the year 2017 to the year 2023 regarding
microfinance institutions and the economy in the world and Tanzania in particular. This study
will comprise various microfinance institutions in Mwanza region in order to get the accurate
information and data concerning the contribution of microfinance institutions in the better
financial performance in Tanzania.

1.7 Organization of the Study

This research proposal comprises of three chapters, that is chapter one which comprises
introduction to the study, background information, statement of the problem, research objectives
both general and specific ones, research questions, significance and the scope of the study.
Chapter two comprises literature review both theoretical and empirical parts, and conceptual
framework. Chapter three comprises research design, area of the study, targeted population, unit
of analysis, sample size, sampling technique, data collection methods, data analysis, validity and
reliability of data.
 CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

This chapter presents a review of related literature whereby, identified concepts were discussed.
It is based on theoretical literature review, empirical literature review and finalizes with the
conceptual framework of the study.

2.1 Definition of Key Terms and Variables

2.1.1 Microfinance Institution (MFI)

Microfinance institution is a provider of credit. However, the size of the loans is smaller than
those granted by traditional banks. These small loans are known as microcredit. The clients of an
MFI are often micro-entrepreneurs in need of economic support to launch their business. This
type of client is considered too risky by traditional banks because they cannot provide real
collateral and because they tend to work in the informal sector of the economy (Demist, 2018).

2.1.2 Finance

Finance is defined as the management of money and includes activities such as investing,
borrowing, lending, budgeting, saving, and forecasting (Glatfelter, 2019).

2.1.3 Financial Performance

Financial performance is a subjective measure of how well a firm can use assets from its primary
mode of business and generate revenues. The term is also used as a general measure of a firm's
overall financial health over a given period. Analysts and investors use financial performance to
compare similar firms across the same industry or to compare industries or sectors in aggregate
(Woodward, 2018).

2.1.4 City Council

A city Council is a municipal body having legislative and administrative powers, such as passing
ordinances and appropriating funds (Glatfelter, 2019).

2.2 Theoretical Literature Review

2.2.1 Classical Management

The classical management theory was introduced during the Industrial Revolution as a way to
improve productivity within factories and other businesses. While less common in today’s
society, this type of management may still provide benefits for some organizations. Classical
Management Theory is predicated on the idea that employees only have physical needs. Because
employees can satisfy these physical needs with money, Classical Management Theory focuses
solely on the economics of organizing workers. Due to this narrow view of the workforce,
Classical Management Theory ignores the personal and social needs that influence employees’
job satisfaction. As a result, Classical Management Theory advocates seven key principles:

a) Profit maximization
b) Labor specialization
c) Centralized leadership
d) Streamlined operations
e) Emphasis on productivity
f) Single-person or select-few decision making
g) Priority to the bottom line

When these seven principles are put into practice, they create an “ideal” workplace based on a
hierarchical structure, employee specialization, and financial rewards. Control of the business is
held by a select few who exercise exclusive control over the decisions and direction the company
takes. Underneath those select few, middle managers govern the day-to-day activities of the
employees who are at the bottom of the pecking order. And all of this revolves around the idea
that employees will work harder and be more productive if they are rewarded in larger and larger
increments via wages or benefits. While this may not sound like an “ideal” management theory
by today’s standards, it worked well for many years prior to the early 20th century. And even
though the system isn’t applied lock-stock-and-barrel as it once was, there are several strong
points that managers can use in the 21st century. They include:

a) Clear managerial structure

b) Division of labor
c) Clear definition of employee roles

These three principles, combined with other management theories on this list, can improve the
way your employees and your business works in this modern age. The classical management
theory believes that employees are strongly motivated by their physical needs and more
specifically, monetary incentives. As such, organizations that implement this management style
often incorporate regular opportunities for employees to be rewarded for their productivity with
incentives.

