TOPIC 2. ECONOMIC AND SOCIAL DEVELOPMENT
ECONOMIC
AND SOCIAL DEVELOPMENT
Concept of
Economic Development
Economic development is the
increase in economic growth and the distribution of the goods and services
among the people. It also refers to an increase in production and quality.
Meaning of Development
Explain
the meaning of development
Development
is a process to improve the lives of people in a country. This involves not
only raising living standards, for instance goods and services, but a promotion
of self-esteem, dignity, respect and people’s freedom to choose and to take
control of their own lives.
Types and Levels of Development
Identify
types and levels of development
There
are two levels of development, namely individual and national development. Individual or personal level refers to the increase of material well-being of a person like a
good house, car and clothes. Also greater freedom of expression, worship,
increased human skills and the ability to produce goods and services in a
larger quantity.This aspect also includes the educational level of a person.
National or community level refers to the improvement in social, economic, cultural and
political affairs of a community or country. It involves the provision of
better health services and water accessibility. Political development at the
national level involves aspects of good governance, rule of law and human
rights.
Types
of development
There
are two categories of development, namely economic
developmentand social development. It is
very important to discuss the concept of economic development in modern times
because there is no country that can increase the welfare of her people without
economic development. Within a country, there is a gap in the living standards
of the people. There are people who live a luxurious life while others face
hunger. Similarly, mostcountries in the world today are poor; only one third of
the countries are rich. The poor countries have to raise the standards of
living of their people. These countries must be developed economically.
There
is another concept in development, which is economic
growth. Economic growth is an increase in the productive potential in
an economy. In other words, it is the quantitative increase in goods and
services produced in a country in a specified period of time. Economic growth
increases the Gross Domestic Product (GDP). The GDP is the actual economic
growth.
Meaning of Economic Development
Explain
the meaning of economic development
Economic growth is the
rate of expansion of national income or total volume of production of goods and
services of a country. Many developing countries have somehow achieved
reasonable economic growth but there is less economic development. In Tanzania
for instance, there is a rise in economic growth every year, yet the lives of
majority of the people are not improved. In this situation you will find an
increase in the GDP, but the living conditions of the people continue to
deteriorate.
Indicators of
Economic Development
Indicators of Economic Development
Identify
indicators of economic development
Indicators
of economic development are also known as measurements or criteria for testing
the degree of economic development of a country. The most frequently used
indicators are per capita income of a country, birth rates, population growth,
life expectancy, literacy rates and energy consumption. Others are rural-urban
migration, unemployment and poverty.
Indicators of Economic Development in Relation to Tanzania
Appraise
the indicators of economic development in relation to Tanzania
Activity 1
Find the per capita income of the people if the GNP is Tsh.56
208.4 billion and the total population is 40.7 million.
Per
Capita Income
Per capita income of a country is the average income of the
people of a given country in a particular year. It is calculated by dividing
the total annual income of the country by the population of that country. The
total annual income of a country is also referred to as the Gross National
Product (GNP) or the Gross Domestic Product (GDP). It is always given in
monetary terms.
·
Per capita Income= Gross National Product (Total Annual Income
of the Country)/Total
Population of the country
·
Per capita Income = GNP/Total Population of the country
·
per capita =28 212.6/ 40.7
·
per capita income =Tsh.
693 185
This indicator is considered to be the best single indicator of
economic well-being. The International Bank for Reconstruction and Development
(IBRD), more commonly known as the World Bank, classifies countries into three
groups according to their Gross Domestic Product (GDP) per capita.
Birth
rates
Birth rate is the ratio of total live births to a total live
births to total population in a specified community or area over a specified
period of time. The birth rate is often expressed as the number of live births
per thousand of the population per year. This is the easiest way of
distinguishing developing countries from developed countries. The birth rate in
low-income countries as a group is 30 per thousand, twice that of developed countries
at 14 per thousand.
Population
growth
This is
an increase of population. In developing countries, the population growth is
higher compared to the developed countries. Over the last 50 years, world
population has grown very rapidly compared to any previous time. World
population growth needs to be studied in order to understand its impact on the
process of development.
The
reason of population growth in developing countries is the high birth rate.
Birth rates remain high even though death rates have fallen. This is because a
larger proportion of girls get married at a tender age. They have children, and
they have more years in which to have children.
