Monday, November 3, 2008


Most of time Salasala residents spents on fetching water for daily use regardless gender stutus, age etc.


Salasala residents having a meeting to discuss about their common problem and lay down some strategies to overcome the problem.


0.1 Legal Frame Work
Salasala is one among seven Hamlets within Kunduchi Ward, the others are Tegeta, Kilongawima, Ununio, Mtongani, Madala and Wazo. Salasala is located within the following neighbours, in South there is Mbezi Juu Hamlet from Kawe Ward and Kinzudi from Goba Ward, from east it is bordered with Kulangwa Hamlet at Goba Ward and Madala Hamlet at Kunduchi Ward, north it is bordered with Hamlet of Wazo at Kunduchi Ward and Hamlet of Tegeta and in East Salasala is bordered with Bagamoyo road from Africana to Tegeta.

Kunduchi Ward is one among 27 Wards which form Kinondoni Municipal Council and Kinondoni Municipal Council is one among three Municipal council within the City of Dar es Salaam other are Ilala Municipal Council and Temeke Municipal Council. Salasala is one among 127 Hamlet which forms Kinondoni Municipal Council. The Kinondoni Municipal Council was established by the Government Notice No. 4 of the year 2000 issued by the President’s Office, Regional Administration and Local Authorities as an autonomous body. Before establishment of Kinondoni Municipal Council, Kinondoni was one of the Zone of Dar es Salaam City Commission. The move of establishing Kinondoni Municipal Council was a part of Local Government Reforms Program in the Country.

Kinondoni Municipal Council has a vision and mission as stated below which is normally stipulated from the Municipal level to the Mtaa Level:
‘A community, which is motivated, dynamic, with socio economic

‘Provision of quality services to the community through effective and
efficient use of resources, capacity building, good governance and rule of
law hence improve the living standard of people’
Salasala is located about 23 kms from the Dar es Salaam City Center and is formed with sub Hamlet known as Salasala A ( Salasala Juu), Salasala B (Mpakani), Salasala Kwa-Babu (Kilimahewa).

0.2 Roads
Construction of 6 km tarmac road from Mbuyuni Bagamoyo road to Mboma road which is the project funded by World Bank under the project of Salasala New Settlement area under the Songosongo project enable the Salasala residents to access the road services. Other rough roads includes Africana to Mboma road and Mahende road and Africana via Kwaabarikiwe to Mboma road.

0.3 Climate
Salasala Mtaa experiences a modified type of equatorial climate. It is generally hot and humidity throughout the year with an average temperature of 36oC .The hottest season is from October to March while it is relatively cool between May and August with temperature around 15oC. There are two rain seasons: - short rain from October to December and long rain season between March and May. The average annual rainfall is 1300mm. Humidity is around 96% in the mornings and 67% in the afternoons. The climate is also influenced by the Southwest monsoon winds from April to October and Northeast monsoon winds between November and March.

0.4 Land forms
Land units characterize Salasala, each with homogeneous characteristics potential for the future Mtaa development.
ü Hills are characterized by weathered slopes and well drained with unconsolidated clay-bond sands. An occasional outcrop of raised coral limestone also occurs especially around the area.
ü River Valleys is another land Unit dissect the coastal plain in the series of the steep sided U- Shaped Valley culminating in cracks and Mangrove swamps before entering Indian Ocean. Valley soils are generally poorly drained silt clay soils enriched with clay matters.

0.5 Administrative Setting and Population Density
Kinondoni Municipal Council has four (4) divisions namely: Magomeni , Kinondoni , Kibamba and Kawe. These divisions are then divided into twenty seven (27) wards, which in turn are sub divided into sub-wards commonly known as Mtaa (singular) or Mitaa (plural) of which Salasala is one among 127 Mitaa. The Municipality also has 3 electoral constituencies namely: Ubungo, Kawe, and Kinondoni. Salasala is within Kawe Constituency. The Municipal governing body is the Full Council which comprises 48 Councilors out of whom 27 are elected Ward representatives, 10 Councilors (women special seats) and 11 are Members of Parliament (MPs).
The Kinondoni Municipal Council executes its administrative duties through:
ü The Municipal Council Committees chaired by Hon. Mayor,
ü Ward Development Committees under the Chairmanship of the Councilor and
ü Sub-Ward (Mitaa) Development Committees

0.6 Population Density
According to the 2002 Census, the Kinondoni Municipality has a population of 1,088,867 people with a growth rate of 4.1%. The rapid population increase is influenced by both natural causes and immigration (birth rates and net immigration rates respectively). The Municipality has an area of 531KM2 and the population density is estimated at 2051 persons per square kilometer. Kunduchi Ward has population of 72,927 of which Men are 38,251 and Female are 34,676 according to population census of 2002. It is estimated that Salasala has about 1,737 houses in surveyed area and 19,601 houses in un-surveyed area.

0.7 Waste Management
Solid Waste collection in Kinondoni municipality is carried out by both the Municipal, some private companies, community based organizations and informal sectors. Currently, there are about 26 franchisees. Apart from collection activities, the Municipality is also responsible for supervising the franchisees involved in Solid Waste Management. Average Solid Waste collection 954 tons/day of which Municipal Council collect 553 tons/day and Contractors collect almost 401 tons/day. Number of Franchisees involved in Waste Management is 26, Companies 18 and small Groups about 8. In order to cope with the daily problems of waste management and sanitation in the Municipality, the Municipal council has asked all stakeholders to come together to find a lasting solution to the problem specifically at each Ward.

0.8 Education Services:
Salasala Hamlet has 4 unregistered of pre - primary school owned by resident there is no pre – primary school which is own by Government. Four (4) Primary School which one (1) is owned by Kinondoni Municipal Council (government) – Salasala Primary School and three are private owned ( Green Acre Primary School, Stella Primary School and Keyland Primary School) . Salasala access also Secondary education whereby there is 3 Private Secondary School these are Green Acre Secondary School, Cornelius Secondary School and Salasala Primary School. No University within the area but resident from Salasala access higher learning from other institution within the Dar es Salaam and outside Dar es Salaam such as University of Dar es Salaam, Open University of Dar es Salaam, Institute of Financial Management (IFM), Sokoine University, Tumaini University, UCLAS, IMTU, etc.

Table No. 1 The education status at Salasala Sub-ward:
Pre- Primary School
4 (Unregistered)
Primary School
Secondary School
Vocational Training Centre
Source: Data from Ward Executive Office, Kunduchi Ward.

0.9. Safe and Clean Water Services
The main source of water for Salasala residents is Dar Es Salaam Water and Sewerage Authority (DAWASA), which contributes 95% of water being consumed daily and the rest 5% is contributed by shallow and deep wells own both privately and by public. The area in Salasala which is connected to the DAWASCO water system is part of Salasala A and Salasala B. Area like Salasala Kijijini, Kanisani, Mboma Road, Kinzudi, Mahende road, Kijiji cha Wagogo they have no access to water from DAWASCO while the demand of water is high due to the population growth which stimulated by new resettlement at Salasala area resulted by the Songas project.

10. Health Services

There are two Dispensaries within the Mtaa of Salasala that is MICO Dispensary and Huruma Dispensary. But residents of Salasala can access health services which is provided with private and public sector within the other area in Dar es Salaam City. This includes health services from IMTU Hospital which is about 4 kms, Lugalo Hospital which is 6 kms, Mwananyamala Hospital which is about 17 kms from Salasala, Masana Hospital which is about 4.5 kms. The model of health services delivery in Kinondoni Municipality like other districts in Tanzania, based on preventive, promotive and curative care. The line of operation starts from the dispensary, health center to the Municipal Hospital. The mission of Municipal Council is to ensure that health beneficiaries are provided with affordable and good quality of care at its health facilities and also to enhance preventive health services at facility and community level. The Municipal Medical Officer of Health (MMOH / DMO) through the council Health Management Team (CHMT) plays the role of managing, co-coordinating and supervising of all health services provided in 27 public health facilities and 148 private health facilities.

11. Urban Development
Part of Salasala is planned area including the new resettlement area where-by ……. Numbers of plots well planned to accommodate those who were evicted from the main Songo Songo Gas lines. Other area of Salasala including Kinzudi, Kijiji cha Wagogo, Kanisani, Salasala Kijijini is unplanned. The population growth lead to squatoring the area which at the end the area will portray the picture which are experienced in the area like Manzese, Tandale, Mabibo and Mburahati where by old and new planned settlement is uncoordinated, extremely poorly served, particularly in the residential areas, as the quality and quantity of utility services provision do not meet the demand. The infrastructure provision is inadequate, uncoordinated, and lags behind the pace of development activities.