2.2.2 Theory of Service

Theory of service means knowledge of what is permanent and normal in producing a service.
Traditionally, this knowledge has been accumulated in tacit form in the professional skill of the
people involved in the activity, but today more and more of it is being documented in writing by
researchers (McKee, 2021). Most studies of service use either one of two alternative approaches,
that is, they have either descriptive or normative purpose, as can be seen in the diagram on the
right. The two resulting theory paradigms differ quite much from each other even when the
object of study is the same. Descriptive theory contains knowledge about past or present
activities of producing or using a service but does not much help for modifying it to correspond
better to latest requirements. Academic or historical studies are often of this type. They are
sometimes categorized in two types: extensive studies of a large number of cases, and intensive
studies of one or a few cases (Demist, 2018).

Normative theory of service contains generally applicable knowledge and tools that can be used
in producing the service, especially for optimizing it or planning improvements to it. Research
for creating normative theory is usually extensive because it needs a large number of cases for its
material. Moreover, a third type of research can take place in connection of the "request of
service" marked in the diagram. It means simply studying and planning the execution of
individual tasks, for example preparing for a new type of service, or removing problems in
existing service. These case-specific or "intensive" studies seldom produce generally applicable
new theory and they will not be discussed in the following. Subdivisions of the theory of service.
Theory is created by doing research, but the difficulty is that in order to be effective, research
projects can only study a few limited questions at a time. The number of important questions that
any field of service has to deal with, is many times larger than an empirical research project
could handle (Glatfelter, 2019).

If somebody thus wants to make a larger compilation this has to be made not from empiria, but
instead by studying numerous earlier published research reports. Indeed, such service-specific
compilations of theory have been made for many important branches of service. They will not be
enumerated here, the main reason for it being that they are too numerous and besides they often
soon lose their actuality because of the swift development of the technologies of service
(Woodward, 2018).

2.2.3 The Role of Microfinance institutions on the Economy

According to this simple definition, microfinance targets low-income people who have no access
to the formal lending system. It is generally dedicated to needy communities to support
economic development by expanding their entrepreneurial activities. Capacity building services,
management, vocational skills training, consultancy, advisory services, marketing assistance,
information, technological development, transfer, and business linkage promotion are examples
of the latter (Woodward, 2018). The growing number of female entrepreneurs in developing
countries has piqued the interest of academics and the related industry. Donors, international
public institutions, governmental authorities, non-governmental organizations (NGOs), private
corporations, charities, research institutes, and businesses have launched programs or policies to
encourage and support female entrepreneurs (Glatfelter, 2019).

They initiate programs to improve entrepreneurial skill capacity, strengthen women's networks,
facilitate funding and training, or create policies to encourage better start-ups and business
expansion. They are unanimous in their belief that women's entrepreneurship is critical to growth
and development. Women are less likely than men to be involved in entrepreneurial activity
globally. Microcredit is about much more than simply having access to money. It is about
women gaining control over their means of subsistence. It is about women rising above poverty
and vulnerability. It is about women gaining economic and political power in their homes,
villages, and countries. As a result, to promote women's entrepreneurship development,
microfinance must assist poor women in meeting both their daily needs and their strategic gender
interests (Woodward, 2018).

It is recognized that strategic gender interests are at the heart of patriarchal power structures: the
abolition of a coercive gender division of labour; unequal control over resources; the abolition of
male violence, women's control over their bodies, the establishment of political equality, and the
abolition of sexual exploitation. Women Entrepreneurs means the women or a group of women
who initiate, organize and operate a business enterprise (Glatfelter, 2019). Therefore, a woman
entrepreneur's business growth is a significant issue in entrepreneurship. Despite its significance,
not much work has been done to study the growth of women-owned enterprises until recently.
There was a lack of cumulative knowledge to adequately conceptualize and build explanatory
theories on women-owned enterprises' growth process. Most of the work conducted was on
women's motivation to start a business and the subsequent effect of those motivations on growth
performance and the effect of size and sector on business development (Kotler, 2023).

