Do small businesses benefit from microfinance loans in the era of free market capitalism? A critical analysis of PRIDE, Tanzania

Abstract

This study examines the perceptions of small business operators on microfinance loans received from PRIDE (Promotion of Rural Initiative and Development Enterprises)-Tanzania in Kinondoni Municipality in relation to poverty reduction. The study involved 96 small business owners who worked in hair-dressing and cutting salons, food vendors, and tailor shops in Kinondoni Municipality. We used a cross-sectional design for data collection, which included structured questionnaires, interviews, and focus group discussions. Additionally, we analyzed quantitative data using descriptive statistics. The findings show that about 74% of small businesses had initial capital of less than 500,000 Tanzanian shillings or US$190 to start a business, while PRIDE prefers group loans. Small business borrowers expressed dissatisfaction with the loans offered by PRIDE. The focus group discussions suggest that the provision of loans has not contributed to an improved standard of living but rather trapped people in poverty as they sell their assets to repay the loans. Factors that lead small businesses to fail to repay the loans include high PRIDE operating costs, higher risk associated with lending to poor businesses, and lack of collateral or credit repayment histories among borrowers. These findings imply that PRIDE-Tanzania aligns with the neoliberal agenda, relying on market mechanisms to provide financial services to small businesses in Kinondoni that cannot translate into an improved standard of living, but rather into poverty. The policy implication is for policymakers to develop revised policies that regulate the operations of other microcredit institutions to protect the interests of small business owners.