12. Livestock Services
Livestock in the Kunduchi Salasala is one among economic activities undertaken within the area, it is estimated that about 10,000 of poultry are kept within the area, 3,000 number of pig, about 1500 Cow are kept within the area and about 2,000 goat (Data source Livestock Department Kinondoni Municipal Council – Kunduchi). Area known as Kijiji cha Wakuria (the area settled by Kuria people) who are the main poultry keepers as their major area of employment. Actors engaging in livestock keeping include individuals, groups and institutions. Interchick Poultry Farm is within the Salasala area. Market far the livestock products are within the Municipality and Dar City at large. The Municipality and private sectors play a greater role in the supply of pesticides and livestock extension services.

13. Sports and Games
The major sports in Salasala area is football where by there are two football club known as Salasala United Football Club and Salasala Rangers Football Club. Resident of Salasala especially youth use Radio Tanzania ground at Salasala as a playing ground. The major recreational and sports areas are scattered throughout the Municipality. This give an opportunity to the Salasala residents to engage in sports even outside the Mtaa of Salasala. Some are found in schools, institutions and community organizations. The young and old attend discotheques over the weekends and during public holidays. To deal with recreation, the Municipal Cultural Office has five important divisions: Arts, Youth, Game and sports, Anti qui ties and Arches. The municipality has the following sports bodies; such as Kinondoni Football Association, Kinondoni Netball Association, Kinondoni Traditional Games Association, Kinondoni District Basketball Association, Kinondoni District Volleyball Association.

14. Culture
Salasala residents originated from different locations in Tanzania since it is a new settlement, the culture of the area is Mixed Culture but originally the residents of Salasala was Wazaramo and Wamakonde. But now days almost all tribes from Tanzania can be found in the area especially Wachaga, Waha, Wapare, Wahaya, Wakurya, Masai, Wasukuma, Wagogo, Barbaig (Wamangati), Waarusha etc. So it is difficult to state clear what is the culture of the area. The common language used is Kiswahili where by all people within the area can use in communication.

15. Energy Distribution

Salasala which is within Kinondoni Municipality, like other settlements in Tanzania depends on different sources of energy, such as electricity, kerosene, charcoal, firewood, solar, etc. The main source of power for lighting, business and industry is electricity, which is generated, transmitted and supplied by a sole utility agent, Tanzania Electric Supply Company Limited (TANESCO). Residents commonly use kerosene, firewood and charcoal for cooking and lighting. The Municipality is within two regional offices, which are Kinondoni South and Kinondoni North .To make sure that Customers obtain their services efficiently and effectively, the Regions are divided further into Sub-Stations. Salasala is connected with electricity from TANESCO but not all residence who has an access to the power.

16. Co-operatives
Housing co-operative societies, rural primary society, industrial co-operatives, savings and credit societies (SACCOS), fisheries co-operative societies and service providers are registered according to the Co-operative Act No. 20 of 2003 By the year 2006 the Municipality had 207 co-operative societies, out of which 149 are active and 67 are not. Since Salasala residents are working from the different area within the Municipal and outside Municipal area they have an access to join in co-operatives which located in their working area.
Table No. 2 Number of co-operatives in Kinondoni Municipal Council:


Consumer cooperatives

Small cooperatives
Livestock cooperatives

Housing cooperatives
Service cooperatives

Source: Kinondoni Municipal Co-operatives Office (2008)

17. Economic Activities
Most of residents of Salasala are under-go their economic activities outside the area, some are Government Servants and other are employed in a private sector outside the Salasala area. Other are self employed in business sector and perform their business activities in area like Manzese, Tandale, Ubungo, Sinza, Kinondoni, Kariakoo, Tegeta etc. Remain part of residents undergo their economic activities within the area including farming, livestock keeping, Wholesale and Retail shops, bocks making, transportation, etc.

Table No. 3 The numbers of economic activities undertaken within the area.
Type of Economic Activities
Guest Houses
Phone accessories shops
Wholesale shops
Retail shops
Building Hardware Shops
Clothes shops
Stationeries and Office equipment shops
Saloon for Men
Food vendors (Mama & Babalishe)
Hair Saloon for Women
Cosmetics Shops
Spare parts Shops
Internet Café
Blocks Making
Milling Machines
Private Dispensaries
Private Pre – Primary School
Private Primary School
Private Secondary School


(Source: Kinondoni Municipal Council, 2008)

18. Informal sector development
Resident of Salasala contribute to the population of Kinondoni informal sector which employs more than 55% of the population. The 1990/1991 labour force survey showed that Dar es Salaam City had a labour force of 1,171,707 out of which 623,910 were employed in the formal sector, 120,672 were unemployed, and 427,120 economically active populations were not working as they were in school. A national informal sector survey conducted in 1990 showed that Dar es Salaam city had 315,958 people employed in the informal sector that is 13 percent of the economical active population in the city. A 1995/1996 Kinondoni municipality’s informal sector survey showed that 325,869 people were employed i n the informal sector. One in every three households was involved in an informal sector activity in 2000/2001 as compared to one in every four households in 1990/1991. It also showed that 61 percent of the total households in urban areas had informal sector activities compared to 42 percent i n 1990/1991.

Table No. 4 The allocation of food stuff market in a ward level
No. of Petty Traders
Sinza I
Sinza II
Urafiki (Big Brother)
Mbezi Juu
Mikocheni B
(Source: Kinondoni Municipal Council 2007)

20. Financial Services
Salasala residences experience major financial services available in the Municipality, four branches of the National Bank of Commerce (NBC) located at Ubungo and Kawe, NMB at Magomeni, University of Dar es Salaam, Mwenge and Msasani, Akiba Commercial Bank at Ubungo and Kijitonyama, CRDB at Kijitonyama and Mbezi Beach, BARCLAYS at Magomeni, Sinza and Mwenge, Bank of Africa (BOA) at Sinza, Dar es salaam Community Bank at Magomeni and Kenya Commercial Bank at Mlimani City – Ubungo. Tanzani a Postal Bank at Manzese. Other institution include FINCA, PRIDE and TUNAKOPESHA.

Kinondoni Municipal Council operates some credit facilities targeted to women and youths. These include, Kinondoni Women and Youth Development Funds (KWYDF) , Women Development Funds (WDF) and (Village Community Bank) VICOBA through Kinondoni Youth Employment Network for Urban Renewal(K-YEN-UR) . The credits are provided to individuals as well as groups.

21. Religion
Salasala residents have an access to the religion organization for spiritual services. The area has about 3 Mosque and 6 Churches. The Mosque includes the one found in Kijiji Cha Wagogo, Salasala Rtd, Darajani, Mboma Road, Kilimahewa and Masjid Swamadu. Churches includes Salasala Lutheran Church, Salasala Roman Catholic, Salasala Seventh Day Church and 4 Assemblies of God Churches. Regardless the spiritual services provided with the religion organization also economic sensitization is always done to enable community member to engage in economic activities which are legally recognized in order to increase to satisfy their basic needs.

22. Security
Residents of Salasala have an access to the security services which are provided by Central Government and private organization. Kawe Police station and Mtongani Police Post take care of security of the Salasala residents. Other private organization such as KK Security, Chui Group provide also security service within the area. Salasala residents also declared to establish Sungusungu who are connected to the police to assure the security of Salasala residents


To the youth at Salasala problem of water supply has been a source of employment to them. One youth carry at least six to eight tin of water which carry about lts each. Each tin can be supplied for three hundred Tsh.


Sunday, November 2, 2008


1.0 Introduction…………………………………………………………………. 2
2.0 Definition of Key Concepts………………………………………………… 2
3.0 Types of Microfinance Institutions……………………………………….. 3
4.0 Background of Microfinance in Tanzania……………………………….. 3
5.0 Impacts of Microfinance Institution to economic development………… 4
6.0. The role played by Microfinance Institutions in creating morale to
Entrepreneurs……………………………………………………………… 5
7.0. The importance of SACCOS to Rural and Urban people of Tanzania….. 8
8.0 Conclusion……………………………………………………………………. 13
9.0 References……………………………………………………………………. 15

1.0 Introduction
The emergence of microfinance Institutions in Tanzania has promoted development of vibrant economic businesses all over the country. This paper tries to examine the role of microfinance Institutions in creating entrepreneurial morale to small businesses in Tanzania. However, the importance of SACCOS to urban and rural people of Tanzania will also be explained.

