Assessment of Villages Financial Management Challenges and Development Strategies in Tanzania, Arumeru District

ASSESSMENT OF VILLAGES FINANCIAL MANAGEMENT CHALLENGES AND DEVELOPMENT STRATEGIES IN TANZANIA, ARUMERU DISTRICT

Paluku Kazimoto Faculty of Business, University of Arusha, United Republic of Tanzania [email protected]

ABSTRACT

In Tanzania villages are formally established within the Local Government Legislation as fully-fledged authority that can plan, budget, collect some revenue, pass by laws, and so on. The study has revealed that village financial management and village development strategies remain the vital machinery for village socio-economic development. The village financial system and village development strategies are the result of village community initiatives based on village policies and development plan settings. As a result, this study concludes that Wards, NGO, and District/Government have little implication in the village financial system and strategies development in the selected six villages of the Arumeru District. The study concludes that village financial management committees should be formed and informed on how to implement financial policies, and make into consideration all other aspects of finance such as reporting, feedback and communication with stakeholders, village strategies development in the villages should be one of the priorities from the development strategic plan of the Government and other parties existing in the rural areas to overcome the financial management challenges existing in the villages, and a survey should be conducted Arumeru District to find out the level on self-reliance and socio-economic development for households.

Keywords: Financial System, Village financial management and village development strategies.

INTRODUCTION

Every nation or organization is increasingly associating itself with people who are intending Objective of the Study to integrate into global financial trade flows and put into application the system that facilitate The study analyzed the factors related to reporting and implementation of policies that financial management challenges and influence change in villages, Districts, and Cities development strategies in the selected villages for socio-economic development [6]. from Arumeru District. The study also Globalization and its challenges, financial established the relationship between village institutions that have the mandate of lending and financial management and village development financing activities have faced with difficulties to strategies. enhance people with financial support to enable their participation for socio-economic development. Although, financial management is REVIEW OF THE LITERATURE in place, development project activities are implemented at the village level and are meant to enhance village socio-economic development. Financial management Systems and accountability In Tanzania villages are formally established within the Local Government Legislation as The International Monetary Fund’s (IFM) fully-fledged authority that can plan, budget, Country Poverty Reduction Report finds that collect some revenue, pass by laws, and so on. It village’s financial management challenges have is however apparent that many researchers have been regularly cited as a major harmful factor to critically evaluated financial project management substantial socio-economic development rather than related challenges at District level and fulfillment in the villages [10]. For instance, in central government. the United States of America, the village

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Oct 2013. Vol. 3, No.2 ISSN 2307-227X International Journal of Research In Social Sciences © 2013 IJRSS & K.A.J. All rights reserved www.ijsk.org/ijrss financial management systems are applied as is a potential engine for national socio-economic strategies for socio-economic development [1]. development. Most of the southern countries According to Kurokawa African countries will have started to enhance village financial need further foreign cooperation, not only in the management systems to ensure appropriate marketing but also in financing and management planning, budgeting and transparency in terms of training [8]. Among the multiple causes of rural establishing books of accounts and financial poverty, the lack of access to formal and statements to reveal the village financial and adequate financial services remains a major economic situation annually [13]. impediment to the socio-economic choices of rural poor people and smallholder farmers [7]. Management Skills for Village financial reporting Tanzania Poverty and Human Development Report [9] asserted that sustainable rural socio- The Joint Implementation Review Report for economic development would be achieved Tanzania Development Program revealed that through financial accountability, transparency, project’s funds of the community village bank development and implementation of policies, accounts operate for saving and project resource management, food security, transactions with the guidance of committee improvement of education and health services, members and village authorities that have and accessing cash for income generation appropriate knowledge and skilled manpower on activities. With any transfer of authority, there how to manage allocated funds effectively [11]. exists a danger of creating a new set of elites who use this authority for personal gain losing contact The worldwide reconsideration of financial with their constituency not doing accountability strategies has accompanied financial [3]. globalization and led globally to the homogenization and stratification of financial management practices and skills [6] [14]. The Accurate accounting records are essential to lack of Village’s financial system generated no maintain accountability over financial resources. accurate balance sheet and trial balance reports The Treasurer is responsible for maintaining and for financial report and the general ledgers were providing the Board with accurate financial not in balance because the included fund records and Village officials should ensure that balances were not correct [2]. NGOs, commercial the balances in all accounts in the financial banks and the Post Bank do not provide training management system are correct, and be able to to improve financial services in villages [4]. Lack generate accurate and reliable financial reports of significant high value human resources might from their system at any point in time during the prevent the achievement of community-based fiscal year. Village officials’ inability to generate management, as the costs of collective action will accurate financial reports prohibits them from always be higher than the benefits due to lack of making informed financial decisions [2]. skilled personnel [3].