The main objective of microfinance services is to allow people to access financial services to
engage in income-generating activities. Though women have a crucial role in their communities
and families' economic development, hurdles such as poverty, joblessness, low earnings, and
societal bias have obstructed them from effectively performing that role (Glatfelter, 2019). It is
now clear that women entrepreneurs cannot easily access finance to facilitate their
entrepreneurial activities in some countries, unlike their male counterparts. Partnering with the
microfinance institutions could: extend services into poorer or informal communities, provide
safer work places, promote adoption of non-discriminatory employment policies, help the poor
access credit, and boost investment in low-cost housing. Examples such as the slum networking
project in Ahmedabad and the privatisation of Manila’s water authority highlight that
partnerships among urban stakeholders need to be based on a thorough understanding of
community needs and pursued in tandem with other initiatives (Kotler, 2023). In both contexts,
the microfinance institutions actively sought out partnerships with residents of informal
settlements, NGOs and municipal government. These collaborative ventures involved
information, education and community campaigns to ensure that residents of informal
settlements were involved and had some ownership of programmes. They also sought to provide
assistance to the poorest families through the provision of micro-finance (Woodward, 2018).

2.3 Empirical Literature Review

2.3.1 The Competence of Microfinance Institution Key Players for Better financial
Performance in Tanzania.

Castells-Quintana (2021) shows that the quality of urban microcredit determines the growth-
enhancing benefits of urban concentration. Countries with good urban infrastructure can
accommodate rapid population increases in urban areas and sustain high better financial
performance. The quality of a city’s infrastructure such as housing, electricity, roads, airports,
public transport, water, sanitation, waste management, telecommunications, hospitals, schools,
etc. also influences social inclusion, economic opportunity and quality of life.

According to Jamal (2018) he concluded that, competing goods firms such as department stores,
supermarket and microfinance institutions may sell a wide range of products and quality of
services is a primary means of competitive differentiation. Firms that supply only services like
telecommunication companies, airlines etc. have a little to offer if their quality is not good. It can
be said that better financial performance is multiple item scale with good reliability and validity
that help firms to have better understanding evaluation the services expectations and perception
of customer and improve the services as well.

According to Kelvins (2018) he concluded that, there is no doubt that microfinance institutions
want to survive in a competitive environment, they have to ensure about the quality of products
and services they are supplying to the market. Some firms provide only services therefore the
quality of services is an important issue for all of these firm’s better financial performance shows
its best valuation when it is used to track better financial performance trends as well as in
combination with other forms of better financial performance measurement. Moreover, better
financial performance is used to evaluate the firm’s quality according to the five services
dimensions by averaging the difference scores on items making up the dimensions. Similarly, an
overall measure of better financial performance in the form of an average score across all five
dimensions. Determining the relative importance of the five dimensions affecting customers’
overall quality perception is one potential application of better financial performance.

Shebang (2019) concluded that, when perceived performance fails to meet the expectation then a
gap has been created between them. better financial performance model is a widely accepted
approach to measure the difference between customer's expectation and perception. Although
there are five gaps in the better financial performance concept, the researcher has concentrated
on the most important one.

Brown (2023) concluded that better financial performance and customers’ satisfaction on
SEVQUAL model must be aligned with suppliers of products and services policies, since
decisions made by the management of big stores are based on that. Results of the last study in
America have very important applications to stores in order to redefine competitive strategies, by
assessing their activities and as a starting point for the required improvements.
2.3.2 Polices and Regulations Governing the Microfinance Institutions for Better Financial
Performance

Japheth (2023) concluded that the confusion about how to handle a wide variety of situations in
the microfinance institutions is the reason for poor better financial performance. Customer
service excellence training can offer proven ways for employees to manage various types of
challenges. Specifically, it can show them how to handle conflict, stay calm and learn to defuse
angry customers, improve communication, use emotional intelligence to enhance relationships,
and use their natural abilities and talents to serve customers. These skills can help eliminate the
biggest customer service complaint, which is rudeness and discourteous behavior tied with being
unable to get a human on the phone.