2.0 Definition of Key Concepts:
v Microfinance Institutions: Microfinance institutions are “financial intermediaries formed to serve the needs of special group of people” (Wilson &Clark 1993). Microfinance and Micro-credit are mostly used to finance small and medium scale enterprises. Microfinance in general includes Micro credit, Micro-savings, Micro-insurance and payment services. Micro-credit is extension of small loans to micro-entrepreneurs who lack collateral and do not qualify for traditional bank loans. In developing countries Micro-credit enables very poor people to engage in self-employment projects that generate income. Micro-credit is crucial to the microfinance field by providing access to financial capital. (Micro-finance Alliance.htm 17/10/2007)

Micro-finance Institutions also, refer to “transactions in small amounts of both credit and savings, involving mainly small–scale and medium-scale businesses and producers. The poor, who cannot run a small business because they lack capital, may also benefit from micro-finance organisations. The poor, especially poor women are the prime targets for micro-finance intervention in many countries”. (Khandker, 2000)

v Entrepreneurial Morale: Is the habit of being highly confident with entrepreneurship undertakings. An entrepreneur is the one who perceives a business opportunity, assumes a significant amount of risk associated with it, undertakes the entire coordinating functions in bringing together other factors of production to create a new business and which is continuously, managed by him/herself.

3.0 Types of Microfinance Institutions
There are several types of Microfinance Institutions (Azoki 2005) which are
Savings and Credit Cooperatives Societies, Non Governmental Organizations, private companies, government projects.

4.0 Background of Microfinance in Tanzania

Microfinance in Tanzania began with NGOs (Non Government Organizations) and SACCOS (Savings and Credits Cooperative Societies) in 1995 and has continue to grow with the increased success of microfinance internationally.(answers .com/microfinance in Tanzania 17/10/2007)
According to 2005 survey done by bank of Tanzania ( the overseer of microfinance under the Ministry of finance) updated the directory of microfinance practitioners identify basic information on microfinance institutions namely commercial banks, financial Institutions, financial non-governmental Organizations (NGO), Savings and Credit Cooperatives Societies (SACCOS) and Savings and Credit Association (SACAs) the directory has counted a total of 8 banks, 45 Community Based Organizations, 2 companies, 95 Government programs, 1,620 SACCOS, 48 SACAs and 62 NGOs.(answers .com/microfinance in Tanzania 17/10/2007).
Between 2001 and 2003, the number of new retail outlets increased by 20%, clientele grew by 72%on average, outstanding loan portfolio and savings deposits grew by 88% and 52% respectively, with a low non-performing loan ratio of less than 5% on average. (Answers .com/microfinance in Tanzania 17/10/2007)

5.0 Impacts of Microfinance Institution to economic development

According to the progress report of the Poverty Reduction Strategy (URT, 2003) the Government is committed to strengthening ties between the rural and urban economy, improve rural infrastructure, encourage development of small and Medium Enterprises (SMEs), facilitate provision of micro-credits, strengthen local capacity and strive to achieve a more broad based economic growth.

By enabling the poor to save in a secured place, the provision of accounts (or other savings facilities) and insurance allows the poor to establish a buffer against shocks, thus reducing vulnerability and minimizing the need for other coping strategies such as asset
According to the FinScope data, about 6 percent of Tanzanians borrow from microfinance institutions.

Microfinance helps the poor, the majority of whom are women, to borrow for business expansion, and to save and buy other relevant products like micro insurance. Research on micro credit initiatives targeted at women shows that improving access to credit for women in developing countries enables them to improve their standard of living. They also have superior credit repayment records compared to men, and lending to women has a greater effect on household welfare than credit directed toward male borrowers (Stotsky 2006). Additional research broadens the social implications. Anecdotal evidence that the benefits of microfinance can extend beyond the purely economic it is now seems to solve some crosscutting issues such as spread of HIV/AIDS and gender imbalance in Tanzanian communities. Poor people particularly women who engaged to prostitutions in order to get capital now have access with Microfinance services hence being rescued from vulnerabilities. In one way or another HIV/AIDS and gender imbalance ruin the development.

6.0.Roles played by Micro Finance Institutions in creating entrepreneurial morale to small businesses in Tanzania.
Micro Finance Institutions have important roles to play in creating entrepreneurial morale to small businesses in Tanzania. The roles of these financial institutions fall under the category of most quasi formal institutions that were established through donor/government support to fill the lacuna/vacuum left by formal financial institution in meeting the financial needs of small business. Quasi Formal Financial Services are those offered by institutions which fall outside the regulatory power of Bank of Tanzania but are regulated by the government. These includes the NGOs offering financial services, some of which are SACCOS and other government and donor backed institutions is known as microfinance institutions. These are such as:-

v SIDO, Small Industries Development Organization started in 1970 with the aim of promoting small scale industry as a government initiative.
v PTF, the Presidential Trust Fund established in 1988 as a venue for providing credit throughout the country to informal sector operators with low credit needs currently donor funded and supported by the FORD foundation and national income generating project (NIGP)
v FAIDA, Finance and Advice in Development Assistance to small enterprise promotion is a Dutched funded credit programme which aim at promoting small scale entrepreneurs in Arusha, Dodoma and Ruvuma Regions.
v TYDF – The Tanzania Youth Development Foundation (the ILO- promotion programme), which was established in 1994 and confined in DSM. Initially funded by UNDP but now registered as an NGO with support from Government, SODA and IPP.
v PRIDE TANZANIA- Promotion of Rural Enterprises Initiative Development opened in 1966 as subsidiary of pride Africa started with assistance of 1.2 million from NORAD.
v CREW TANZANIA – found in 1995, it is a local based NGO serving as a catalyst for empowering low income. It is funded by UNDP and united Nations Development funds for women.
v MEDA – Mennonite Economic Development Association focusing on microfinance involvement in urban economic activities more concentrate in Mbeya and DSM.

v FINCA – Foundation for International Community Assistance facilitating village banking implementation projects in Latin America and Africa and other developing countries.
v BLUE FINANCE – a donor funded organization founded in 2007 in Tanzania aiming at enabling small business owners by providing micro loan facilities.
v POVERTY AFRICA CREDIT SHOP is an NGO devoted at promoting local initiative that fights poverty. It initiated saving and credit schemes in Morogoro, Arusha Moshi and DSM. SACCOS – Saving and Credit Corporative Societies are established under the Act of 2003. The objectives are to provide thrift services and credit facilities to the members of societies.
v SCCULT (1992) LTD, This is Savings and Credit Cooperative Union league of Tanzania which re-established in 1992 after the former SCULT died politically. One of its functions is to provide savings and credit services to her members (SACCOS) through its fund known as Central Finance Programme (CFP).

All of the above mentioned are micro finance Institutions which have positive contributions towards creating entrepreneurial morale to small businesses in Tanzania as explained below:-

Firstly, microfinance institution satisfies basic needs and protection by helping individuals and house holds to meet basic needs and protected against risks, hence creating chance or possibility of establishing small business.

Secondly, these institutions, improve economic welfare of the community and enterprise stability or growth of low income house holds. If the community is well off, then the possibility of enterprise development is greater.

Thirdly, Microfinance institution empowering people of all kind economically hence promoting gender equality and improve house hold wellbeing.

Fourthly, microfinance institutions provide education on thrift. Before individual businessmen gets a loan she/he has to make small savings either at home or to that particular institution, that help to create awareness on the importance of saving in business.

Another role played by microfinance institution is to provide education and training to their clients on the utilization of the loan as well as the manner of operating their business, which equip borrowers with enough knowledge in manipulating their business operation.

Microfinance institution act as creator of new entrepreneurs. By availing small loans within the community, they bring about the possibility of establishment of small businesses who can develop and result to big business establishments.

7.0 The importance of SACCOS to urban and rural people of Tanzania

v Definition of SACCOS
SACCOS is an abbreviation of the words Savings and Credits Cooperatives Societies.
Objectives of the SACCOS are to mobilize savings for the purpose of creating source of credits to its members at the competitive rates of interests so as to eliminate poverty to its members. SACCOS has been appointed as one of the strategy of eliminating poverty as has been mention on the National Strategy for growth and Reduction of Poverty (NSGRP/MKUKUTA) and Zanzibar Strategy for Growth and Reduction of Poverty (ZSGRP)/MKUZA) as well as other national development and poverty reduction program as one of the important tool of eliminating poverty.

v The importance of SACCOS to Urban and Rural people of Tanzania
SACCOS are among of the financial intermediaries in the financial sector. There fore they are very important for business and investment growth in the economy due to the fact that they have impact on capital accumulation including human and physical capital, and on the rate of technological progress. Also it has a direct impact on the poverty reduction, by widening access to the poor. These impacts/effects arise from the intermediation role provided by financial institutions which enable the financial sector to; mobilize savings for investment, facilitate and encourage inflows of foreign capital and optimize the allocation of capital between competing uses, ensuring that capital goes to its most productive use. Levine (1997) identifies five basic functions of financial intermediaries which give rise to these effects.
These effects are; Savings mobilization, Risk management, Acquiring information about investment opportunities, Monitoring borrowers and exerting corporate control and Facilitating the exchange of goods and services.

