Do Informal Microfinance Loans Meet the Financial Needs of Rural Dwellers?

Rural dwellers may not patronise formal microfinance institutions (MFIs) as much as they participate in informal microfinance because MFIs may not find the patronage of the rural people profitable enough for their business (World Bank, 2000). The MFIs could find it difficult to understand the economic pattern of rural people and unable to develop products and services to meet their needs. The educational attainment of rural poor may be another impediment in having formal MFIs in rural areas. Microfinance programs that lay emphasis only on lending will likely be unable to benefit the teeming poor who may wish to save but do not necessarily wish to borrow (Buckley, 1997). This is what cooperative societies do by encouraging members to first cultivate a regular saving habit whether the member intends to borrow in future or not (Oluyombo, 2010). Members must save regularly over a stated period of time before loan is given based on the amount of saving the member has with the cooperative. Larocque et al. (2002) reported that the rural people are unable to patronise the formal banking system in Burkina Faso due to requirements for opening an account which most rural dwellers are not eligible to meet. Hence, they are cut off from the banking system. Banking services are majorly targeted at the high valued end of the market in Tanzania due to financial viability considerations of the banks that can be achieved in such locations (Sizya, 2001)