Accountability is rarely safeguarded. Through a Financial Policies and planning strategies lack of initiative have unable village officials to establish proper accounting systems, record Entrepreneurs tend to ignore local regulations operations, monitor loans performance, or even and controls, undermining the authority of draw up a balance sheet and a budget [7]. The community organizations and appropriating the main village financial management challenges resource base. In these situations, government are: skilled manpower, village financial Policies, law enforcement agencies have been relatively village natural resource profiles, village sources ineffective in providing back-up support. The of finance profile, village infrastructure status assumption is that if true community control is in profile, village socio-economic development place then sustainable use and management will plans and over centralization at District level follow; but the links between village [10]. management still require attention. Overall, policies and implementation approaches that Improving transparency and accountability on provide community members with the authority financial and resource management require that to make decisions regarding the use and certain information to be well prepared and management of resources appear to have a posted to the village board for stakeholders greater chance of succeeding than those approval e.g. budget and financial statements, transferring control to higher levels [3]. etc. [12]. In Africa, village financial management 113

Lack of the Department’s ability to authorize Statistical Package for Social Sciences (SPSS) community status as legal owners of the land 16. they occupy is making it virtually impossible for communities to implement effective village financial management. Furthermore, the lack of RESULT government support to local Resident Associations also seriously impacts natural 1. Village financial management challenges resource management, as community structures are generally unable to enforce regulations [5]. Findings show that three fifth of the respondents 198 (60.2%) indicated that there is financial management system in their village, only 92 METHODOLOGY (27%) stated that financial management system never existed in the village, and only 39 (11.8%) reported that sometimes their village financial Purpose of the Study management have established financial system. It was observed that 206 (62.6%) of the The main purpose of this study is to analyze the respondents reported that accountants for the village financial management challenges and village financial management were skilled to development strategies in the selected villages handle matters related to finance problems, 93 from Arumeru District In Tanzania. (28.1%) of the respondents never realized that accountants for the village financial activities had skills for financial matters, whereby only 30 Research Design and Participants (9.0%) of the respondents indicated that sometimes village financial accountants were The study used quantitative research design to enough qualified to handle and manage financial describe and analyse the data collected through matters in the village. Studies support the questionnaire, that both descriptive and findings above whereby for instance, in the inferential statistics were applied to determine United States of America the village financial the relationship by comparing individual management systems are applied as strategies for variables within the village financial challenges socio-economic development [2]. But Kurokawa and village development strategy categories. A opposed to results and showed in his study that structured questionnaire was developed and African countries will need further foreign administered to collect the data for the variables cooperation, not only in the marketing but also in within these categories. financing and management training [8]. An other study supports and indicates that among the The study involved a population of 329 multiple causes of rural poverty, the lack of respondents of which 60.2% were female and access to formal and adequate financial services 39.8% were male. Purposive sampling technique remains a major impediment to the socio- was used to get the selected villages and the economic choices of rural poor people and respondents as follows: Lekitatu (30), Magadini smallholder farmers [7]. (70), Manyire (49), Ngurdoto (80), Nkoanrua (52), and Sakila (48). Factors for village financial challenges were determined by asking The findings show that 117 (35.5%) of the the respondent to provide their opinion on the respondents never observed any report from five point scale, ranging from Always (5), village financial accounts in the village, 114 Frequently (4), Sometimes (3), Seldom (2), and (34.6%) reported that frequently village financial Never (1), and also determine the availability and reports have been produced and distributed, and use of factors for village development strategies. 98 (29.8%) of respondents stated that sometimes- financial reports have been produced. More than half 173 (52.6%) of the respondents reported Data Analysis never to have participated in financial reports sharing in the village, 119 (36.2%) of the Frequency and percentages were the descriptive respondents acknowledged sometimes to have analysis for data that were performed in this participated in financial report presentation; only study. The Pearson Product Moment correlation 37 (11.2%) of the respondents frequently have was used to compare variables within the village participated in financial report sharing in the financial challenges and village development village. The Tanzania Poverty and Human strategies categories. Responses of respondents Development Report confirms the findings; that were coded and computed electronically using sustainability for development would be achieved