Savings mobilization: The mobilization of savings is perhaps the most obvious and important function of the SACCOS. The provision of savings facilities or transaction bank accounts enables households to store their money in a secure place, and allows this money to be put to productive use i.e. lent to individuals or enterprises to finance investment, thus encouraging capital accumulation and promoting private sector development.
Lack of access to secure savings facilities leads people to save in physical assets, or store their savings at home. In addition, the returns on investment can create positive expected returns for the savers, which may in turn increase savings.
It can also facilitate the development and adoption of better technologies. McKinnon
(1973) a farmer who cannot afford a particular investment out of his own savings – he needs to borrow in order to buy some piece of equipment (i.e. to invest in “new technology”) which would increase his productivity, and enable him to earn a higher income thereafter. Thus by mobilizing savings, and hence increasing the availability of credit, SACCOS facilitates investment in new technologies across the urban and rural economy, increasing overall productivity.
Credit may also be made available to finance investment in education or health, and can thus promote the accumulation of human capital (De Gregorio, 1996). Thus savings mobilization can have a significant impact on growth by increasing investment, productivity and human capital. Savings facilities can also play an important role in reducing risk and vulnerability for the Poor.

Risk management:
(a) Liquidity risks: Many projects or enterprises require a medium commitment of capital, whereas most savers prefer to have the option to draw on their savings, or move them into another investment opportunity, should the need arise i.e. they like their savings to be ‘liquid’. Because SACCOS combine many households’ savings, and because savers usually won’t all want to withdraw their money at the same time, this allows SACCOS to simultaneously provide small to medium-term capital for investment, and liquidity for savers (Levine, 1991).
(b) Risk diversification: Investing in an individual project is riskier than investing in a wide range of projects whose expected returns are unrelated. As savers generally dislike risk, SACCOS facilitate risk diversification – such as banks and stock exchanges - allow investments to be made in riskier projects with higher expected returns in aggregate (e.g. Saint-Paul, 1992, and Obstfeld, 1994). This again increases overall investment returns, and improves capital allocation, with a subsequent impact on growth.

Acquiring information: Individual savers are unlikely to have the time or capacity to collect process and compare information on many different enterprises, managers and market conditions before choosing where to invest. Thus high information costs may prevent capital from flowing to its highest value use. In addition, they will be less keen to invest in activities about which they have little information.
So the creation of financial intermediaries like SACCOS such as banks and fund managers, who will collect this information on behalf of many investors, and share the costs of doing so between them, will improve resource allocation and increase investment (though in Tanzania, SACCOS may have only limited information on investment opportunities, as much of the economy is informal). They may also increase the rate of technological progress by identifying and thus allocating capital towards those innovations with the best chances of succeeding (King & Levine, 1993).

Monitoring borrowers, and exerting corporate control: Similarly, the ability of SACCOS to monitor the performance of enterprises on behalf of many investors – who would not otherwise have the resources to do so individually – and to exercise corporate control (e.g. lenders holding meetings with borrowers to discuss business strategy), helps to ensure that investors receive returns that properly reflect the enterprise’s performance (i.e. insures they are not being defrauded by the firm’s managers as a result of their lack of information), and creates the right incentives for the managers of the borrowing enterprises to perform well.

Facilitating exchange: Another importance is that, SACCOS as other financial intermediaries in the financial sector facilitates transactions in the economy, both physically by providing the mechanisms to make and receive payments, and by reducing information costs in the ways outlined above. So by providing financial intermediation in this way, the SACCOS may reduces transactions costs, and facilitates the trading of goods and services between businesses and households.

SACCOS are the most accessible by the poor people or low income earners in the both rural and urban settings. Apart from being owned by the members themselves, they charge low rate of interest on the loans and no collateral is required to access loans.

SACCOS, also provide a voice of poor in the policy making since some representatives are participated in higher authorities including at their apexes in those ways are offering their views which are collected together to the formation of policies.

SACCOS are have created employment, directly and indirect to most of the citizens hence improving economic standard of rural and urban people.

SACCOS is facilitating financial services, as it offers the most wide spread source of financial services for low income people in both rural and urban areas. In some rural areas this is the main source of financial services.”
SACCOS offers a way of poor community producers in general, and ambitious and educated Tanzanians in particular, in cash production, creating an avenue for upward mobility and political advancement

In enhancing women participation; SACCOS have opened various chances to women participation in the leadership, membership and befits from SACCOS activities. Thus empowering women in leadership and economic and social well being.

Microfinance increases the options and self-confidence of poor households by helping them to expand and diversify their enterprises, to decrease risks, to smooth consumption, to obtain higher return on investments, to improve management and increase their productivity and incomes, to store their excess liquidity safely and obtain returns on their savings, to escape or decrease exploitation by locally powerful, and to conduct their businesses with dignity. The quality of their lives improves. Children are sent to school, and housing, health and self-confidence improve. In addition, the economic activities often create jobs for others; among those who gain employment in this way are some of the extreme poor.

On the other hand, SACCOS are among the financial intermediaries in the financial sector since they are very important for business and investment growth in the economy. Also it has a direct impact on the poverty reduction, by widening access to the poor. These impacts/effects arise from the intermediation role provided by financial institutions which enable the financial sector to; mobilize savings for investment, facilitate and encourage inflows of foreign capital and optimize the allocation of capital between competing uses

Generally, there is a need to create favourable environment for attracting more establishments of Micro Finance Institutions for sustainable economic development in the poor communities.

9.0 Reference

Wilson and Clark (1993): Economics the Science of Cost. Benefits and Choice
Amanda E, Mark B, Jozefine C, Fiolina M, and Holger S (2007): Gender and Economic growth in Tanzania
Cooperative act of number 20 of 2003
E.P Mkwawa (2004): Integrating Financial Services into Poverty Reduction Strategies in Tanzania.
M.J. Sizya (2001): The role of Cooperatives Play in Poverty Reduction in Tanzania.
Micro-finance Alliance.htm 17/10/2007)
Answers .com/microfinance in Tanzania 17/10/2007).








1. To supply meat and eggs served extensively in hotels and restaurants and bars.

2. To generate income to the Small Traders dealing with eggs transaction.

3. Provide employment opportunities to the community

4. To assure availability of protein food in my community



P.O.BOX 31902

P. O. BOX 31903

1.0 Executive Summary………………………………………………………. 3
2.0 Introduction…………..………………………………………………… 4
3.0 Background Information……………………………………………….. 5
4.0 Project Objectives……………………..……………………………….. 6
5.0 Project Description…………………………………..………………… 6
5.1 Project Location …………………………………………………… 7
6.0 Project Management ………………………………………………….. 7
7.0 Benefit and Justification of the Project………………………………. 8
7.1 Socially …………………………………………………………….. 9
7.2 Economically ……………………………………………………… 10
8.0 Project Market ……………………………………………………….. 10
9.0 Financial Aspect and Project Worthiness …………………………. 10
9.1 Assumption and Consideration ………………………………… 11
9.2 Project Viability ………………………………………………… 11
10.0 Conclusion: ………………………………………………………… 12
11.1 Annexes : …………………………………………………………… 13

1.0 Executive Summary
P & J Poultry Farm is a farm located at Salasala Kunduchi Ward, Kinondoni Municipal Council in Dar es Salaam. It is a family farm owned by one couple of Mr. and Mrs. P. A. Mhache. The farm is in plot no. 1, 2,7 and 8 block B Mbezi Manyema with area covered of 7146m2. Family acquire the land since 1999 and be able to erect residential house and ten rooms of poultry house with capacity of carrying 300 chicks per room that is 3000 total chicks once.
The aim of establishing a farm is to generate income to subsidies my salaries which am getting from my employment, second to give employment opportunities to my community who are suffering daily rooming around the City looking for employment. The employment would be not only to my family but also to those who deal direct to the project and those small traders who are supplying eggs to the restaurant, bars and hotels.
The project idea is undertaken in order to utilize the available infrastructure by renting the existing poultry houses for 10,000 Tsh per month per room which is almost 240,000/= per room during the project period of 2 years. The total rental fees during the project life time will be 2,400,000.00.
The main setback of the P & J Farm is inadequate operating capital to enable buying 3,000 chicks and feed them to make maximum production of eggs and sell them within two years. In order to meet the above narrated target the Firm requires 37,138,000.00 of which 12,138,000.00 will be on Equity contribution and remain balance of 25,000,000.00 will be from external sources that is through bank borrowing.