Sunday (2018) concluded that lack of knowledge about products, services and policies has led to
poor better financial performance. Microfinance institutions should ensure their staff are properly
trained on the products they sell by giving them access to your vendors’ most current training
materials. Keep employees updated on the company’s policies by ensuring they have access to a
company intranet site where they can find the latest policy updates. Even better and in addition
the above post detailed tutorials, product information or policies on the website so many
customers can even avoid having to reach out to speak with one of the employees.
Hunan (2019) concluded that; reliability shows the ability to provide services accurately, on
time, and credibly. This requires consistency in the implementation of services and respects
commitments as well as keeps promises to customers. If there is no reliability there will be poor
better financial performance. Responsiveness as well is a criterion measures the ability to solve
the problem fast, deal with customers’ complaint effectively and the willing to help customers as
well as meet the customers’ requirements. In other words, responsiveness is the feedback from
banks to what customers want.

Marengo (2018) concluded that tangibles are the images of the facilities, equipment, machines,
attitude of staffs, materials, manuals, and information systems of the microfinance institutions
and they affect the better financial performance of a microfinance institutions. In others words,
the tangibles refer to the effect of physical facility, equipment, personnel and communication
materials on customer. The atmosphere also called services capes influences directly both
employees and customers in physiological, psychological, sociological, cognitive and emotional
ways which influences the better financial performance.

Daniel (2019) concluded that assurance and sympathy affects the level of better financial
performance provided these elements creates credibility and trust for customers, which is
considered through professional services, excellent technical knowledge, attitude courtesy, and
good communication skills, so that customers can believe in the quality of firm’s services.
Sympathy is the caring, consideration, and the best preparation for customers, so that they can
feel as ‘guests’ of the firm and are always welcome at any times, anywhere. Human factors are
the core of this success and the more caring the bank gives to customers, the more customer
understanding increases.

2.4.3 The Strategies to Ensure Effective Contribution of Microfinance institutions in Better

Financial Performance

Brian (2018) the father of the quality movement, famously laid out 14 points for management
chief among them is the concept of constancy of purpose concluded that, there is a need to
instilling purpose in the employees by showing them that what they do every day in the
workplace has a big effect such as impacting the guest experience and the microfinance
institutions’ revenues. By tying individual behavior to a larger system, they will give their
employees a sense of how important it is that they practice good quality service every day.

Wagner (2023) concluded that, making training an everyday priority and not just a one-time
event. This can seem like mission impossible in an industry where most staff already work above
and beyond reasonable hours. Coming to the rescue are new technologies that offer high-quality
training that doesn't require a lengthy time-commitment. An increasing number of microfinance
institutions are seeing the benefits of blending traditional employee training methods with just-
in-time training solutions such as Performance Support Systems. He insisted the microfinance
institutions to implemented a new Property Management System and have them participate in
classroom training seminars, complete lengthy e-learning modules, or worst-case scenario just
toss them in head first and have them call the helpdesk if they can't figure it out while the guest is
standing there waiting. Performance Support is an application that uses visual recognition
technologies to the PMS screen just as the user does, and constantly monitors the agent's
activities to provide real-time guidance. It can be designed to display balloon tips that are
relevant to the agent’s open and active window. These tips guide the agent on what to say to the
guest, what questions to ask, troubleshooting, and can also include alerts for critical fields or
wrongly entered information. More sophisticated systems such as Leo Performance Support,
also offer automation.