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Oct 2013. Vol. 3, No.2 ISSN 2307-227X International Journal of Research In Social Sciences © 2013 IJRSS & K.A.J. All rights reserved www.ijsk.org/ijrss through financial accountability, transparency, have never been a development strategy in the development and implementation of policies, village for financial management, and only 49 management of resources for income generation (14.9%) of the respondents stated that always activities [9]. Campbell joins by stating that any financial development strategies had been transfer of authority, there exists a danger of established in the village for village financial creating a new set of elites who use this authority management. 217 (65.9%) of the respondents for personal gain losing contact with their stated that the Wards never established or constituency not doing accountability [3]. initiated development strategies for villages, only Whereby other researchers negatively stated that 112 (34.1%) of the respondents indicated that the accurate accounting records are essential to ward sometimes established development maintain accountability over financial resources. strategies for village financial management. The Treasurer is responsible for maintaining and Aline with the study, the Joint Implementation providing the Board with accurate financial Review Report for Tanzania Development records and Village officials should ensure that Program revealed that project’s funds of the the balances in all accounts in the financial community village bank accounts operate for management system are correct, and be able to saving and project transactions with the guidance generate accurate and reliable financial reports of committee members and village authorities from their system at any point in time during the that have appropriate knowledge and skilled fiscal year. Village officials’ inability to generate manpower on how to manage allocated funds accurate financial reports prohibits them from effectively [11]. making informed financial decisions [2].

More than half 175 (53.2%) of the respondent More than three fifths 226 (68.7%) of indicated that financial management policies respondents reported that the District never have been always followed, and only 103 established development strategy for village (31.3%) of the respondents reported that village financial management, only 42 (12.8%) of financial management never followed financial respondents reported that the District had policies. More than three fifth 228 (69.3%) of the sometimes established development strategies for respondents indicated that village financial village financial management in the village. And management always had developed a plan, 94 more than half 168 (51.1%) of the respondents (28.6%) of the respondents reported that there confirmed that there have never been widely was never been a development plan for financial shared development strategies for financial management in the village, and only 7 (2.1%) of management, 100 (30.4%) of the respondent the respondents confirmed that sometimes village reported that sometimes widely financial financial management had developed a plan. development strategy have been shared in their Studies support the results; improving village, and only 61 (18.50%) of the respondents transparency and accountability on financial and confirmed always participating in sharing widely resource management require that certain financial development strategies in their village. information to be well prepared and posted to the Campbell negatively supports the findings that village board for stakeholders approval e.g. entrepreneurs tend to ignore local regulations and budget and financial statements, etc. [9]. And controls, undermining the authority of other reports state that village financial community organizations and appropriating the management is a potential engine for national resource base. In these situations, government socio-economic development. Most of the law enforcement agencies have been relatively southern countries have started to enhance ineffective in providing back-up support. The village financial management systems to ensure assumption is that if true community control is in appropriate planning, budgeting and transparency place then sustainable use and management will in terms of establishing books of accounts and follow; but the links between village financial statements to reveal the village financial management still require attention. And that and economic situation annually [13]. policies should be implemented in approaches that provide community members with the authority to make decisions regarding the use and Village development strategies initiative management of resources appear to have a greater chance of succeeding than those Findings in table 2 indicate that more than half transferring control to higher levels [3]. 168 (51.1%) of the respondents reported that each village had frequently established and initiated its own development strategies, 112 More than two fifths 155 (47.1%) of the (34.0%) of the respondents reported that there respondents reported never participated in 115

