The role of credit facilities and investment practices in rural Tanzania: a comparative study of Igowole and Ilula emerging urban centres

Abstract

Small urban settlements or small towns in rural areas represent the fastest urban growth in most of the African continent. Along with a renewed political interest in African agriculture, the role of urban settlements has gained a prominent position in poverty reduction in rural areas and as an alternative to out-migration. Based on data collected between 2010 and 2012 covering more than 60 business operators in two emerging urban centres (EUCs) and their rural hinterlands, the article explores development trajectories in two EUCs in Tanzania, both of which have experienced rapid population growth and attracted new investments in business by both migrants and the indigenous population in an effort to exploit new opportunities in the centres. The initial urbanization has not been driven by the state or by new institutional interventions such as microfinance but rather by ‘the market’. This paper argues that microfinance plays a role in facilitating possibilities for some businesses to sustain, expand or diversify their businesses once the business is well-established in the EUCs. Migrants play a pivotal role for the early development and later diversification of business activities within both EUCs. They have been attracted by new investment opportunities and bring capital and knowledge from previous experiences with economic activities.

Keywords:

• small towns
• rural transformation
• economic diversification
• Tanzania

Acknowledgements

This work was supported by the Consultative Research Committee for Development Research under the Danish Ministry of Foreign Affairs under Grant number 09-P11-Tanzania. This research was a component of the research project ‘Rural-Urban Complementarities for the Reduction of Poverty (RUCROP): Identifying the Contribution of Savings and Credit Facilities’. The project is coordinated by the Department of Agricultural Economics and Agribusiness, Sokoine University of Agriculture, Tanzania. We would like to thank the research participants in the two study sites. We would also like to thank two anonymous reviewers for their valuable comments and suggestions.

Notes

1. Bryceson, “The Scramble in Africa”; Ellis, Rural Livelihoods; Ponte, Farmers and Markets; Reardon, “Evidence of Household Income Diversification”; Tacoli, “Interest in Rural-Urban Linkages.”

2. Bryceson, “Acknowledging the Inevitable”; Bryceson, “The Scramble in Africa.”

3. Satterthwaite and Tacoli, “Small and Intermediate Urban Centres.”

4. In the case of Tanzania, see, for example, Kanaan, “Tanzania’s Trade Liberalization.”

5. World Bank, Rural-urban Dynamics; Haggblade, Hazell, and Reardon, “Rural Non-Farm Economy.”

6. Bryceson, “Birth of Market Town”; Christiaensen, De Weerdt and Todo, “Urbanization and Poverty Reduction”; Haggblade, Hazell and Reardon, “Rural Non-farm Economy; Knudsen, Livelihood, Mobility, Settlement Dynamics; Pedersen, Small African Towns; Satterthwaite and Tacoli, “Small and Intermediate Urban Centres”; Tacoli, “Interest in Rural-Urban Linkages.”

7. Christiaensen and Todo, Poverty Reduction, Rural-urban Transformation; Djurfeldt, “African Re-Agrarianization.”

8. World Bank, Rural-urban Dynamics.

9. Christiaensen and Todo, Poverty Reduction, Rural-Urban Transformation. See also Ferré et al., “Metropolitan Bias” on the relationship between poverty and city size in developing countries.

10. Lazaro and Birch-Thomsen, Rural-urban Complementarities.

11. As per the Local Government Act No. 8 of 1982. See Lazaro and Birch-Thomsen, Rural-urban Complementarities.

12. Baker, “Survival and Accumulation Strategies”; Christiaensen and Todo, Poverty Reduction, Rural-urban Transformation; Hardoy and Satterthwaite, “Small and Intermediate Urban Centres”; Satterthwaite, “Urban Poverty”; Tacoli, Rural-urban Linkages.

13. But not exclusively. See e.g. Haggblade, Hazell, and Reardon, “Rural Non-farm Economy.”

14. Satterthwaite, “Urban Poverty”. See also von Braun, “Rural-urban Linkages for Growth, Employment and Poverty Reduction.”

15. Satterthwaite and Tacoli, “Small and Intermediate Urban Centres.”

16. Pedersen, Small African Towns.

17. Christiaensen and Todo, “Poverty Reduction, Rural-urban Transformation.”

18. World Bank, Rural-urban Dynamics.

19. Satterthwaite and Tacoli, “Small and Intermediate Urban Centres,” 13.

20. Pedersen, Small African Towns.

21. Satterthwaite and Tacoli, “Small and Intermediate Urban Centres.”

22. Djurfeldt, “African Re-agrarianization”; Pedersen, Small African Towns.

23. Bryceson, ”Birth of Market Town.”

24. Bryceson, ”Birth of Market Town.” 289.

25. Bryceson, ”Birth of Market Town.” 289. See also Knudsen, Livelihood, Mobility, Settlement Dynamics; the World Bank, Rural-urban Dynamics and De Weerdt and Hirvoven, “Risk Sharing and Internal Migration.”

26. Tacoli, “Links Between Urban and Rural Development.”

27. For example, Hermes and Linsink, “Microfinance”; Chowdhury, Ghosh and Wright, “Impact of Micro-credit on Poverty.”

28. Chowdbury, Ghosh and Wright, “Impact of Micro-credit on Poverty,” 299; Bateman and Chang, “Microfinance and the Illusion of Development”; Ahlin and Jiang, “Micro-credit and Development.”

29. For example, Bateman and Chang, “Microfinance and the Illusion of Development.”

30. Chowdhury, Ghosh and Wright, “Impact on Micro-credit on Poverty.”

31. Ahlin and Jiang, “Micro-credit and Development”; Hermes and Lensink, “Microfinance.”

32. Bateman and Chang, “Microfinance and the Illusion of Development,” 13.

33. Bateman and Chang, “Microfinance and the Illusion of Development,” 17–24.

34. For more information, see Lazaro and Birch-Thomsen, Rural-urban Complementarities.

35. Mshote, “Rural-urban Migration.”

36. NBS, “Tanzania Population and Housing Census,” 2002, 2012.

37. Kilima et al., “Ilula Emerging Urban Centre.”

38. Mshote, “Rural-urban Migration.”

39. The classification of interviewed businesses provided in Table 3 is based on the most important economic activity.

40. In a few cases, family members provided (part of) the start-up capital in order to create jobs for their younger kin or to support elderly family widows.

41. See also Hermes and Lensink, “Microfinance.”

42. Bateman and Chang, “Microfinance and the Illusion of Development.”