Robert (2019) concluded that the employees should be provided with personalized customer
service. Consistency does not mean that every guest should get the same service. True service
excellence requires personalization and making each customer feel as though there is no one
else, at that moment, more important than him or her. Front desk attendants that recognize you or
call you by name, that are eager to help, that remember your preferences, and that are able to
provide valuable information are a huge asset that make a big difference. He added that, the same
performance support technology that you use for just-in-time training can also be used to provide
personalized customer service at the highest level. Performance Support works in conjunction
with your Property Management System to analyze the guest's profile. It makes knowledge and
information extremely accessible, by displaying overlaid tooltips on top of the application itself,
at the moment of need, so that agents can focus on engaging with guests on a personal level to
create lasting impressions.
Vigor (2023) concluded that there is a need to create a positive start for new employees in order
to get good better financial performance. Recent studies show that employee turnover is among
the highest in the hospitality industry with the average employee turnover in the US reaching 31
percent and as high as 34 percent in the UK. This constant churn is very disruptive and leads to
loss of productivity, low morale and poor customer service - not to mention hurting the bottom
line. To combat this epidemic, leading microfinance institutions are rethinking their onboarding
approach. Onboarding surveys by the Center for Creative Leadership reveal that new employees
who attended a well-structured onboarding program were 69% more likely to remain at a
company for up to three years. While previous new-employee initiation programs were one day
affairs, today a strong onboarding strategy extends past the first day/week/month to include an
on-going approach that will accompany the employee throughout the employment lifetime and
support them to achieve better job performance.

Innocent (2018) concluded that the microfinance institutions managements should take measure
of customer service performance, they should make efforts to determine how quickly they are
able to address their guests’ requests and issues. According to one customer service survey, 69%
of customers define good customer service as having their issue or problem addressed quickly
and efficiently. With Performance Support solutions in place, microfinance institutions managers
can rest assured that their staff has the knowledge they need right at their fingertips. Using in
context, process guidance that adapts to the actual conversation, front desk agents that use
performance support are able to offer the best solution quickly.

2.5. Research Gap

Plentiful studies have been carried out to and understanding the concepts of better financial
performance in various areas such as Japheth (2023) he concluded that, there is no doubt that
microfinance institutions want to survive in a competitive environment. Sunday (2018) he
concluded that, competing goods firms such as department stores, supermarket and microfinance
institutions may sell a wide range of products and quality of services is a primary means of
competitive differentiation. Innocent (2018) he concluded that, better financial performance
provides a basic skeleton through its expectations or perceptions format encompassing
statements for each of the five better financial performance dimensions. Vigor (2023) concluded
that; reliability shows the ability to provide services accurately, on time, and credibly. Marengo
(2018) concluded that tangibles are the images of the facilities, equipment, machines, attitude of
staffs, materials, manuals, and information systems of the microfinance institutions and they
affect the better financial performance of a microfinance institutions.

Robertson (2019) concluded that assurance and sympathy affects the level of better financial
performance provided these elements creates credibility and trust for customers, which is
considered through professional services, excellent technical knowledge, attitude courtesy, and
good communication skills, so that customers can believe in the quality of firm’s services.
Wagner (2023) concluded that, making training an everyday priority and not just a one-time
event. This can seem like mission impossible in an industry where most staff already work above
and beyond reasonable hours. Brian (2018) concluded that the employees should be provided
with personalized customer service. Consistency does not mean that every guest should get the
same service. Luke (2019) concluded that there is a need to create a positive start for new
employees in order to get good better financial performance. The above researchers have studied
on the better financial performance in many ways but they did not discuss on the contribution of
microfinance institutions in the better financial performance in Tanzania and that is the gap
which allowed the researcher of this study to conduct research on this study.

