Emerging trends in microfinance

Financial inclusion continues to be one of the key challenges in the microfinance sector today that would play an integral role in shaping its performance in the future. At the Mexico G20 summit last summer, 17 countries led by the Presidents of Chile, Indonesia, and Mexico publicly committed to advance financial inclusion. Although the term microfinance has been associated with the working methodologies of Muhammad Yunus of Grameen Bank and with organizations such as Opportunity International, Accion and ASA, its employment as a tool to fight against poverty has always been debated, since its usage still lacks a necessary component to creating successful entrepreneurship values.

The concentration of MFIs have been growing in the regions of Africa, Latin America and Asia over the years, and this trend is attributable to the increasing below-poverty line population in those regions alongside the proliferation of the urban poor. Primary sources of funds for early MFIs were generated from savings of clientele and venture capitalist funding. However, the scenario has been changing rapidly. Nowadays, Central Banks across the globe have been taking initiatives to allocate financial services to the poorest of the poor; this in turn, has enabled hundreds of MFIs around the globe to become profitable in the long run. Commercial banks have begun to acknowledge the profits they can achieve from the low end of the retail market and mobile phone operators continue to discover innovative methods of allowing the poor to access mobile-based banking services.

Over the past year, there have been various trends that have emerged in the microfinance sector as businesses and individuals continue to realize the benefits of microfinance. Some innovative trends that have been adopted by microfinance institutions as they try to make their solutions more sustainable are listed below-

•   Specialized Microfinance Institutions: Microfinance institutions are focusing on customer specific demands, which vary across a wide range of customers and according to the location. Last year saw an increasing progress in translating the needs of the poor into improved context-specific product offerings and policy approaches. A set of providers across the globe accelerated experimentation with innovative products that better match people’s savings needs and behaviors. For example, Jipange KuSave in Kenya tested the provision of interest-free loans with a third of the amount held back as savings. Opportunity Bank in Malawi has a commitment savings product for farmers that allow them to lock away their post-harvest payouts and distribute it over the year to smooth cash flows.

•   Diversification of Microfinance Institutions: Microfinance institutions believe in offering broad range of products and services under an umbrella of microfinance that previously started with small loans, now offers money transfer, insurance and savings services as well.

•    New channels: Branchless banking and franchisee-based services have become extremely effective and prevalent these days to approach potential clients who live in rural areas. One of the top developments in Kenya’s branchless banking industry was the launching of M-Shwari in Kenya, which provided access to savings and loans to M-Pesa customers. Through a partnership between Vodafone, Safaricom and the Commercial Bank of Africa, M-Pesa customers can now apply to CBA for a mini-loan and sign up for an interest bearing savings account, directly from their phones. Since its launch in November, M-Shwari now has 1million users.

•   Turnkey Solutions: Most of the microfinance institutions have started offering services to their clients that differ from traditional services like savings, insurance and loans. Some MFIs offer services such as supply chain management or assisting with marketing infrastructure to grow micro-businesses.

Secondhand clothing- a route out of poverty

Here is a great update from Dan in Kenya!

Hello, my name is Dan Cembrola, one of Zidisha’s Kenya Client Relationship Managers. I am currently visiting Zidisha borrowers in Nakuru and its outskirts.

Today I visited with Keziah at her store in the center of Nakuru. This store is one of her two businesses. In Nakuru, you will find many stalls lining the streets selling secondhand clothing. There are a few upscale stores that sell clothes for formal occasions and many local tailors who make custom made clothing, mostly for women and children. Outside of these two clothing options, most people purchase clothing from the street vendors. Keziah supplies these vendors.

Keziah, or her business partner and hopefully future Zidisha borrower Elizabeth, regularly travel to Nairobi to purchase bales of clothing. These bales are about three and a half feet wide and two feet in height, tightly packed with clothing. Keziah is not able to open the bales and inspect the clothing, they are sold as is. Similarly, after Keziah transports the bales back to Nakuru she sells them to the local vendors as is. Each bale costs about $75-$100 for Keziah to buy in Nairobi and she is able to resell them for $175-$220 in Nakuru. It only costs $2 to transport a bale from Nairobi to Nakuru, so Keziah is able to make a tidy profit on each one.

When walking the streets of Nakuru, it is not uncommon to see people walking around wearing American football jerseys from the 1990's, tee shirts promoting small town American restaurants, and obscure US politicians. Obviously, these items of clothing were donated to various NGOs in America by people intending for their donations to be given free of charge to people in the developing world. In actuality, these items of clothing are shipped to Mombasa, they are then purchased by wholesalers in Nairobi, sold to people like Keziah in the clothing business, who then sells them to local vendors, finally the local vendors sell them to the townspeople who were initially intended to receive them for free.

