Legal and Financial Environment for Micro-Enterprises in Tanzania

The informal sector employs 76% of people in Tanzania, with 47.6% in wholesale and retail trading, repair of vehicles and motorcycles, and 12.9% in accommodation and food services. Micro-businesses are those that have less than five employees and, in most cases, are not registered under any forms of national legislation. According to the Small and Medium Enterprise Policy of 2003, micro-enterprise has a capital investment of less than 5 million TZS, equivalent to $2,160 USD. Additionally, 76.6% of micro-business people do not have permanent premises.

Table 1: Activities in the informal sector

Hawking/mobile 28.3 %
Permanent post on the road 1.9 %
Improvised post on the road 1.9 %
Vehicle (motorcycle/tricycle) 2.1 %
Customer home 11.3 %
Partner’s home without special installation 16.0 %
Partner’s home with special installation 5.2 %
Improvised post in a market 1.9 %
Garbage area 0.1 %
Construction sites 1.0 %
Other 7.1 %
Source: Informal Sector Survey, 2019

The National Bureau of Statistics (NBS) of Tanzania shows that 66.9% people in the informal sector have attained only primary education, while 23.2% have attained secondary education. Only 2.7% are of university level.

Poverty is pervasive in rural areas relative to urban areas, and thus people migrate. Dar es Salaam is the leading destination for migrants, followed by Mwanza. 33.76% of migrants move for better services (World Bank, 2019). Migrants are often less educated, with 66.7% of migrants attaining primary education (Muzzini and Lindeboom, 2008). Authorities view migrants as problems that detract from the image of the cities and migrants are often brutalized and oppressed when doing business. Addressing Parliament on 25 August 2011, the Deputy Minister of Work and Employment said that city councils should observe the Business Licensing Act No. 25 of 1972 and Local Government Regulation of 2008 to remove migrant businesses.

The informal sector seems to be profitable and even graduates are now getting involved in micro-enterprises, as the data shows 2.7% of people in the informal sector have attained university level education. The ability for the government to employ workers is limited and thus, as in other developing countries, the government of Tanzania insists on self-employment and entrepreneurial skills.

Legal Environment

Law is defined as a body of enforceable rules governing relationships among individuals and between individuals and their society (Miller and Cross, 2002). It is expected that legislature or regulations will guide the legal environment rather than just commanding sentences from political leaders.

The Economic Freedom Index of the Heritage Foundation has grouped Tanzania as a mostly unfree country in the economic arena, ranking as the 93rd freest economy in 2022. The Index calls for a strengthening of the rule of law and the business environment to increase economic freedom. Tanzanian land is owned by the government but only 15% is surveyed. This creates more problems when micro-enterprise workers allocate themselves to certain areas that are strategic for business, and the government comes to remove them oppressively and brutally. The removal of micro-business persons from their areas proves a challenge to the laws governing them. When the entrepreneurs establish their businesses, local government authorities charge them levies, and after a while, they remove the businesses. In some dense areas such as marketplaces in the cities, the entrepreneurs pay the levies but their businesses are still removed and sometimes their products are also seized. From 2003 to February 2022, Hansards recorded 39 times in which members of Parliament have spoken out against the oppression and brutality that micro-enterprises experience.

Business booths destroyed during the night in Kawe Bus Stand,
Dar es Salaam.
Photo by Francis Nyonzo.

Another challenge in Tanzania’s legal framework is the multiplicity of taxes, stiff competition from imported goods and pervasive corruption (Anderson, 2017). The problem of competition is particularly difficult as foreigners, especially Chinese nationals, are engaging in business normally done by Tanzanian citizens. This issue has been discussed in Parliament 22 times from 2005 to February 2022.

In 2018, the government issued Entrepreneurs Identities to remove the challenge of multiple taxes. Identities were given at the cost of 20,000 TZS (equivalent to $9 USD) annually to micro-enterprise owners. The then Minister of Finance, Basil Mramba, first introduced the issue on 23 April 2004. However, the issue only came to be implemented 14 years later, after which it lasted for four years and seemed to be redundant. Small entrepreneurs are facing the same problems that they used to experience before 2018, in which they are removed from their locations and their booths are destroyed during the night. Thus, the legal framework is not currently favorable for micro-businesses.