Oct 2013. Vol. 3, No.2 ISSN 2307-227X International Journal of Research In Social Sciences © 2013 IJRSS & K.A.J. All rights reserved www.ijsk.org/ijrss promotion of increasing opportunity to access cash through financial institutions (r=-0.691), financial services for financial development ability to provide food (r=-0.240), and leadership strategies, 91 (28.2%) of the respondents transparency in the village (r=-0.179). This sometimes participated in the promotion on means that the higher is the education of financial strategy for village development, and accountants, the less is the good governance of only 81 (24.6%) of the respondents frequently leadership strategies, less the access to cash participated in the promoton on village through financial institutions, the less the ability development. Findings reveal that three quarters for food security strategies, and the less the 244 (74.1%) of the respondents were neglected transparency strategies in the village. This and not considered in financial strategies implies that most of the villages educated development promotion in the village, and only accountants are not credible with all their skills 85 (25.9%) were considered for the reduction of that cannot help the village financial system and financial vulnerability in the village. More than development strategies. three fifths 241 (73.3%) of the respondents reported that there has never been good Findings show a highly positive significant governance on financial management in the correlation that was found between village village, and only 88 (26.7%) reported to have financial report and the strategy of relying on acknowldged good governance in the village for outsider (r=0.341). The findings indicate that financial management. there was a highly negative significant correlation between village financial report and Relationship between Village Financial good governance of leadership in the village (r=- Challenges and Villages Development 0.286), access to cash through financial Strategies institutions (r=-0.468), and strategy of ability to provide food (r=-0.356). This means that more Results from table 3 show a highly positive the financial report was better, the worse good significant correlation was found between village governance strategies of leadership, worse access financial system and the strategy of relying on to cash strategies, and worse food security outsider (r=0.522). Further, the results indicate strategies for the villages. This implies that the that there were found a highly significant report was made by outsider with no correlation but negative between financial consideration of what is going on in the village. systems and good governance of leadership in the village (r=-0.294), access to cash through Results show that a highly positive significant financial institutions (r=-0.775), ability to correlation was found between level of village provide food (r=-0.420), and leadership financial policies and the strategy of relying on transparency in the village (r=-0.160). The outsider (r=0.493). The results also indicate that results therefore, imply that the village financial there were a highly negative significant system rely on outsider’s strategies. The negative correlation with village financial policies and significance of relationships observed means that good governance of leadership in the village (r=- the more financial systems are organized, the 0.272), access to cash through financial worse good governance strategies, access to cash institutions (r=-0.629), and the strategy of ability though financial institutions strategies, ability to to provide food (r=-0.607). provide food strategies, and leadership transparency strategies in the village. This Findings show that a highly positive significant implies that the village copy what happens in correlation was found between the level of other regions and that strategies developed in the village financial development plan and of cash village are not in aligning with the village access through financial institutions in the village financial systems as it could be. (r=0.384). The results also indicate that there was a highly negative significant correlation with Findings in table 3 show that there is a highly financial development plan and the strategy of positive significant correlation that was found relying on outsiders in the village (r=-0.284) between level of education of accountants for village financial management and the strategy of relying on outsider (r=0.470). This means that the more education of accountants is higher, the better the strategy of relying on outsider. The results also indicate that there was a highly negative significant correlation between education of accountants and good governance of leadership in the village (r=-0.261), access to

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Conclusions and recommendations http://web.africa.ufl.edu/asq/v5/v5i3a6. htm The study has revealed that village financial management and village development [4] Coetzee, G. (n.d). Retail rural finance in South strategies remain the vital machinery for Africa: From policies to practice, village socio-economic development. The Retrieved From village financial system and village http://web.up.ac.za/sitefiles/File/48/205 development strategies are the result of village 2/coetzee2.pdf community initiatives based on village policies and development plan settings. As a result, this [5] Cocks, M., Dold, A. and Grundy, Is. (2001). study concludes that Wards, NGO, and Challenges Facing a Community District/Government have little implication in Structure to Implement CBNRM in the the village financial system and strategies Eastern Cape South Africa." African Studies Quarterly 5, no.3: Retrieved development in the selected six villages of the From Arumeru District. The study concludes with http://web.africa.ufl.edu/asq/v5/v5i3a4.h the following recommendations: tm

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