ABSTRACT
This chapter examines some of the mechanisms used by informal financial institutions (IFIs) in Tanzania to build trust among transacting parties. IFIs have developed a number of innovative informal arrangements through which externalities that are intrinsic in the highly imperfect residual market have been internalised. These include the use of a web of interpersonal relationships, market interlinkage, credit layering and specialised, custom-tailored, small-scale services in which formal financial institutions have a cost disadvantage. The chapter is based on a recent survey covering 30 money lenders (22 trader-lenders and 8 landlords), 19 savings and credit societies (SCSs) and 10 rotating savings and credit associations (ROSCAs). The value of loans and deposits are measured in Tanzanian Shillings.1