2.0 Introduction
Poultry Industry in Tanzania is the growing opportunity for Small and Medium enterprises as a critical means poverty eradication. It is also used as an alternative way of subsidizing the income of those who are employed but their expenditure is greater than what they earn. Keeping poultry has been taken as a means to survive. The problem is that the project is undertaken in a small scale which give a limited chance to expand and enjoy the economies of scale. To be in position of raising the project one must consider about the cost associated to the project which include erecting or renting of poultry houses, fed them with commercial food which is proper mixed with the proper nutrients such as Broiler starter, Grower mash, Layer mash, a typical poultry house with concrete floor finish. At beginning to the 5 week chicks are raised under close supervision to control the temperature which is very important during the period to avoid unnecessary death. Veterinary services are also required to be close so that all required vaccination can be applied in a time with a right specification to avoid a preventive diseases which affect most of small farmers.
In reality the poultry farm contribute a lot to the national economy and to the well being of citizen in the community, poultry can be kept both for meat and egg production served extensively in hotels and restaurants. It is profitable to give supplements to chicken for growth from the keets stage to maturity Feeding and water troughs must be cleaned not less than twice a week to provide good sanitary conditions.

3.0 Background Information:
P & J Poultry Farm project is an expansion of existing farm located at Salasala Kunduchi Ward, Kinondoni Municipal Council in Dar es Salaam. The farm today has a capacity of growing up 500 chicks. The experience of keeping layers mash started in 2002 where by Twiga Feed Company a company used in hatching eggs, producing and supplying poultry food gave a chance to become an agent of the company to supplying chick and food at Salasala. It is a family is a family business with expectation of future expansion from family to the registered company. The whole activities was undertaken by family members. The farm is in plot no. 1, 2,7 and 8 block B Mbezi Manyema with area covered of 7146m2. Family acquired the land since 1999 at a price of 1,500,000.00 but to-date the market value of the plot is almost 35,000,000.00 without building and other infrastructures development. The area has bee developed by erecting modern residential house with fence and ten rooms of poultry house with capacity of carrying 300 chicks per room that is 3000 total chicks at once. Another activities undertaken within a farm include pigs keeping of which more than 100 pig are kept, Turkey keeping is another activities undertaken within a farm. It cost almost 15,000.00 to raise one turkey to the period of 8 month of which they can develop about 12 to 15 kg of meat. When you go to the market you find one Turkey is sold up to 100,000.00.
The expansion or erection of poultry house is a result of small scale poultry keeping activities. Another project undertaken within the farm is goat keeping where by the farm accommodate about 30 goats. The existing project support each other, take in consideration that output of one project can be the input to the other product. For example as you feed poultry waste from the poultry house can be used to feed pigs and presence of poultry and pigs waste enable grass growing which is a feed to the goat.

With the revenue from the existing project I have been in position to take my kids to school and feed them properly, my family member from Kilimanjaro and Arusha also get a chance to participate in wealth creation process and fight against poverty.

4.0 Project Objectives
The operation of the project is constrained by lack of capital to acquire or utilize the existence opportunities, with enough or stated cost of the project in hand, the following objectives will be acquired:-

Ø To supply meat and eggs served extensively in hotels and restaurants and bars.

Ø To generate income to the Small Traders dealing with eggs transaction.

Ø Provide employment opportunities to the community

Ø To assure availability of protein food in my community

5.0 Project Description
The project entails in expanding the poultry farm from a small scale farm to a medium farm that is from keeping 500 poultry to the rate of keeping 3,000 poultry at once. This can be done by renting an existing ten rooms of poultry house which accommodate 300 poultry at each room.. The rent per room is 10,000.00 per month per room, That is 240,000.00 per project life time per room (2 yrs) equal to 2,400,000.00. Investment cost will be cost of buying chicks and feed them until they began laying eggs that is after six 6 months since the project will be in position to run itself through eggs sales. The project cost and means of finance pattern indicate that the project investment require 37,138,000.00 out of these 12,138,000.00 is contribution of the applicant as owners equity and the remain 25,000,000.00 will be from loan at 18% per annum. (see annex IV for details)

5.1 Project Location
The project will be undertaken at Salasala – Kunduchi Ward, Kinondoni Municipal Council in Dar es Salaam City. The area is conducive and is normally experienced with famous Kuria tribe who are well known as a big supplier of eggs in the city. Also the area is only 7 km from Interchic Industry and Twiga Feed Co. the huge competitive firm in the poultry industry in Dar es Salaam at Mbezi Area.

6.0 Project Management
The overall management of the project will be undertaken by the Farms’ Directors in assistance of Project Farm Manager and Accountant. Project manager will be responsible who is going to be responsible for daily to daily activities from a day of purchasing of chicks, feeding, selling of eggs, making a contact with veterinary office incase of any problem and keeping daily records of the project progress. The project Accountant will be responsible on keeping financial records of all transactions take place during the project period, she will also be responsible to collect all sales made during the project period and make deposit to the bank account, also she is going to be responsible in making sure that the loan repayment installment is made on time. Project attendants will be responsible on daily feeding of the chicken and general cleaning of the poultry house according to the directive from the firm manager. Security Guard will be responsible on the security of the firm during the day and night hours.

7.0 Benefit and Justification of the Project:
The investment cost is shown in Annex I whereby ten room were rented for 24 months of the project life other items included in the investment cost are purchases of feeding containers such as water canes, food canes, office furniture’s including table and chairs. Purchases cost of chicks is included in the investment cost as long as is the main demanding item with big initial outlay during the project time. As long as project is going to demand financial inflow from day one of the project to five and six month other direct costs such as feedings has been taken as Investment cost. With 3000 chicks we use to take a average of consuming five bags per day of starter per two month, average of five bags Grower mash per day for month 3 and 4, an average of five bags of Layers Mash per day for month 5 and 6. With good feed and without unexpected damage Layers will start laying eggs during month 5 and six. Other cost incurred direct to the project has been considered as investment costs including medicines and some vaccination such as small pox, new castle and Gombora.
Manpower requirement and its costs is shown in Annex II where by one project Manager is required, on project Accountant, projects attendants, veterinary doctor who can be hired for temporary and security guard are required, it is required to have amount of 33,600,000.00 to pay manpower for 18 months, since the project is for a short period that is 2years project no incremental on manpower costs . Operation cost is shown in Annex III whereby during the first 6 month the period Layers starting laying eggs cost will be 1,345,000.00, during 7th to 12th month the operating cost will be 28,902,500, the cost for 13th to 18th is 28,340,000/= and 19th to 24th months is 27,827,000.00. The total cost is about 88,414,500. The main contribution of the cost is feeding of Layers of which it estimated that an average of 5 bags of 50 kg will be consumed per day of which total of 300 bags will be consumed per month. The price of 50 kg Layers Mash is 20,000.00. That is for 18 month Layers will consume 2,700 bags @ with cost of 20,000.00. Sales turnover of the project is shown in Annex V where by it is estimated that among 3000 Layers 2800 will be in position to lay eggs, for 18 month amount of 50,400 tray of 30 eggs each will be collected and be sold for wholesale price of 4,500 per tray and yield amount of 226,800,000.00. At the end of 24 months the old layer will be sold at price of 3,800,000 to start new project. Therefore total amount of sales will be 236,600,000.00.
Repayment schedule of the grant/loan and interest amounting to Tsh. 5,624,500.00 Is shown in details see Annex VI.

7.1 Socially:
The project is expected to stimulate social development to my community those who are within the project and my neighbors who can imitate what am I doing for their fortunes. The project will employ about 8 permanent workers and other about 50 eggs mongers who are expected to collect an average of 20 tray per day from the firm and make distribution to the households, restaurants, bar and hotels.
7.2 Economically
Revenue generated from the project will enable the expansion of the project from small firm to a large one. The lying idle resources (poultry house) will be utilized efficiently and generate an income of 2.4 million as rent which can be used to expand the business. This can be approved with a total turnover of 236,000,000 at the end of the project.
8.0 Project Market :
The project has a positive market since population of Dar es Salaam is increasing daily at 4.3% per annum due to migration and mortality rate. Numbers of restaurants, bars, hotels, groceries, supermarket, shoppers are increasing daily. That means the demand of eggs is growing considerably. The market is not saturated since most of small farmers contribute in a magnitude to the market. The possibility of expanding market to other region such as Zanzibar is great.
9.0 Financial Aspect and Project Worthiness :
9.1 Assumption and Consideration
The following assumption is undertaken during implementation of this project.
Ø The project life time will be 2 years the period Layers are expected to produce at a maximum level.
Ø Akiba Commercial Bank which is where the firm current account is operating will give loan of 25 million with an interest of 18% per annum of which grace period of six month would be granted.
Ø Death rate of Layers will be at a minimum level and production of eggs will affect only 200 Layers and having a maximum of 2800 Layers production in efficient.
Ø Killer disease “ Bird Flu” will not outbreak during the project life time .

9.2 Project Viability
The project has a Net Present Value (NPV) of 76,325,903 which shows that it worth to be undertaken. Annex X, shows the calculations.

10.0 Conclusion
The project is viable and it is in a position to repay back the grant/loan it is therefore recommended for funding.

c) What are the other documents required to accomplish before the business gets financial assistance.

