The effects of financial markets in Tanzania - An evaluation of the insurance and credit markets´influence on risk behaviour

Abstract: The purpose of this essay is to examine if, and in what way, access to financial markets affects the risk behaviour among micro and small sized enterprises (MSEs) in Tanzania. To be able to do so, we have been collecting information from 52 different MSEs across Tanzania. By using the collected data we have studied three different measurements of risks. The first risk variable (Risk1) is constructed by considering whether the businesses prefer a varying or a stable income, and to what extent they do so. The second measurement (Risk2) is based on how the businesses would allocate an extra income within the firm. The third one (Risk3) is a measurement of how much each business would like to borrow per employee. Each of these three risk measurements are used as dependent variables in a regression, where the independent variables represents the access and current use of financial markets, as well as some company characteristics. It was not possible to find any connection between Risk1 and the independent variables. For Risk2, the regression result suggests that there is a significant correlation between whether the businesses are using insurance or not and the risk behaviour. Businesses with access to insurance seem to have a larger exposure regarding risk with their income. In the last regression, the one for Risk3, there are three factors that show a significant correlation to risk behaviour. These factors are whether the businesses have access to credit, if they are using credit and if they are located outside of the main economic region, Dar es Salaam. Businesses with access to credit that are not using it, on average, want to borrow less money per employee, while businesses that currently are using credit want to borrow more money per employee. Businesses located outside of Dar es Salaam, on average, instead want to borrow less money per employee.