2.6 Conceptual Framework

According to Kothari, 2004; conceptual Framework are a type of intermediate theory that has the
potential to connect all aspects of inquiry. Conceptual frameworks act like maps that give
coherence to empirical inquiry. Because conceptual frameworks are potentially so close to
empirical inquiry, the take different forms depending upon the research question or problem.
There are several types of conceptual frameworks for the field of public administration. The
frameworks are linked to particular research purposes. When purpose and framework are aligned
other aspects of empirical research such as choice of methodology and type of statistical
technique become obvious. The following figure explains on the relationship between
independent and dependent variables of this research as follows;

Figure 2.1: Conceptual Framework

Microfinance Institutions’ Competence
Accessibility
Convenience
Customer Officer

Financial Performance
Policies and Regulations
Delightful
Complexity
Disappointment
Involvement
Procedure

Strategies
Financial Access
Sustainability
Management

Source: Researcher (2023)

From the figure 2.1 above; although there is an ideological justification among some academics,
the microfinance institutions and a part of the public, around the gain in efficiency of private
companies over public enterprises, the argument chain implies that, since among the objectives
of government's objectives are to promote efficiency, privatization contributes to improving the
overall the efficiency of the system. Microcredit broadens the efficiency of the privatized
enterprise, contributes to greater joint economic activity for better allocation of resources and, on
the other hand, allows an improvement in the functioning of the public sector itself by gaining
credibility of the policy Economic development. If markets are believed to be equitable,
equitable, and reach a socially acceptable balance, there are still situations where results are not
expected, such as unequal distribution of income. In these cases, the government can improve
market outcomes, albeit in circumstances that may be adverse due to lack of information and
imperfections in the political process.
 CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Introduction

Methodology refers to the philosophy of the research process and state that methodology
encompasses every aspect of the research (Kothari, 2014). This chapter presents the research
design, targeted population, sample size, sampling techniques, and data collection technique,
area of the study and limitation of the study.

3.2 Research Design

A research design is the arrangement of conditions for collections and analysis of data in manner
that aims to combine relevance to the research purpose with economy in procedure (Kothari,
2014). This study will use a descriptive research design which is an appropriate choice when the
research aim is to identify characteristics, frequencies, trends, and categories. It is useful when
not much is known yet about the study. Before to research why something happens, the
researcher is need to understand how, when and where it happens in order to get information
from personnel of Mwanza Microfinance Institutions.

3.3 Population

Population is the targeted group to be studied; (Kothari, 2014) the total collection of elements
about which the study wishes to make inferences. The targeted population of the study is
personnel found at Microfinance institutions whereby the researcher will ask them about their
willingness to give the required information through questionnaire provided. The targeted
population of this study is 80 personnel which includes MFI key players, customers and
government officials.

Table 3.1 Population of the study

Participants Population Percentage (%)

MFI Key Players 18 23

 MFI Customers 45 56

Government Officials 17 21

Total 80 100

Source: Researcher (2023)

3.4 Sample and Sample Size

3.4.1 Sample

Sampling is the process of obtaining data about the entire population by examining only part of it
(Kothari 2014). In this study, the target population will involve Microfinance institutions
including the MFI key players, customers and government officials.

3.4.2 Sample Size

This refers to the total number of individuals to be used in observation in a sample (Kothari,
2014). This study selected a sample size of 45 respondents from the targeted population of
personnel in Microfinance institutions. According to Kothari (2014) a representative sample
depends on the confidence level the researcher expected in his/her research and that the error
tolerance is at least 10% of the population. Slovene’s formula is used to obtain sample size of 45
respondents: n=N/ (1+Ne²) as follows:

Whereby; n=samples size

N=Total population

e=Error Tolerance (which is 10%). The study confidence level was 90% which will
gave a margin error of 0.1
 N
n= 2
1+ N (e)

80
n= 2
1+80 (0.1)

80
n=
1+0.8

n=44.64

n ≈ 45

Thus, the sample size for the study is 45 respondents.

Table 3.2: Sample Size

Participants Sample Size Percentage (%)

MFI Key Players 11 23

MFI Customers 25 56

Government Officials 9 21

Total 80 100

Source: Researcher (2023)

3.4.3 Sampling Procedures

This study will adopt a non-probability sampling, because in non-probability sampling each
element in the population has unknown chance of being selected (Kothari, 2014). Non-
probability sampling does not involve random selection of samples and to ensure that the
objective of this study is implement the use of non-probabilistic sampling, the researcher selected
respondents based on purposive sampling type of non-probability sampling such that because of
the limited numbers of people who can serve as primary data sources due to the nature of this
study research design and due to the nature of the information to be collected in the field.