Many
governments in the world, including Tanzania's, have established policies aimed
at slowing the growth of population. For instance, in Tanzania there is a birth
control programme known as “Nyota ya Kijani”. The aim is to ensure fewer
children per family, so that poverty can be reduced. In this regard, the
government will be able to provide adequate social services to the people.
Life
expectancy
This is
the average number of years newborn babies can be expected to live if health
conditions stay the same. Life expectancy is lower in developing countries
compared to indeveloped countries. In developed countries, the deaths of
children under the age of five accounts for 1.3% of all deaths, while in
developing countries the figure is 10.5%.
The most commonly used indicators of life expectancy are:
·
Person/Populationper
hospital bed. Medical
care is very scarce in poor countries and that is why the death rates arehigh
in these countries. The governments have to improve the quality of available
health care and the number of people per doctor and hospital beds. In Tanzania,
there is a shortage of doctors and hospital beds. There are cases where three
patients share a single bed.
·
Calories deficiency is a
cause of malnutrition. Our bodies do not have sufficient food to provide energy and
to maintain good health.
·
Protein per day. Types
of food and the quantity are important in the maintenance of good health. Lack
of protein will cause malnutrition. Malnutrition affects future productivity of
a population – the ability to work effectively.
·
Population per physician. In
developing countries, physicians attend more patients than in developed
countries. This is because there are fewer physicians in developing countries.
·
The infant mortality rate. This
is the number of live-born babies who do not survive to their first birthday
out of each thousand babies born in total. The reasons for premature death
include poor quality of drinking water and sanitation. Also, inadequate
nutrition for pregnant women and infants. Another reason is poor health care
provision. Many people fall victim to polio, measles, diphtheria, tetanus,
tuberculosis, whooping cough, flu, diarrhea, pneumonia, typhoid, cholera and
malaria.
Literacy
rates
Literacy
is the ability to read and write. Literacy has strong connections with
education, openness to change and labour productivity. Literacy is an objective
of development.
Energy
consumption
The
consumption of energy in a country is highly correlated to the degree of
industrialization. The poorest countries use very little energy, while the
richest industrial countries use a lot of energy. The most common energy used
by poor nations like Tanzania is firewood. Industrialized countries use gas,
solar energy, and hydroelectric power and coal because they need more energy
for their industries. Energy consumption indicates the level of development of
a country.
Rural
–urban migration
People
in developing countries tend to migrate from rural to urban areas. Cities in
these countries grow rapidly. The purpose of migration is to get employment.
Most of these migrants remain unemployed and are subjected to poverty.
Unemployment
This is
a situation whereby able and mentally fit people in a country arejobless and/or
do not have formaljobs. There is a high rate of unemployment in developing
countriesand itis a serious matter in our societies, particularly among the
youth in urban areas. The high level of unemployment may result in civil
unrest, fall of standards of living, increased crime like drug abuse, robbery,
prostitution, theft and loitering. The other effects are child labour to
subsidize family income, separation of families and increased number of street
children.
Poverty
Poverty
refers to thestate of being poor. Poor people are those who fail to enjoy
better living conditions in the society they live in; they are unable to meet
the basic needs of life, which are food, clothes and shelter. Poverty is the
most distinguishing feature between developing countries and developed ones. In
this standard, two in five people living in developing countries are absolutely
poor. This type of poverty has been eradicated in developed countries. Poverty
is a hindrance to economic development.
Apprising
the indicators of economic development in relation to Tanzania.
Tanzania
is gradually developing due to implementation of modern technology in many
production activities like industries and small scale businesses. We are
observing many businessmen and women in many places. The government has
established Export Processing Zones (EPZ). The act to establish EPZ was enacted
in April 2002 and became effective in March 2003. The main objectives of EPZ
are to attract and promote investment for export, increase foreign exchanging
earnings and increase employment opportunities. These aimed at attracting and
encouraging the transfer of technology and promoting the processing of local
raw materials for export.
Currently,
eight companies have been licensed as EPZ developers (two in industrial parks,
six in single factory units), ten licensed as EPZ operators, five in textiles/
garments, one in mineral processing/jewellery, one in fruit processing, three
in reconditioning mechanical, electrical and electronic devices.
Main
sectors for EPZ investment are textiles, agro-processing, leather processing
and manufacture of leather products. Others are fish processing, lapidary (gold,
diamond and gemstones, including the famous Tanzanite), wood products,
electrical appliances, and information and communication technology (ICT). This
will solve the problem of unemployment, raise the GDP of our country and reduce
the rate of poverty.