Financial Environment

Micro-business people have limited access to finance in Tanzania. Anderson’s study (2017) has shown that entrepreneurs prefer to get their loans from relatives and friends. They fear getting loans from the formal financial market lest their collateral be seized when they cannot pay the loan. This study is not different from a similar one by the World Bank, which showed micro-businesses get funds from personal savings or income or from gifts/loans from another micro-business person, especially whole sellers. They then purchase goods by promising to pay after selling the goods.

Credit comes from informal credit channels like savings and credit cooperative organizations (SACCOs), private moneylenders or informal micro-credit institutions.According to the World Bank in 2019, “about 40% of the household enterprises that borrowed used the micro and informal credit channel; 18% secured loans from a traditional bank.”

The government of Tanzania has implemented various funding schemes such as the National Entrepreneurship Development Fund (NEDF), Youth Development Fund (YDF), Youth Development and Sports and the Women Development Fund (WDF). Programs like Small Entrepreneurs Loan Facility (SELF), National Income Generating Programme (NIGP), Presidential Trust Fund (PTF) and Community Development Trust Fund (CDTF) have been established by development partners jointly with the government.

These schemes sought to provide credit access to those who lack access to the formal credit market. However, studies show that beneficiaries did not benefit from them. For example, Kweka and Fox, (2011) observed that PTF, which was established in 2006, did not benefit the targeted people. Similar issues can be found with other funds. Local government authorities are required to give 10% of their revenue to the Youth and Women Development Fund (YWDF). The reports of the Controller and Auditor General (CAG) from the National Audit Office have shown funding amounts that local government authorities (LGAs) did not give to YWDF.

Table 2: Funds not given to target groups in Tanzanian shillings

YearFunds not given to target groupsFunds not given as percentage of LGA revenue
2012/13 10,905,858,533.00 5 %
2013/14 38,741,094,214.00 12 %
2014/15 17,690,754,651.00 5 %
2015/16 28,521,878,199.00 7 %
2016/17 53,222,719,138.00 10 %
2017/18 40,377,882,284.00 7 %
2018/19 9,930,902,514.00 2 %
2019/20 5,720,140,159.00 1 %
Source: Bank of Tanzania and CAG reports[1]

The funds from local government authorities are not distributed as planned, nonetheless, the authorities follow the Grameen model of letting people in groups be given loans. The model has been inefficient in recent years, although it was successful in Bangladesh and other places that adopted it until the early 2000s (Lesley, 2016).

Limited access to formal financial markets has made many people victims of unfavorable loans, which end up increasing their poverty. The Prevention and Control of Corruption Bureau (PCCB) has helped citizens recover money that was taken in these unfavorable loans by individuals and some credit companies. In some of the reported cases, the loans have interest rates of up to 10,000% (Mhando, 2021; Ng’ingo, 2021; JamiiForums, 2021).

Mobile financial services have made financial instruments available to poor people. Economists suggested that infrastructure and costs be lowered (Ndung’u 2019; Ndulu 2019). Unluckily in 2021, Tanzania introduced mobile transaction levies, which has raised the cost of mobile financial services on average by 40%.

A financial service booth on the road in Goba Kwa Ndambi, Ubungo Municipal, Dar es Salaam.
Photo by Francis Nyonzo.

In conclusion, the business environment for micro-entrepreneurs should be legally and financially improved to allow people employed in the informal sector to develop and compete in regional markets. As long as mobile money is accessible to many people, credits should be issued by network companies, as they have the economic means to getting money back. Considering that network customers are registered biometrically, network companies can collaborate to track anyone who swaps their SIM card to escape paying the loan. Legally, the government should have long-term plans and stick to them, which will help in allocating areas for micro-entrepreneurs. The law and policy should also consider nurturing e-commerce for micro-enterprises as it will reduce their concentration in one physical area.