3.5 Data Collection Methods and Approach

Methods that will be used to collect data are;

3.5.1 Questionnaires

The study employs structured questions with both closed and open questionnaires which will be
given to respondents.

3.5.2 Interviews

The interview will employ both structured and unstructured interview to the respondents for
Microfinance institutions.

3.5.3 Types of data

This study involves two types of data which are primary data and secondary data.

3.5.3.1 Primary data

The primary data are those which are collected afresh and for the first time, and thus happen to
be original in character (Kothari, 2014). These are the first-hand information; they will be
collected from the respondents for Microfinance institutions through questionnaires and
interview.

3.5.3.2 Secondary data

The secondary data, on the other hand, are those which have already been collected by someone
else and which have already been passed through the statistical process (Kothari, 2014). These
are data obtained by other people and are found in books, television, magazine and other source
of information that can be inform of hard or soft materials.
3.6 Data Analysis

Cooper (2010) described data analysis as the process of organizing and reducing data
accumulated in a manageable size, summarizing, constructing and using statistical and non-
statistical methods. Therefore, the data that will be collected from the study participants, will be
rated and rated according to the data collection tool used. With quantitative data will be collected
despite the use of question papers, pre-tests will be organized to ensure that all question papers
will be completed and will include accurate information.

On the objective 1: Data will be analyzed using simple descriptive statistics with the help of the
Statistical Package of Social Science (SPSS) and the details of the results were presented in the
form of frequent spreads with percentage tables and methods and general deviations. It will be
used so that researcher will be able quantify and describe the basic characteristics of data set to
the customers.

On the objective 2: On this objective, the researcher will use descriptive analysis which is the
chameleon of research analysis, it can take on many forms, from descriptive statistical graphic
displays and number summaries to involved interpretive accounts. It is concerned with what is as
opposed to the why and involves drawing conclusions, discerning patterns and assessing the
meaning and implications of the data or information. Its will be used so that data will be
presented in a more meaningful way which allows simpler interpretation of the data.

On the objective 3: The researcher will use correlation measures the association between
variables, usually as a numeric value signifying the degree to which changes in the values of a
dependent variable (Y) increase or decrease in parallel with changes in the values of an
independent variable (X). Linear regression analysis can be used to make short-range
predictions, but the associations are only as strong as the arguments demonstrating their
supposed relationship. Any set of values could be shown to strongly associate with another set of
values, regardless of the senseless nature of the association. The reason is to evaluate the strength
of relationship between two quantitative variables.

3.7 Reliability and Validity of Data

3.7.1 Data reliability

Reliability is the degree to which a test consistently measures whatever it measures (Kothari,
2014). Operationally reliability is defined as the internal consistency of a scale which assesses
the degree to which the items are homogeneous that is how consistently individuals respond to
the items within a scale. Cronbach’s Alpha (a) is a widely used to measure of internal
consistency, (Cronbach, 1995) suggests a cutoff point of 0.7 or higher to be a good retain a
variable in adequate scale. In this research Cronbach Alpha (a) will be used to assess the
reliability of the scale where a cutoff point of 0.7 will be adopted.

3.7.2 Data Validity

Validity refers to the degree to which scientific observation actually measure or record what they
supposed to measure (Kothari, 2014), Validity is define as the extent to which the procedure
actually accomplishes what is seeking to measure. Sounders et al., (2004) define validity as
concerned with whether findings are really about what they appear to be about. To ensure
validity of the data collection instrument for this study, a pilot study of 12 respondents will be
conducted by the researcher. The results and comments from 12 respondents will be used to
modify the questionnaires.
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