In
Tanzania, agriculture is the backbone of our economy. With the introduction of
the policy “Kilimo Kwanza”, the number of people involved in this sector will
increase. New labour force involved in farming will be utilized accordingly;
this will solve the problems of malnutrition and increase life expectancy.
Activity 2
By using the indicators of economic development, assess the
economic development of your community (village/street). Present your findings
in the class.
Factors for Economic Development
Factors for Economic Development
Identify
factors for economic development
Economic development is the change or increase in the economic
growth and the distribution of the increased goods and services among the
population. For production to increase there must be land, labour, capital,
infrastructure, entrepreneurship, technology, education and good governance.
1. Land; Land is
anatural resource which includes the surface of the earth, lakes, rivers and
forests. It also includes mineral deposits below the earth. Land provides space
where production can take place. Industries that depend on land include all
extractive occupations such as farming, mining, quarrying and fishing. All
these economic activities contribute a lot tothe national income. Land is a valuable
factor. The value of land depends on location and fertility. The value of land
may depend on what one is going to use it for. For instance, land in Tanzania
is valuable to agriculturists and those who want to invest in estates, while in
United Arabs Emirates land may have no value to an agriculturist but it is
valuable to an industrialist who needs oil for industries.
2. Labour; Labour refers tohuman resource, the basic determinant of which
is the nation's population. It is any mental (intellectual) or physical efforts
of human beings made for any material benefit. Labour is the primary factor of
production. It is labour that organizes the other factors of production. Labour
is an important factor of production because it utilizes other natural
resources that are available in production. Without labour, land and capital,
nothing can be produced. It supervises the production of commodities. It
applies technical know how in the production process.
3. Capital; Capital
means all man-made productive assets. Capital is used to helot produce other
materials. Examples of capital are tools, machines and buildings. Capital
increases the productivity of land and labour. Money is used to purchase goods
for further production.Capital may be classified into fixed and working capital.
Fixed capitals include things like farms, machinery, tractors, and factories.
Working capital is used in a single act of consumption, for instance raw
materials, goods – in – process and fuel. Capital is important in production
because it enables investment. Investments include the building of factories,
power stations and the making of tools and implements. If more investments are
established, production will increase. Thus, economic development will
increase.
4. Infrastructure; Infrastructure
is the whole web of facilities which need to be in place for productive
industry to flourish. Infrastructure includes roads, railways, gas, schools,
electricity, telephones, water, sewerage systems and others. Infrastructure is
important foreconomic development. The goods produced have to be transported
from the production place to the marketing area. If supply will be low then
sales will not be good. Telephones are important to reduce movement of labour
during the marketing process. Roads must be passable throughout the year. Poor
infrastructure leads to poor development.
5. Entrepreneurship Land;labour and capital need
to be organized in order to produce. The person who organizes the business is
known as an entrepreneur. An entrepreneur is a person who is responsible for
the profit and loss of the business. He/she is the risk taker. An entrepreneur
is important in economic development because he or she provides the funds
necessary to bring together the other factors of production. The entrepreneur
has to employ labour, buy or rent land and arrange capital. He or she bears the
risk of the business. Entrepreneurs make some important decisions regarding the
business like what to produce, where to locate the enterprise, and decide on
the type of the business organization which may be a partnership or a
corporation.
6. Technology; Technology
is the way people use resources to meet their needs and wants. This includes
tools, machines, materials, techniques and the process used to produce goods
and services to satisfy their needs. Technology is composed of hardware,
software and technical know –how. Hardware is the physical structure and
logical layout of equipment or machinery that is used to carry out the required
needs. Software is the knowledge of how to use the hardware in order to carry
out the required needs. Technical know-how is the learned or acquired
skills.The level of output of a firm depends on the quality and quantity of
inputs in the existing state of technology. When technology is high, production
increases. The level of production in Tanzania is low due to poor technology.
For instance in agriculture, despite having fertile and vast land, we cannot
produce enough food to satisfy our needs and get surplus for export because of
the poor technology we are using in production.In the mining sector, foreign
investors have been invited to extract our wealth because we do not have
appropriate technology.The availability of technology affects the rate of
growth. It increases the productivity of capital and labour and the creation of
new products. Lack of or technology causes poor production of goods and
services and underdeveloped.
