from the FinScope survey show that, compared to other neighboring countries, access to financial services in Tanzania is notably low. In 2009, 56 percent of households had no access to any banking or savings/credit services at all in any form despite the sharp growth in credit lending to households in recent years (Figures 4.1 to 4.3).

46. Reforms in the financial sector have had only marginal impact on improving household access to financial services overall. While formal access to finance increased by less than 4 percentage points (from 9 percent of the population in 2004 to 12.4 percent in 2009), the proportion of financially excluded households increased from 54 percent to 56 percent, respectively (Figure 4.1). Among HEs, access to banks was limited to only about 14 percent of them. Of those without bank access, about 80 percent were in the urban areas and 90 percent in the rural areas (Table A1.13). Lack of bank access was attributed by respondents mainly to economic reasons, such as not having a regular income or employment, or having very little income. However, this also reflects the low access of Tanzanian households to cheap financial services. The high bank charges prevalent among commercial banks, the only ones which can take deposits, dissuade HEs from using their services. Most HEs reported in 2009 that they depended on informal sources, such as rotating savings scheme (e.g., merry-go-round or ROSCA), family or clan, and welfare groups, rather than on formal and semi-formal sources of finance (Table A1.14). This implies that ten years after the National Microfinance Policy (NMP) was created (2001) and twenty years since the liberalization of Tanzania‟s financial sector, government interventions to increase access to financial services (including through microfinance), especially for Tanzania‟s rural population, remain largely ineffective.

**Figure 4.1:  Formal and Semi-formal Access13 Lags, Tanzania and Other East African Countries, 2009***

<!-- Start of picture text --> 100%<br>100%<br>80%<br>80%<br>54.0% 56.0% 60%<br>60%<br>40%<br>40% 20%<br>35.0% 27.3%<br>20% 0%<br>4.3%<br>2.0%<br>9.0% 12.4% Kenya Uganda Malawi Rwanda Tanzania Tanzania East<br>0% (2006) (2009) Africa<br>Tanzania (2006) Tanzania (2009)<br>Formal Semi Formal Informal Financially Excluded<br>Formal Semi Formal Informal Financially Excluded<br>Note: *unless otherwise specified<br> Source: FinScope Survey, 2009<br><!-- End of picture text -->

> 13 People with “formal” access include those who hold an account in or have some sort of relationship with a financial institution, such as a commercial bank, community bank, or insurance company that is supervised by a financial services regulator; and also people who use products from formal institutions such as pension fund or hire purchase companies which are not supervised by either the Bank of Tanzania or the Insurance Commissioner. “Semi-formal” access includes people who use products from SACCOs and MFIs which are formally registered, but not supervised by a financial service regulator; and people who use products from institutions offering financial services other than SACCOs and MFIs.  These institutions have a formal character, but are not supervised by a financial service regulator.  This category includes M-Pesa and government loans for housing and education. “Informal” access includes people who use products offered by informal associations or groups, e.g., ROSCAs, VSLAs, and other community-based savings groups, family and friends, small businesses and moneylenders. “Financially excluded” are those who keep their savings in a secret hiding place (e.g., under the mattress) and/or who save in the form of nonmonetary items (e.g., livestock, jewelry) and/or who use loyalty card from a supermarket or a petrol station.

23