How Kausha Damu Loans Affect Tanzanian Citizens and the Economy

In Tanzania, there are so-called ‘Mikopo ya Kausha Damu’. What does it mean, and why Kausha Damu?

‘Mikopo ya Kausha Damu’ in English is blood-draining loans. These are loans that are exploitative, whereby most small entrepreneurs borrow, and they are supposed to start paying a day after receiving these loans. These loans have high interest rates, and if borrower fail to pay for a day, they are given penalties that increase the loan's burden, and if they fail to pay, their properties are confiscated and sold to repay the loans.

But why do Tanzanians prefer these Loans?

Tanzanians prefer these loans because of their easy process to secure.

And, the following are financial problems that are caused by Kausha Damu loans;

1. Personal Financial Crisis

Many Tanzanians are trapped in a cycle of debt. People borrow from one firm to pay another, leading to Over-indebtedness, Mental stress, depression, and social stigma and Loss of income when assets like phones or their property are confiscated.

When these loans are given to these small entrepreneurs, the payments are collected one day after the beneficiary receives a loan until she has made her payments, and each day, they have to pay with interest. Example: A Mama ntilie borrows TZS 50,000 to boost her business. After interest and penalties, he repays over TZS 90,000 within a month. She then has to borrow again, worsening her situation.

2. Stunted Microbusiness Growth

Instead of helping people to grow their businesses, predatory loans wipe out profits. Small vendors spend income on repaying loans instead of restocking or expanding, and this makes some to be forced to close their businesses due to debt pressure.

3. Data Privacy Violations

Many of these Microfinance and mobile loan apps access private personal data as their condition to give you a loan, and they are threatening and sometimes exposing borrowers so as to shame them. This damages social trust and violates digital privacy rights.

4. Fueling a Shadow financial Sector

These unregulated lenders operate outside Tanzania's financial laws, meaning no proper taxation or supervision, creating a loophole for Money laundering risks and putting an Unstable credit environment that could threaten the formal economy.

What Can the Government of Tanzania Do?

To combat these Kausha Damu loans, the government should protect its citizens by  intervening in the following ways;

1. Enforce Strong Regulation for Lenders

The Bank of Tanzania (BOT) should license and regulate all loan apps and microcredits, and Lenders must disclose interest rates, penalties, and terms clearly. Digital lending must follow data privacy laws (e.g., ask for consent before accessing contacts).

2. Set Interest Rate Caps

Introduce a legal cap on monthly or annual interest rates to avoid exploitation. For example, Kenya did this in the past to curb predatory lending practices, and it is helping Kenyans, so it's time for Tanzanians to have the same measure too.

3. Create a National Credit Scoring System

Ensure all lenders report loans to a central Credit Bureau; this will help to track borrowers’ credit history and avoid multiple borrowing from many apps or loan companies.

4. Promote Affordable and Ethical Microloans

The government can support SACCOS and VICOBA with capacity building and funding, and encourage banks and NMB/Azania Microfinance to offer small entrepreneurship-friendly microloans with fair terms.

5. Launch Public Financial Education Campaigns

Both government and non-governmental institutions should launch a public financial education campaign to educate citizens on the dangers of high-interest loans and also promote financial literacy in schools, markets, and media. This will impart knowledge to Tanzanians about financial management and Investments.

Kausha Damu loans are silently draining household incomes and crippling young entrepreneurs in Tanzania. With strong policy interventions, financial education, and promotion of safe, affordable credit, the government can rescue its people from these financial traps.