For many Tanzanians, microfinance institutions (MFIs) have been a lifeline — offering small loans to start businesses, pay school fees, or handle emergencies.
But behind the promise of quick access to money, a growing number of borrowers are discovering a harsh reality: hidden charges and unclear penalties that make repayment almost impossible.
When Amina, a vegetable vendor from Dar es Salaam, took a loan of TSh 500,000 from a local microfinance firm, she expected to repay it in six months. But by the time she finished, she had paid more than TSh 750,000 — nearly half her total profit for the year.
“They told me the interest was 10 percent,” she said. “But every time I delayed a payment, new charges appeared. I didn’t understand most of them.”
Amina’s story mirrors that of many small borrowers who depend on microfinance institutions but struggle to understand the fine print in their contracts.
A recent market survey by the Bank of Tanzania (BoT) and the Financial Sector Deepening Trust (FSDT) revealed that several microfinance institutions charge undisclosed fees such as:
• “processing fees” deducted before loan disbursement,
• “late payment penalties” applied even after one missed day,
• “insurance and account maintenance charges” not clearly explained in agreements.
Some borrowers also face high penalty interest rates of up to 25% per month — far higher than what they initially signed for.
According to experts, these hidden costs are eroding trust in microfinance and trapping low-income families in cycles of debt.
Financial analyst Dr. Francis Mhando says that while microfinance plays a vital role in supporting small entrepreneurs, the lack of transparency and consumer awareness remains a major concern.
“Many clients do not receive proper financial education before signing loan agreements,” Dr. Mhando explained. “They end up paying far more than they borrowed because they don’t fully understand the conditions.”
He urged microfinance institutions to clearly display all fees and interest rates upfront and to use simple Kiswahili in contracts, rather than complex legal English that many clients cannot understand.
In 2024, the Bank of Tanzania introduced new regulations requiring all licensed microfinance institutions to:
• Publish complete interest and fee structures before loan approval,
• Provide clients with a repayment schedule,
• Explain loan terms in a language the borrower understands, and
• Avoid multiple penalties for the same default.
However, enforcement remains a challenge, especially among unregistered and community-based microfinance groups that operate outside formal supervision.
Consumer rights groups are now advising borrowers to take time to read and ask questions before signing loan documents.
They also encourage clients to keep receipts and written agreements to protect themselves from illegal deductions.
“If you don’t understand a loan agreement, don’t rush to sign it,” said Neema Mushi, a financial literacy trainer in Arusha. “Ask the officer to explain every fee — even the small ones.”
Microfinance was created to help the poor rise out of poverty, but without strong consumer protection, experts warn it could do the opposite — pushing vulnerable families further into financial distress.
For borrowers like Amina, the lesson is simple:
“Next time, I’ll read everything carefully — because cheap loans can become very expensive.”