The following are the documents which are required to be accomplished before this business gets financial assistance:
ü Certified copy of letter of offer which shows the ownership of the farm and its uses.
ü Registration Card for my Car Double Cabin Pick-up with registration number T528 AEX.
ü Comprehensive Certificate of Insurance of my Car T528 AEX which is going to be used as a Mortgage.
ü Business License from Kinondoni Municipal Council which allow me to undergo poultry farm within the City.
ü Legal Contract between me and Financial Institution stipulating about the payment program with its interest and period of repayment.

d) Some huddles which are anticipated during the project executed period:

The following are anticipated huddles:
ü Poultry disease outbreak such as Newcastle, Smallpox and Birds flue. If the disease outbreak the projected return of the project will be in danger since assumption is made that with the initial purchase of 3000 chicks will be alive through out the project period. In case of any default only 200 chicks will be affected.
ü Market saturation during the expansion of the project to the other area. This huddle can bring down the price of eggs which at the end affects the projected revenue.

Ways to overcome:
ü To be close to the veterinary services and being updated with proper vaccination to avoid the disease outbreak. To avoid unnecessary visit to the other farm which may cause disease transmit ion.
ü To undergo some marketing strategies to enable my supplies remain in the market even if the market is saturated, this can be done by signing a contract with my customers such as hotels, bars, restaurant etc.

11.1 Annexes
















Initial investment in this project is 52,138,000.00 with discount rate of 10% for a period of 2 years. The NPV of the project will be as follow:

NPV = - Io + ∑ NCFt
T = 1 (1 + r)n

Where by:

NPV = Net Present Value

Io = Initial investment/cash outlay

NCF = Net Cash Flow

t = any time

r = discounted rate

n = project expected life.

NPV = -37,138,000 + 137,365,500(0.826)

= - 37,138,000 + 113,463,903

= 76,325,903

The project is found having a substantial positive NPV, that is the project NPV Z 0 THE PROJECT IS VIABLE AND ACCEPTABLE.


Content Page
ABSTRACT ………………………………………………………………….2
1.0 INTRODUCTION……………………………………………………….3
1.2 Objectives of the study…………………………………………………..3
1.2 Background information………………………………………………..3
2.0 LITERATURE REVIEW……………………………………………….4
2.1 Theoretical review……………………………………………………….4
2.2 Empirical review………………………………………………………...6
3.0 METHODOLOGY………………………………………………………7
3.1 Interview and Questionnaires…………………………………………..7
3.2 Quantitative and qualitative data………………………………………7
3.3 Hand books and internet review………………………………………..7
4.0 FINDINGS AND DISCUSSIONS……………………………………....8
4.1 Capital budgeting techniques case of NSSF……………………………8
4.2 Cost of capital (discount rate)…………………………………………...9
4.3 Risks……………………………………………………………………....9
4.4 Other variables…………………………………………………………..9
5.0 CONCLUSION………………………………………………………….12
6.0 REFERENCES…………………………………………………………..13

The objective of the study is to find the practical use of the Capital Budgeting Techniques and their application in non-cooperative environment. Here we use NSSF as case study to find out which Capital Budgeting Technique is mostly used and why.
The National Social Security Fund was established by law in 1997. NSSF was set for the purpose of providing comprehensive social insurance services to its members. Over year’s members contributions and investments have increased. NSSF has 22,622 employees and operates all over the country (mainland). Capital for investments is financed by members’ contributions and fund generated from investments. NSSF is investing to be able to pay more benefits to members which are more than what they have contributed, to get income to finance its administrative expenses, to pay contribution to country’s economy instead of keeping money idle in the bank.
Empirical research on rate of adopting budgeting techniques, the IRR is reported to be more popular where as to use of PBP continues but as a secondary techniques.
For the case of NSSF techniques used are Present Value (NPV), Internal Rate of Return (IRR), Pay back Period (PBP), and Weighted Average Return on Investment (WAROI). During the exercise all techniques are used on each investment and compared to the operating environment and market in general. NSSF use different techniques because they normally investing in a different projects of different nature such as Real Estates, Equity shares, Loans – long term and short-term, treasurer bonds, bills and on Fixed deposits.

1.2 Objectives of the study
The objective of the study is to find the practical use of the Capital Budgeting Techniques and their application in non-cooperate environment (public, not-for-profit organizations etc). In hereby we have taken the case of National Social Security Fund-NSSF and use its experience in using members’ contribution to invest in various areas so as to be able to pay members benefits which are obvious more than their contributions. Here we use NSSF case to find out which Capital Budgeting Technique is mostly used and why.
1.2 Background information
The National Social Security Fund was established by Act number 28 of 1997 become operation in July 1998, the Act repealed the Act number 36 of 1964 that established National Provident Fund (NPF).
NSSF was set for the purpose of providing comprehensive social insurance services to its members based on the international standards. There are four functions of the NSSF which are: Registration of employees and employers, Collection of contributions, Payments of benefits, and Investing on the viable projects.
NSSF provides seven benefits to its members which are old age pension, invalidity Pension, Funeral Grant, Survivors pension, Maternity benefit, Employment injury and social health insurance benefit.
Over year’s collection of contributions increased from Tshs. 44,414.99m. for year 2001/2002 to Tshs. 126,966.99m. for year 2005/2006 and expected to reach Tshs. 152,319.79m. by June 2007.
NSSF has employed 22,622 people, and its services covers all over the country and the members are all employees under the private sector, non-pensionable employees in the central government and public institutions who are not covered by other schemes.
NSSF capital is financed by members contributions and fund generated from investments. Under the general guidance of section 62 of NSSF Act number 28 of 1998 and the NSSF investment Policy reviewed from time to time. The policy guides NSSF where to invest and where not. It provides decision making criteria when to invest.
In 2006 NSSF had invested the members’ contribution in the government stocks, real estate properties, commercial loans, equity, treasury bills, fixed deposits, treasury bonds, corporate bonds, and commercial papers.
NSSF is investing to be able to pay more benefit to members than what they have contributed, to get income to finance its administrative expenses, to pay contribution to country’s economy instead of keeping money idle in the bank.

2.1 Theoretical review
Firm’s success requires strategic decisions. A strategic investment decision is a forward-looking process through which the future of the firm and that of the wealth of its shareholder is determined. Consequently, such decisions must be properly appraised and evaluated before being implemented. Hence the need to review: the investment process, the investment analysis techniques commonly used by managers to evaluate such alternatives (Dixon, 1994).
Investment means (Dixon, 1994) forgoing present consumption of resources in order to increase the total amount of resources which can be consumed in the future. Involves making an outlay of cash now in the expectation of extra cash inflow in the future. Its objective is to acquire an asset (real or financial) for less than its value in order to add value.
2.1.1 Why investment appraisal?
From their characteristics, we appraisal before investment because we commit resources into the future, involve substantial amounts of cash, are difficult and costly to reverse once taken, usually include intangible costs and benefits which are difficult to evaluate, require approval by higher organs within the organisation.
2.1.2 Appraisal techniques used in decision-making
Traditional or non-discounted cash flow (NDCF):
Payback Period (PBP); The PBP of a project is the number of years it takes before the cumulative forecasted cash flow equals the initial outlay. The PBP rule says - only accept projects that “payback” in the desired time frame. This method is very flawed, primarily because it ignores cash flows after the PBP, ignores the timing of cash flows and treats cash flows the same across the years (i.e. ignores TVM)
Despite the problems above, PBP is very useful because it: deals with cash flows rather than accounting profits, is used as a risk screening device, the longer it takes to recover the initial cash flow the greater the chances of something going wrong, is frequently used to supplement more sophisticated investment appraisal techniques, and is useful in circumstances where the company is facing liquidity difficulties.
Accounting Rate of Return (ARR) or Return on Investment (ROI); is the ratio of accounting profit to investment in the project expressed as percentage.
ARR limitations are: It ignores cash flows and uses accounting profits instead, It ignores the timing of return by taking a simple average, which gives equal weighting to each year’s returns, and ignores the time value of money.

