Impact of Microfinance Institution on Poverty Reduction. A Case of Microfinance Beneficiaries in Urban West Region, Zanzibar, Tanzania

The objective of the study was to examine the impact of Microfinance Institution on Poverty Reduction, a case of Micro finance beneficiaries in Urban West Region – Zanzibar. The study was justified based on the fact that poverty level and microfinance services change continuously and therefore a lot remains to be desired. Descriptive as well as multiple linear regression methods were used in this study which involved a sample of 92 beneficiaries of microfinance services. Microfinance services and entrepreneurial skills were independent variables and poverty reduction was the dependent variable. Data analysis was done using Statistical Package for Social Sciences (SPSS). The findings revealed that microfinance services contribute 60 percent of poverty reduction indicating the strong impact of MFIs in poverty reduction given that the loans are invested in income generating activities. MFIs beneficiaries have increased their income, improved social services and employed themselves. It was further revealed that MFI provide entrepreneurial skills although at a very small rate and the training provided means to create member’s awareness of terms and conditions of loans and savings and creating business skills. It was recommended that microfinance services provision be expanded to include large number of clients, introduce entrepreneurial training and ensure simultaneous provision of microfinance services and entrepreneurial skills for effective poverty reduction. Key words: microfinance institutions, poverty reduction and microfinance beneficiaries