7. Education; Education
is a vital aspect in production. The quality of labour is a major source of
potential growth. Efficiency of labour depends very much on education and
training.A worker must have basic skills of reading and writing. They are
important to the functioning and productivity of an economy. Developing
countries have made a huge effort to provide university Primary Education for
all children.Education is very important in the production process, because it
reduces the expenditure on the foreign labour. It improves the efficiency of
human labour. In Tanzania, the education system trains job seekers rather than
job creators. This has led to massive unemployment among the educated people in
the country. One of the reasons is that there is low rate of industrial
expansion and agricultural modernization.
8. Good governance; Governance
refers to the exercise of power of the state in managing the country's social
and economic resources. It also relates to accountability, rule of law,
transparency and citizen participation. The government is responsible to see
that there is peace in the country so that people perform their duties
harmoniously. If there is no political stability in the country, the level of
production will decrease.The government plays a vital role in economic
development. It has to provide a conducive environment to the citizens to
engage in production. The government establishes policies that will favour
people to invest. The government should encourage people to participate in
economic activities by supporting them financially.The government must enact
good policies which will favour the workers in terms of good salaries and a
favourable working environment. It should also create favourable conditions for
the functioning of markets, operation of private firms, employment of civil
society and community-based organizations in the country.
Activity 3
Referring to features of
good governance and its significance, discuss how good governance is practiced
in Tanzania.
Importance of Each Factor of Economic Development
Illustrate
the importance of each factor of economic development
The importance of each factor of economic development
·
Land; Land provides space where production can take place. Industries
that depend on land include all extractive occupations such as farming, mining,
quarrying and fishing. For instance, land in Tanzania is valuable to
agriculturists and those who want to invest in estates, while in United Arabs
Emirates land may have no value to an agriculturist but it is valuable to an
industrialist who needs oil for industries.
·
Labour; Labour is the primary factor of production. It is labour that
organizes the other factors of production. Labour is an important factor of
production because it utilizes other natural resources that are available in
production. Without labour, land and capital, nothing can be produced. It
supervises the production of commodities. It applies technical know how in the
production process.
·
Capital; Money is used to purchase goods for further production.Capital
may be classified into fixed and working capital. Fixed capitals include things
like farms, machinery, tractors, and factories. Working capital is used in a
single act of consumption, for instance raw materials, goods – in – process and
fuel.Capital is important in production because it enables investments.
Investments include the building of factories, power stations and the making of
tools and implements. If more investments are established, production will
increase. Thus, economic development will increase.
·
Infrastructure; The goods produced have to be transported from the production
place to the marketing area. If supply will be low then sales will not be good.
Telephones are important to reduce movement of labour during the marketing
process. Roads must be passable throughout the year. Poor infrastructure leads
to poor development.
·
Entrepreneurship, Land, An entrepreneur is important in economic development because he
or she provides the funds necessary to bring together the other factors of
production. The entrepreneur has to employ labour, buy or rent land and arrange
capital. He or she bears the risk of the business. Entrepreneurs make some
important decisions regarding the business like what to produce, where to
locate the enterprise, and decide on the type of the business organization
which may be a partnership or a corporation.
·
Technology; When technology is high, production increases. The level of
production in Tanzania is low due to poor technology. For instance in
agriculture, despite having fertile and vast land, we cannot produce enough
food to satisfy our needs and get surplus for export because of the poor
technology we are using in production. In the mining sector, foreign investors
have been invited to extract our wealth because we do not have appropriate
technology.The availability of technology affects the rate of growth. It
increases the productivity of capital and labour and the creation of new
products. Lack of or technology causes poor production of goods and services
and underdeveloped.
·
Education; .A worker must have basic skills of reading and writing. They
are important to the functioning and productivity of an economy. Developing
countries have made a huge effort to provide university Primary Education for
all children.\
·
Education is very important in the production process, because
it reduces the expenditure on the foreign labour. It improves the efficiency of
human labour. In Tanzania, the education system trains job seekers rather than
job creators.
·
Good governance; If
there is no political stability in the country, the level of production will
decrease. The government plays a vital role in economic development. It has to
provide a conducive environment to the citizens to engage in production. The
government establishes policies that will favour people to invest. The
government should encourage people to participate in economic activities by
supporting them financially.
The Role of Financial
Institutions in Economic Development
Financial institutions are organizations which deal with
financial services, advice, assistance or support to individuals, companies and
the public at large. They are established by the public and registered by the
authorities. Financial institutions may be private or the publically owned. The
types of financial institutions found in Tanzania are banks, insurance
companies, and social security institutions. Others are loan-giving
institutions and, savings and credit cooperative societies (SACCOS).
