Micro-credit expands business opportunities for informal workers

Jonston Weston, Dar es Salaam Community Manager
Dar es Salaam, 19 July 2016

Dar es Salaam, just like many other cities in East Africa, is facing an unemployment crisis, especially for youth and women. Approximately 52% of the entire population of Dar es Salaam is unemployed. And approximately 11% of the unemployed population in Dar es Salaam earns an income through the informal economy and informal labor market, which is characterized by a lack of social security coverage, lack of written contract documents, lack of health insurance and low wages. The majority of informal workers in Dar es Salaam do not choose to earn their livelihoods in the informal sector because of its attractiveness but rather because they do not have better employment options. Their work is out of necessity for daily survival, and they engage in a variety of livelihoods, including street food vending, water sales, domestic work, and vegetable plantation employment.

Informal workers face many difficulties in their working environments, as they are frequently harassed and troubled, sometimes even arrested by the city police of Dar es Salaam apparent reason. The government and city council of Dar es Salaam has failed to provide lasting support to informal workers that would improve their working situations, livelihood, and collective security.

Although Tanzania has a political goal to become a middle-income country by 2025, informal workers are forgotten in the plan. The present Sustainable Development Goals for the period 2015-2030 are not providing a way on how the situation of informal workers can be improved within a region. National Strategy for Growth and Poverty Reduction in Tanzania (MKUKUTA) highlights employment for women and young people, but there is no direct input of the informal workers in the strategy. As yet until now there is no policy instructions and legislation to directly support and protect informal workers. Instead, the priority of the country is on economic development and job creation efforts, focusing mostly on promoting large-scale infrastructure projects and strengthening the formal sector.

However the SEDIT (Social and Economic Development Initiative of Tanzania), which is a non-governmental organization, has defined its position in MKUKUTA since 2002. It has adopted a tool called the Village Community Banks (VICOBA), a grassroots-based lending scheme with a focus on fostering informal workers to innovate and manage viable income-generating activities through efficient operation of savings and credit services. It is a self-financing scheme needing no external funds as the group members work with their own capital, mobilized through shares and other contributions. The groups are voluntarily formed with about 18 people and start with the weekly share value of 2000 Tsh and above, depending on the needs and economic/financial capability of group members (informal workers).

Normally, VICOBA group members begin to access credit between 14 and 16 weeks of a group's inception. The loans given by VICOBA are normally soft and affordable to the poor (5%- 10% interest rate) and are utilized to support small-scale businesses. The loans range from 500,000 Tsh to 1,000,000 Tsh, depending on the amount available in the group. SEDIT oversees and coordinates all activities, including providing training to the VICOBA group leaders.

Those informal workers who have joined the VICOBA have benefited and are now using small loans to develop their small businesses. VICOBA has helped to transform informal workers’ livelihoods in Dar es Salaam. SEDIT is campaigning to create more groups of the informal workers across the city of Dar es Salaam, creating the possibility for new ways of thinking about and integrating informal workers into the fabric of this growing city.

Photo: Jonston Weston

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