Financial linkages and economic wellbeing: the case of microfinance cooperatives in Tanzania

This paper examines the relationship between the economic wellbeing of microfinance cooperatives’ (MFCs) clients and financial linkage intensity, moderated by multiple linkages and linkage duration. It applies regression models on data from 575 clients of 20 MFCs which were involved in financial linkages with formal financial institutions (FFIs). Findings revealed that the MFCs clients’ income is positively associated with linkage intensity. However, multiple linkages and linkage duration weakened the association between linkage intensity and MFCs clients’ income. This could be an outcome of high costs of maintaining multiple linkages, unfavourable conditions and terms of loans from multiple FFIs as well as high costs of lock-in among MFCs with a long-term relationship with FFIs. The costs trickle down to MFCs clients and worsen their economic wellbeing. MFCs need to avoid borrowing from multiple FFIs at the same time and linkage duration which may lock them in. They should also use their long-term relationship with FFIs to bargain for better terms.