·
Banks; A bank is an organization that provides financial services like
storingand lending money to people or institutions. In Tanzania, there are two
main types of banks, namely Central Bank and Commercial Banks.
·
Central bank; The Central Bank of Tanzania (BoT) was established following the
decision to dissolve the East African Currency Board (EACB) and the
establishment of separate central banks in Tanzania, Kenya, and Uganda. In
December 1965, the National Assembly passed the bill of the establishment of
the Bank of Tanzania. The Bank was opened by the first President of Tanzania,
the Late Mwalimu Julius K. Nyerere, on 14th June, 1966.
·
The central bank is a national financial heart. The bank is
independent from direct government influence when carrying out desirable
monetary policies aimed at stimulating economic activities in the economy. The
Central Bank of Tanzania carries out its responsibilities in close cooperation
with the government, and in particular the Treasury which is primarily
concerned with the financial policies of the government. The head is BoT is the
Governor, who is appointed by the Presidents of the United Republic of Tanzania.
The Role of Different Financial Institutions in Economic
Development
Analyse
the role of different financial institutions in economic development
The
Bank of Tanzania has important subsidiary central banking functions. The bank
has the sole right to issue notes and coins in Tanzania for the purpose of
directly influencing the amount of currency in circulation outside banks,
thereby providing the economy with sufficient but if possible non- inflationary
liquidity.
The
functions of the Central Bank of Tanzania in economic development
The
central bank is a bankers’ bank. This function includes the acceptance of
deposits to act as prudential reserves for these banks (that is the minimum
reserves), the willingness to discount commercial and government paper, and the
commitment to act as lender of last resort to these banks. It also involves the
provision of central clearance facilities for inter-bank transactions.
The
central bank is the banker and the fiscal agent ofthe government, and may be
the depository of the government. It makes temporary advances to the government
through its overdraft facility, subject to repayment within 180 days and
through purchases (direct or re-discounting) of treasury bills issued by the
government, which mature not later than 12 months from the date of issue. The
total amount outstanding at any time of advances made in this manner shall not
exceed one eighth the average budgeted revenues of government (average of the
actual collected revenues of the previous three fiscal years, excluding loans,
grants, other forms of economic aid, and all borrowing, whether short-or
long-term).
The
central bank may advise the government on any matter relating to its functions,
powers, and duties. It may also be requested to advise the government on any
matter related to the credit conditions in Tanzania or any proposal, measures,
and transactions relating thereto.
The
central bank is the depository of the official external assets of Tanzania,
including gold and foreign currency reserves. Guarding international reserves
may imply the determination of buying and selling rates of gold and foreign
exchange in foreign exchange markets and /or the buying and selling of reserve
assets for the purpose of sustaining the national currency’s external value. It
also includes reserve management, with a view to the prudential investment of
the funds, with due regard to safety, liquidity and profitability and external
debt management.
The central bank is the supervisor of banks and financial
institutions. In general, this activity involves ensuring that commercial banks
and other financial institutions conduct their business on and a sound
prudential basis and according to the various laws and regulations in force. It
includes the supervision of banking conduct and the licensing of financial
institutions. According to the banking and Financial Institutions Act of 1991,
and the new BoT Act, the main responsibilities of the Bank of Tanzania are:
·
Implementation of prudential controls concerning capital
adequacy, liquidity, concentration of credit and risk diversification, asset
classification and provisioning, and prohibited activities.
·
Licensing of banks and financial institutions.
·
Facilitation and monitoring of Deposit Insurance Fund, the
purpose of which is the protection of small depositors.
·
Modification and monitoring of the minimum reserve requirements
and foreign exchange exposure.
The
central bank promotes financial development. This refers to the establishment
of an effective financial system, with the aid of which financial transactions
minimum amount of cost and time involved. In this connection, the central bank
has to be a facilitator of advanced clearing and transfer systems. It also
implies that the necessary banking services, as for example deposit facilities
and loan facilities, are made available. Included here is also the availability
of certain specialized institutions, which could be represented, for example,
by an industrial development bank and/or an agricultural development bank and
micro-finance institutions, and the facilitation of a money market, a capital
market, and a foreign exchange market.