Discounted cash flow (DCF) techniques:
Net Present Value is the difference between the PV of future CFs and the PV of the initial outlay, discounted at the firm’s cost of capital. Decision rule:“Accept the project if the actual PV of the expected benefits exceeds costs (NPV>=0),otherwise reject”
Internal Rate of Return (IRR), the rate of return, which equates the Present Value of future Cash Flows to the initial outlay, the rate of return such that the outlay equals future Cash Flows discounted at rate r. Decision Rule: “Accept the project if its IRR>investor’s required rate of return, otherwise reject”.
Problems with IRR are different cash flow profiles, differing size and scale of projects, and multiple rates of returns.
Profitability Index (PI); the ratio of Present Value of benefits to initial outlay. Decision rule: “accept the project if PI>1.00, otherwise reject”
2.2 Empirical review
Existence of empirical evidence on the application in both developed and developing world, corporate and non-corporate world
According to survey done by Graham and Harvey (2002) indicates that firm size significantly affects the practice of corporate finance. For example, large firms are significantly more likely to use net present value techniques, while small firms are more likely to use the payback criterion. A majority of large firms have a tight or somewhat tight target debt ratio, in contrast to only one-third of small firms. Empirical research (Kaijage:1994) done in the 1960 showed that conventional techniques especially PBP were very much relied upon decision making. Research findings by Istvan (1961); Pfolmn (1963) all bears to this testimony. Beginning in the early 1970s, more firms gradually changed from using conversional techniques in favour of Discount Cash Flow Technique. This include the work done by Klammer (1972); Gitman and Forrester (1977); Schell Sundem and Geijsbeck Jr (1978); Oblack and Helm (1980); Kim and Farrcher (1981) Pike (1988) in all above research confirmed that there has been an increase overtime in the rate of adopting budgeting techniques. The IRR is reported to be more popular where as te use of PBP continues but as a secondary techniques. According to the research of Kaijage himself still the DCFT considered valuable budgeting technique singing out the IRR to be the most popular technique.
With regard to the above findings this assessment has found a need how capital budgeting techniques used at non-corporate environment while most of the above research relied on business oriented sectors. Aim on looking for frequent used techniques and why are they important to be done before starting a project.

During assessment, we used different methods and techniques.
3.1 Interview and Questionnaires
Interview was conducted to NSSF Officials, A list of attached questions were used as a special tool to guide discussion and interviews.Questionnaires distributed to respondents were in Kiswahili language purposely prepared to allow the respondents to understand and be able to offer appropriate answers in comfortable manner.
3.2 Quantitative and qualitative data
Information collected during the assessment were qualitative where descriptions of information collected were in form of explanations and quantitative data obtained in forms of numerical. Most of the quantitative data obtained from documents given by NSSF officials.
3.3 Hand books and internet review
Some books concern with capital budget techniques were reviewed during the assessment and internet assists to find out some theoretical reviews and empirical reviews on applications of capital budgeting techniques to assess proper projects for investment.

4.1 Capital budgeting techniques case of NSSF
Capital Budget techniques which are used to evaluate investments in the fund are Net Present Value (NPV), Internal Rate of Return (IRR), Pay back Period (PBP), and Weighted Average Return on Investment (WAROI). During the exercise all techniques are used on each investment and compared to the operating environment and market in general.
There is no most superior technique used at the fund even though through various documents show that Return on Investment (ROI) techniques used to evaluate investments performance annually and Pay Back Period (PBP) technique, but the assessment lack the evidence to show which one is used mostly. However it insisted that in order to make investment decision the NSSF uses all techniques according to the operating environment and market situation.
NPV-Net Present Value and IRR-Internal Rate of Return are found to be most difficult techniques to apply because they involve too much sophisticated formulas and calculations to use is not easy to learn than using ARR and PBP.
These techniques are not applied equally across different sizes of investments/projects for instance PBP may be used to invest in treasury bills and bonds and loans, while the large investments such as real estate all methods are used to find the viability of the anticipated investments. Meanwhile the NPV, IRR and Payback Period are used most to appraise the projects while the Return on Investment is mostly used to evaluate projects after a certain period of implementation to see the impact of the investment.

4.2 Cost of capital (discount rate)
There are several costs of capital used in the capital budgeting in the NSSF which include the ongoing interest rate, cost of equity, and internal rate of return.
4.3 Risks
In the project undertaken by the NSSF there are some risks involved such as low occupancy rates in some buildings, low uneconomical rental, high maintenance costs defaulters who do not pay rent on time delays to cover initial outlay and current value fluctuations.
However there are several techniques used to care off the potential risks such as investing more in less risks projects such as government securities, now NSSF is planning to build houses and sell them instead of holding them to avoid maintenance costs, difficult in rent collections and depreciation costs. Also NSSF has some principles of investment which are also there to escape risks, which are safety, to invest in areas which guarantee security of fund, Yield; to invest in areas which pay high yielding, Liquidity; to invest where there is guarantee of availability of liquidity to meet shot term obligations, maintenance of assets value, to direct fund in areas which will ensure positive real returns so as to maintain the value of assets of the fund and diversification for the purpose of minimizing risks.
4.4 Other variables
Cash flow in NSSF is determined by considering the effect of taxation, inflation, depreciation and interest expense.
Effect of tax is determined on the profit and not cash flow therefore to take into account the tax effects calculated from profit.
Inflation adjustment is also considered in the cash flow even though for the current years due to the country’s economy stability doesn’t take into account due to its minor effect since the rate is below 10 percent.
Depreciation is not applied in counting cash flow since it doesn’t involve typical cash but is just accounting adjustment to realize real accounting profit since in cash flow we are dealing with cash in and cash out therefore the effects of non cash flow do take into account.
In the economy stability, it is expected that inflation and interest rate continue to fall the NSSF Return on Investment falls too to reflect macro economic stability.
Issues of anticipating tax effect when making investment decision is the one of the big problem involved in making investment decision. Also the decision of not involving inflation rate by considering the existing economic stability may cause problems in counting real return on investment.

The NSSF is investing not for profit purposely but for the aim making sure earns something to pay as benefits to members, to pay for administrative costs and offer some economic contribution to the country’s economy
All NSSF’s investments have been selected after performing investment appraisal to see if they are viable or not. According to the findings all methods such as NPV, IRR, and Pay Back methods and ROI are used to determine the viability of the projects to invest, they use all methods in order to avoid risks that may incur incase of using one or some methods. During the evaluation of the investment each year of implementation, the ROI method is normally used to measure the impact and the extent of achievement of the project.
Despite of the weaknesses of each technique there are some advantages in appraising projects. As almost all projects of NSSF are doing so fine due to the proper selection done after using all mentioned capital budgeting techniques. In the way forward, further research is required to be done to see the frequency of each technique used, while for the shortage of time and resources these assessment failed to find how much each technique is used to appraise and evaluate the project.

1.0 Ngatuni (2008); Lecture notes
2.0 Mcmenamin J.(1999): Investment appraisal
3.0 Kaijage(1994) Paper on business management Review Journal
4.0 Graham and Harvey (2002); How do CFOs make capital budgeting and capital structure decision.


Obtain a copy of most recent annual reports, accounts or any other relevant source from your organisation or an organisation of your choice. Scan through the details in No 2 below to help you judge the kind of documents you will need to ask for from your organisation. You might also need to talk to the relevant section/department on such matters related to the philosophy behind the way things/functions are set as they are in your organisation or in the organisation you chose. For a rich analysis each group member must contribute one source.
- Simchimbey, Hashim Ally
- Ijumba, Alice
- Mhache Paulo Adonram
- Kessy, Idaya J.
- Ridas, Kaliare
- Ndyanabo Ally

APRIL, 2008
Objectives of the study
The organization goals and strategies
Literature covered
Who are agency of Kinondoni Municipal Council
What are the agency problem
How to mitigate agency problem
Methodology of the study
The philosophy behind the structure
Conclusion and Recommendation
Bibliography and References

1.0 Introduction:
We obtain a copy of recent annual reports from Kinondoni Municipa council and scan it to help us to judge the kind of documents we will need to ask for. We also have a direct conversation with Head of Accounting Department (Treasurer) of Kinondoni Municipal Council who clarified to us about the philosophy behind the organization function.
The Kinondoni Municipal Council as one of the local Authorities in Tanzania has a role of maintaining law and order, rendering services in an efficient and effective manner and promotion of development activities among its inhabitants. This municipal council is legally obliged to prepare its annual financial accounts report on 30th September of each year. For this exercise the Kinondoni Municipal Council final accounts report for the period of May 2005- June 2006 have been used. Also the consultations were made to the key informant people in the finance department for clarifications.

2.0 Objectives,of the study:
- To explore and learn more on the meaning and scope of financial management undertaken by Kinondoni Municipal Council.
- To identify the goal of the organization that is Kinondoni Municipa council
- To identify the agency problems and make recommendations on how to mitigate the problems.
3.0 The organization goals and strategies:
Goals: The Kinondoni Municipal Council as one of the Local Authorities in Tanzania has a role of maintaining law and order, rendering services in an effective manner and promotion of development activities among its inhabitants. The strategies to achieve the goals for that year were:
- Construction and rehabilitation of primary schools
- Rehabilitation of municipal hospital, health centers and dispensaries
- Improvement of waste management services
- Construction of shallow and deep wells and urban water supplies
- Infrastructure development including road maintenance, foodstuffs market construction, sewerage system improvement.