Bibliography | Articles
Anderson, Wineaster. “Factors Affecting Small & Medium Enterprises (SMEs) Start-up and Growth in Tanzania.”
Pan-African Journal of Business Management 1, no. 1 (2017): 1–26.
Einstein112. “TAKUKURU Songwe yamrejeshea mkopaji nyumba ya TSh165 milioni.” JamiiForums (15 March 2021).
Malenga, A. “Naibu Waziri Bashe aagiza TAKUKURU kuanza uchunguzi upotevu wa milioni 150 za AMCOS ya Chabuma.”
JamiiForums (8 January 2021).
Malenga, A. “Singida: Watu wa mikopo umiza wazidi kubanwa na TAKUKURU.” JamiiForums (22 December 2020).
Mhando, M. “Takukuru yarejesha Sh176 milioni za mikopo umiza.” Mwananchi (18 February 2021).
Ndulu, Benno J. “The Role of Financial Innovation and Inclusion in Scaling Up Growth in Uganda.”
Bank of Uganda (2019).
Ndung’u, Njuguna S. “Taxing Mobile Phone Transactions in Africa: Lessons from Kenya,” Brookings (2019).
Ng’ingo, Evance. “Mikopo Umiza Kwa Wastaafu Janga.” Mwananchi (14 March 2021).

Miller, Roger LeRoy, and Frank B Cross. The Legal and E-Commerce Environment Today: Business in Its Ethical, Regulatory, and International Setting. South Western Educational Publishing (2002).
Sherratt, Lesley. Can Microfinance Work?: How to Improve Its Ethical Balance and Effectiveness. Oxford University Press (2015).
Policy Papers
United Republic of Tanzania. Small and Medium Enterprise Development Policy 2003. Ministry of Industry and Trade (2002).
Research Reports
Kweka, Josaphat, and Louise Fox. “The Household Enterprise Sector in Tanzania: Why It Matters and Who Cares.”
World Bank Policy Research Working Paper, no. 5882 (2011).
Muzzini, Elisa, and Wietze Lindeboom. “The Urban Transition in Tanzania: Building the Empirical Base for Policy Dialogue.”
World Bank (2008).
“Tanzania Mainland Poverty Assessment.” World Bank (2019).

Data Sources
National Audit Office. Annual General Report of the Controller and Auditor General for the Financial Year 2012/13. National Audit Office (March 2014), p. 117.
National Audit Office. Annual General Report of the Controller and Auditor General for the Financial Year 2013/14. National Audit Office (March 2015), p. 117.
National Audit Office. Annual General Report of the Controller and Auditor General for the Financial Year 2014/15. National Audit Office (March 2016), p. 158.
National Audit Office. Annual General Report of the Controller and Auditor General for the Financial Year 2016/17. National Audit Office (March 2018), p. 65.
National Audit Office. Annual General Report of the Controller and Auditor General for the Financial Year 2017/18. National Audit Office (March 2019), p. 66.
2018/19. National Audit Office (March 2020), p. 74.
National Audit Office. Annual General Report of the Controller and Auditor General for the Financial Year 2015/16. National Audit Office (March 2017), p. 85.
National Audit Office. Annual General Report of the Controller and Auditor General for the Financial Year
National Audit Office. Annual General Report of the Controller and Auditor General for the Financial Year 2019/20. National Audit Office (March 2021), p. 71.
Bank of Tanzania. Annual Report 2020/21. (December 2021).
The United Republic of Tanzania. Informal Sector Survey, 2019: Key Findings. National Bureau of Statistics (November 2019).
The United Republic of Tanzania. Informal Sector Survey, 2019. Analytical Report Dar Es Salaam Region. National Bureau of Statistics (October 2020).
The United Republic of Tanzania. Statistical Abstract 2019. National Bureau of Statistics (November 2020).
The United Republic of Tanzania. Integrated Labour Force Survey 2020/21: Key Labour Market Indicators for the United Republic of Tanzania. National Bureau of Statistics (September 2021).

[1] Annual general reports for local government authorities from 2012/13 to 2019/20 ( Percentages were calculated by comparing to local government revenues obtained from Index A2 of the Bank of Tanzania annual reports from 2013 to 2020/21.


Francis Nyonzo is a development researcher with a Master of Science in Economics. He is motivated to conduct research as a way to contribute to the creation of beneficial national policies and the eradication of poverty. He believes development is an outcome of good research. He is resourceful and skillful when conducting and designing research, data analysis and reporting. You can reach him at"

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