Commercial banks
Commercial
banks are established for the purpose of earning profit through accepting
savings, and utilizing these savings of their customers to extend loans and
advance on which they charge interest. These banks attract the public to
deposit by giving interest rate on those deposits once made with them. All the
commercial banks are controlled by the Central Bank of Tanzania (BoT).
Some of
the commercial banks operating in Tanzania are National Bank of Commerce (NBC),
National Microfinance Bank (NMB), Tanzania Investment Bank (TIB), Akiba
Commercial Bank (ACB), Standard Chartered Bank (SCB), Stanbic Bank (SB), Habib
African Bank (HAB), Diamond Trust Bank (DTB), Exim Bank (EB) and Cooperative
Rural Development Bank (CRDB).
The functions of commercial banks in economic development
The following are some of the functions of commercial banks in
economic development:
·
Advise their customers on issues concerning investment, trade
and how to run them.
·
Act as trustees, and can also keep valuable documents like
wills, certificates and gold. Hence they ensure safe custody.
·
Provide foreign exchange to customers and help their customers
in carrying out foreign trade.
·
Offer the facility of standing order where they make regular
payment to a customer’s creditor on behalf of insurance premium and electricity
bills.
·
Facilitate withdrawal of money on current accounts any time by
the use of a cheque.
·
Offer bank draft facility to different persons in the economy,
especially the traders.
·
Extend loans to several individuals and companies that are
engaged in agriculture, ranching, mining, industry and trade. In so doing, the
economy of a country grows.
·
Facilitate deposits of money. The commercial banks pay interest
rates on the deposits.
Condition and Procedures for Getting Services from Each
Financial Institution
Point out
the condition and procedures for getting services from each Financial
Institution
There
are common conditions and procedures for getting services from the commercial
banks. Any person maybe a member of any bank he or she wants to join. A person
has to take an introductory letter from his or her employer or from the local
government officials where he or she lives. He or she will present the letter
to the authority concerned in the bank. A special form will be given for
filling in his or her particulars and the type of account he or she prefers.
The applicant must provide the name of a referee. When the bank has approved
the application it will open an account for its new customer. The customer will
be given an account number. There are various types of accounts such as savings
account, current account and fixed deposit account.
The
customer may take a loan as per bank regulations. The purpose of a bank loan is
to provide the borrower with a lump sum of money to facilitate various
undertakings. To get a loan a person will make a formal application to the
bank. He or she might be interviewed by the manager. The manager has the
authority of deciding whom it is safe to lend to. When asking for the loan from
the bank, the bank may ask for collateral security. It is something given by
the customer to guarantee the payment of the loan, the customer would be
required to repay the loan by regular installments over an agreed period of
twelve, eighteen, twenty-four or thirty six months.
The Strengths and Weaknesses of Each of the Financial
Institutions
Assess the
strengths and weaknesses of each of the financial institutions
Strengths
of commercial banks
Commercial banks have the following strengths in their
contributions over the economic development of the country. They provide
·
Easy access of services from the automated Teller Machines
(ATM). This makes it easier for customers to access the bank services all the
time.
·
Security to their customers.
·
Investment advice, management of investments, buying and selling
of investments.
·
Safe custody of valuables (night safes).
·
Cash dispensers.
·
Loans to their customers who want to run businesses, build
houses, and buy cars, for improving their living standards.
Weaknesses of commercial banks
Apart from those mentioned strengths of commercial banks, there
are some weaknesses too, including:
·
Loans repayment interest
rate is high. Many people are discouraged fro taking loans because of high
interest rate. For instance, some banks chargeup to 36% interst rate.
·
Bureaucracy in taking
loans from the banks. The filling in the application form and the maturity of the
loan takes a lot of time.
·
Referees and collateral
security is a hindrance to many customers. Due to this
requirement, not everybody can get loans.
·
Low accountinterest
rates. Owners
of the accounts in the banks are paid little interest annually. This
discourages people to deposit their money in commercial banks.
Activity 4
“The central Bank of Tanzania is the mother bank of the banks in
the country”. Discuss.
Savings and Credit Cooperative Societies (SACCOS)
These
are organized groups in which members contribute capital through savings. The
money collected from members is used to open various ventures and profits
obtained used to pay interest to the saver. Members can borrow money and return
it with an interest within the agreed time. This might be six, twelve, eighteen
or twenty-four months.
In
Tanzania, SACCOS are developing and becoming very popular. Different people
including workers have established SACCOS for the purpose of raising their
living standards and eradicating poverty. Membership of the SACCOS is
voluntary. The members know each other and conduct meetings regularly. In fact,
it is family of its kind.
