Abstract: Village Community Banks (VICOBA) is a type of microfinance model organized by community members that provide savings and credit services to low-income households in Tanzania. VICOBAs have shown to be effective in increasing household savings and reducing poverty. Objective of this paper was to examine the impact of VICOBA membership on investment decisions of the household, as there is limited research of its impact on household investment. This paper examined the impact using a survey of randomly selected sample of 99 VICOBA members and 203 non-members in Kilosa District, Tanzania. Impact is estimated using Propensity Score Matching (PSM) and Endogenous Switching Regression (ESR). The PSM results showed that VICOBA membership had positive significant results on investment, showing an average of TZS 274605.65 which is 140.5 percent increase in investment for members’ households compared to their counterfactual, from average investment of TZS 195,407.3. The ESR confirms the results after controlling for both observed and unobserved covariates. The findings concluded that VICOBA members are more likely to invest in income generating activities than non-members. Therefore, it was suggested that the model can play a role in promoting household investment and economic uplift, financial inclusion and poverty reduction in Tanzania. The government of Tanzania should support the development of VICOBAs to a sustainable manner and have legal and regulatory framework to help LGAs monitor, regulate and integrate these groups into development plans.

Keywords: Village Community Banks, Household Investment, Propensity Score Matching, Endogenous Switching Regression