4.0 Literature covering the need for firm goals:
Kinondoni Municipal Council final accounts report for the period of May 2005- June 2006 is one of the literature covered. The report includes The Notes to the Financial Statement as at 30th June 2006, Municipal Director Report, Consolidated Balance Sheet, Consolidated Statement of Income and Expenditure, Cash Flow Statement, Trial Balance, Schedule of Assets. Financial policy of municipal explain how municipal is required o allocate fund to fulfill goals and objectives and performance either organization has achieved or not is measured at the end of each financial period.
In referring to some theoretical review the statement of municipal financial policy is supported, for instance McMenamin J.Ch 9 in Financial analysis and performance evaluation insist that allocation of fund should base on goals and objectives of organization not otherwise, mean while review from www. omb.govt. in the performance measurement challenges and strategies (June 2003) illustrate that performance measurement Indicate what an organization is accomplishing and whether results are being achieved continue to explain that measurement helps managers by providing information on how resources and efforts should be allocated to ensure effectiveness. It keeps organization partners to focus on the key goals of organization.

5.0 Who are the Agency of Kinondoni Municipal Council:
The agency of the Kinondoni Municipa Coucil are staffs from different department that is Finance Department, Administration Department, Trade Industry and Market Department, Land Department, Education Department, Halth Department, Economic & Planning Department and other stakeholders who are working with an organization daily thus includes contractors, commission agency etc. The owner of the organization is government.

6.0 What are the agency problems:
The agency problem are the problems which arise due to delay in payment of their rights on time such as Salaries, Pension, Bonus, allowances, and payment due to service delivered by a private sector on behalf of the organization.

7.0 How to mitigate:
Mitigation of the agency problems can be done by making on time payment of the staffs and conducting meetings to solve unnecessary conflict which may arise within an organization.

8.0 Methodology of the study
The methodologies that have been used in this study are:
- Reviewing the secondary data: the annual financial report of municipal council for July 2005-June 2006.
- Interviews with the Kinondoni Municipal council officials
- Observations on the municipal environment hygiene activities and the structures

9.0 Findings
a. The specification of company goals and strategies:
These are normally done through participatory approach whereby community members are involved through the local government authorities channels to propose and prioritize their potential needs. The community is involved at the sub ward level, thereafter the ward compile all the issues raised by all the sub wards by studying and analyzing critically the intensity, magnitude and the importance. So each wards submit their concerns to the Municipal Council and at this level the council analyze again, rank and prioritize issues from all wards, identify the objects to be met for that year basing on the community demand and thereafter develop strategies to meet the objectives, and identify resources that will be needed to support the activities to meet the strategies and the goal set. The elective members of council ( Councilors ) represents community members at the Municipal level.
Municipal council compile the budgets received from the Ward Level and prioritize according to the estimated revenue for that year. Different stakeholder went through the proposed budget before final approval. One of the stakeholder involved are Dar es Salaam Regional Secretariat of which went through a proposed budget and advice according to the national strategies towards improvement of livelihood and poverty alleviation policies. Once the activities and the budget have been approved its when the Municipal Council can start implementing the activities.

b. The performance in such goals can be measured through non-financial and financial performance measures.
- Non-Financial Performance Measures:
o By assessing the community satisfaction on the provision of services
o By assessing the workers performances, the output in units per worker.
o By assessing the quality of the services being providing basing on the standards that have been set by the recognized professions and institutions.
o By evaluating the achievement of the targets that were set against the goals.
- Financial performance measure:
o Cost analysis: by assessing the cost involved against the quantity and quality of the output.
o By assessing the cash flow against the budget to meet the goals.
c. The Organization Structure of the Finance Department at Kinondoni Municipal Council is as follow:
Municipal Treasurer
Salaries Unit
- Preparing payment vouchers
Stores Unit
- Procurement
Revenue Unit

-Revenue collection
Expenditure Unit
- Payment of expenditures
Municipal Treasurer reports direct to the Municipal Director for final approval of department function.

10.0 The philosophy behind that structure is determined by :
- The local government directive from the central government which considers the demographic coverage and size of the population, the capacity of the municipal, the amount of fund and the nature of the activities undertaken by the organization.

d. The organizations’ key stakeholders are the Central government, Counselors, Civil Society organizations, Service providers from the government, Influential people and leaders i.e local government leaders, religious leaders, Business community and Community at large.
e. The executive pay structure in Kinondoni Municipal is designed basing on the Tanzania Government Scale (TGS A – TGS Q which is a super scale) and payment is made taking in consideration of the several factors such as Level of education, Working experience, The job position, that include role and responsibilities, Nature of the job such as rare professional jobs against common jobs.

11.0 Conclusions focusing on what we have learned from the study:
We learned that Kinondoni Municipal Council is legally obliged to prepare its Final Accounts and submit it for audit before statutory required date which is 30th June of each year. We learned also that the report is prepared basing on the Local Authority Accounting Manual (LAAM) of 1992, Tanzania Financial Accounting Standards (TFAS) issued by the National Board of Accountants and Auditors as well as the Local Authority Financial Memorandum (LAFM), 1997.
At the end we saw that the allocation of fund is determined by the goals and objectives of the municipal council while the performances depend on how the municipal achieve to fulfill goals and objectives.

12.0 Bibliography/references:
1. Kinondoni Municipal Council, Abstract of Accounts and Statements for the Period ended 30th June, 2006.
2. McMenamin J.Ch : Financial Analysis and Performance Evaluation
3. www.omb.govt (June, 2008) Performance measurement challenges and strategies.


Q. The management of Comfy Hotels Ltd is attempting to evaluate the feasibility of investing £125,000 in upgrading and extending its bar, kitchen and dining room facilities. The scheme is assumed to have a ten-year life, a scrap or terminal value of nil and is expected to increase annual net profits by £15,000, after charging annual depreciation of £12,500. For a project of this type, management usually prefers a payback period of less than 6 years. Using a cost of capital of 12 per cent, where appropriate, and ignoring taxation, you are required to determine:
(a) Payback period (PPB);
(b) Average accounting rate of return (AARR);
(c) Net present value (NPV);
(d) Internal rate of return (IRR);
(e) The financial acceptability of the project, based upon the above data.

a) Payback Period (PPB)
Initial Investment (cash outlay) on project
PPB = ____________________________________________________
Annual net Cash Inflows from the project.

Initial Investment = £125,000

Annual net cash flow = £ 15,000 + £12,500 = £ 27,500

£ 125,000
PPB = ______________ = 4.5 yrs.
£ 27,500

By using Payback Method Comfort Hotel will undertake the project since the Payback period is 4.5 yrs, that is the actual payback period is less than the predetermined maximum period.

b) Average Accounting Rate of Return (AARR)


Average Accounting Profit
AARR = _____________________________________________ x 100
(Initial Outlay + residual value)/2

Average Accounting Profit = £15,000
Initial Outlay = £ 125,000
Residual Value = 0

£ 15,000 15,000
AARR = _______________________ X 100 = ___________ X 100 = 24
( £ 125,000 + 0) / 2 62,500

c) Net Present Value:

NPV = - Io + ∑ NCF
t = 1 (1+r)n
NCF = Net Cash Flow at end of year t = £27,500
Io = Initial Investment / Cash Outlay = £125,000
t = any year
r = required rate of return = 12%
n = project expected life = 10

Year Net Cash Flow (NCF) x Discount Rate (r) = PV
£ 12%
0 (125,000) (125,000)

1 – 10 27,500 5.650 155,375

NPV = 30,375
d) Internal Rate of Return (IRR)

1. 0 = - Io + ∑ NCF
t = 1 (1+IRR)n

2. IRR = r1 -------------------- x ( r2 –r1)

To determine the internal rate of return we use the trial and error approach

At the discount rate of 12% the NPV is 30,375 positive, at the discount rate of 18% the NPV is – 1,415. This reveal that the IRR lies between 12 – 18 percent.


r1 = 0.12 NPV1 = 30,375

r2 = 0.18 NPV2 = - 1,415

30,375 30,375
IRR = 12 + --------------------- x (18 – 12) = 12 +----------- x 6
30,375 + 1,415 31,790

= 12 + (0.95 x 6)

= 17.73% says 18%

A project yields 18 percent, which is greater than the cost of capital or required rate of return of 12%, therefore it is acceptable using IRR criterion

e). - By using Payback Method Comfort Hotel will undertake the project since the
Payback period is 4.5 yrs, that is the actual payback period is less than the
predetermined maximum period.

- Accounting Rate of Return is 24% if the minimum required IRR IS greater than 24 the project is not acceptable but if the minimum required IRR is less than 24% say 12% the project is acceptable.

- Net Present Value (NPV) is 30,375, since the NPV is positive the project is considered acceptable.

- Internal Rate of Return is 18% that is IRR is greater than the required rate of return which is 12% the project is considered acceptable.