Principles of SACCOS
SACCOS members are bound with the following principles:
·
All members get fixed interest on their capital contributed.
·
They get dividends according to their contribution annually.
·
Members have equal voice each has one share one vote.
·
If one wants to withdraw his or her membership from the society,
his/her money is refunded after submitting his/her letter of resignation.
·
Leaders are elected in a democratic way.
Importance of SACCOS in economic development.
Members
can take loans for investment in various economic activities which improve
their living standards as well as the national income. They will be an able to
satisfy their daily needs such as paying school fees for their children and
constructing houses. Members can also borrow money for starting businesses.
Conditions and procedures for getting services from SACCOS
SACCOS
provide a number of services to their members, like banking services. Any
member who deposits his savings and assets can withdraw them in time of need.
SACCOS provide loans to their members. Money given as loans is collected from
the members of that SACCOS. SACCOS may take loans from other banks or buy
shares from different firms and companies. Through their shares they get
dividends, which are usually shared among the members according to their
contributions. To get any services from SACCOS one must be a member.
There
are forms given to the applicants to fill in how much they want to borrow and
how they will refund. The applicant must be sponsored by other members. He or
she should list the property which will be confiscated in case he or she fails
to pay back the loan. There is a committee which goes through each applicant’s
request, examining the behaviour of the member carefully to find out if he or
she can reimburse the loan. The committee then concludes whether to give or not
to give the loan. Loans are utilized for various purposes such as construction
of houses, starting a business, emergencies, paying school fees, livestock
keeping and buying fishing implements.
Strengths of SACCOS
SACCOS have the following strengths in their contributions to
the economic development of the country.
·
They give loans to their members.
·
They provide education of entrepreneurship that is how people
can start business.
·
They create employment opportunities for the members.
·
They establish various social and economic ventures such as
purchasing land or building a dispensary.
·
They provide financial assistance to members who are widows.
Weaknesses of SACCOS
Apart from those mentioned strengths, SACCOS have the following
weaknesses:
·
There is bureaucracy in processing the loans.
·
There is favoritism in the provision of loans; other people are
denied loans without genuine reasons.
·
There are not enough educated personnel to run SACCOS.
·
There are various conflicts in many SACCOS between the members
and their leaders.
·
Funds are not properly managed by the members.
Many
SACCOS are dormant. There are members who take loans and do not pay them back
hence causing suffering to those who deposited their money in the society.
Insurance companies
Insurance companies are financial institutions that deal with
managing risk of a firm or business, people and their properties. There are
mainly three types of insurance, namely life insurance, health insurance and
liability insurance.
·
Life insurance is a kind of insurance that guarantees a specific
sum of money to a designated beneficially upon the death of the insured, or to
the insured if he or she lives beyond a certain age.
·
Health insurance is an insurance against expenses incurred
through illness of the insured.
·
Liability insurance insures property such as automobiles and
professional/ business mishaps.
In
Tanzania there are many insurance companies. Some of them are national
Insurance Corporation (T) Ltd, Reliance Insurance Co.Ltd, Zanzibar Insurance
Corporation, Jubilee Insurance Co.Ltd, Tajack Insurance Co.Ltd and Prudential
Insurance.
Importance of insurance in economic development
The following are some of the importance companies in economic
development:
·
They restore loss because they take you back to the condition
you were in before the disaster.
·
They cover disasters that might affect the individual (protection).
·
They reduce losses from auto accidents on the roads and fire. In
running a business or any production activity mishaps may occur, thus it is
advisable to insure against uncertainties that might occur.
Strengths of insurance services in Tanzania
Insurance services have the following strengths in their
contributions to the economic development of the country.
·
Many clients have been compensated in case of loss of poverty.
·
In other types of insurance, for instance life insurance, the
insured is paid back his or her contributions with interest at the end of the
contract.
Weaknesses of insurance services in Tanzania.
Apart from those mentioned strengths of insurance services,
there are some weaknesses too, including:
·
Insurance services are not accessible in rural areas.
·
There is a need to educate Tanzanians on the importance of
insurance services.
·
Many insured people complain that insurance companies delay to
compensate them in case of a loss.
·
The procedure to get compensation takes a long period of time.
·
There are unfair methods applied by some of the insurance
companies to avoid full and timely compensation for the insured asset.