The secondhand clothing business in Kenya is immense. Prior to my meeting with Keziah, she was completely unaware that the clothing she was selling was actually intended to be donated to people in need. The vast majority of clothing vendors are equally unaware. Regardless of the fact that these clothes were intended to be donated, it is probably best that this secondhand clothing business exists. It provides an income for tens, if not hundreds, of thousands of people.

In addition to her clothing business, Keziah's second business, which she describes as her main focus and passion, is cosmetics. For the past three years, Keziah has been selling cosmetic items, including every type of make up imaginable as well as weaves and human hair wigs. All of these items are very popular among women in the urban center of Nakuru. Because of this, it is difficult to find a street that does not have a salon or cosmetics store.

Due to the high level of competition in Nakuru, Keziah travels to the surrounding villages to sell her wares. She has developed a loyal customer base in the areas surrounding Nakuru. With her first loan, Keziah increased her supply of cosmetics and human hair wigs, which is a highly profitable item. Keziah is also adept at applying make up, weaves, and wigs.

In the future, she envisions using her next loan and the profits of her two businesses to purchase a cosmetics store in Nakuru. Though competition is high in town, Keziah has many loyal customers from the surrounding villages and towns. Currently, her customers outside of Nakuru are only able to purchase her products when she is visiting their village. Since Keziah is often traveling, she wishes to have a permanent store in Nakuru where she would employ someone full time. Keziah believes, correctly, that this will allow her to travel and continue to expand her customer base while allowing her current customers to purchase cosmetics at their lesiure from her store.

Keziah is a very motivated young woman and has a sharp mind for business and her future is bright.

Chicks and Computers.

Moses Mwangi is a college educated gentlemen living in Ongata Rongai, Kenya. Moses earned his degree in networking and repair maintenance. He is quite skilled with computers and programming. Moses runs a poultry business raising chickens for resale. Moses started his business because he identified a consumer trend that is moving away from red meat.


Recently Moses met with our in country Client Relationship Manager Achintya Rai. Here is what Achintya said about their recent encounter:

Hello lenders,

My name is Achintya Rai and I am Zidisha’s current client relationship intern for Kenya. I recently met Moses Mwangi at his home and had the chance to see his poultry business and talk to him and his mother Esther Kimemia.

Moses went to college after finishing his schooling to do a diploma in networking and repair maintenance and is a skilled computer technician. He is an expert in repair and maintenance of computers and is also well versed with programming. Apart from looking after his poultry business, he also works as a part time technician in the Multimedia University nearby and also helps in the business of his friend and another Zidisha client Samuel Njoroge. 

Moses used his Zidisha loan to buy one day old chicks. These were 5 days old when I visited him and were very cute to look at. I think there were about 70 of them. They had just started changing color from yellow and each had a small white spot.

The poultry business is mostly taken care of by Moses’ mother Esther who is one of the wittiest persons I have met in Kenya. She kept coming up with one-liners the whole time I was there. The first thing she did after shaking hands with me was chastising Moses for not offering me water. When I asked Moses how old he was, he turned to Esther who remarked- “how would I know?” When I asked Moses if he had any plans to get married, he said “soon” and Esther added “but not tomorrow!”

With the next loan they plan to buy rabbits. Esther told me that there are many breeds of rabbits available in the market but the ones she will buy will be the largest ones because she likes “big big things”.

Moses says that he’s a farmer at heart and will buy a shamba (farm) as soon as he can. His immediate plan is to start his own repair business, which he plans to begin within a few months. While walking back I asked him why doesn’t he start a small hardware training school. He could provide short-term training to other students, who would PAY HIM to work in his shop. This made him laugh and he said he’s seriously going to consider the idea.

I had a very interesting time with Moses and Esther and I wish them the best for their future (which I have no doubt will be great, because that’s how it always is for people with such positive outlooks to life)

Achintya
22nd March 2012
Nairobi, Kenya

The Next Bill Gates

Aissatou Traore is a borrower living in Dakar, Senegal. Madame Traore is a widowed mother  who works to support her son and mother. Mme. Traore is a partner with the American company Forever Living, based in Arizona. Forever Living sells its aloe vera, and various other health products, through a network of independent distributors across the globe. Madame Traore sells the Forever Living products in her surrounding area to a number of customers.

Mme. Traore used her Zidisha loan to purchase $780 worth of inventory from Forever Living in order to boost her income. Tragically, thieves broke into  her home and stole all of the inventory she'd purchased. This did not stop the resolute Mme. Traore.

Read more about Madame Traore from Zidisha's own Director Julia Kurnia, who recently wrote about their meeting in Senegal.

Dear all,

I was fortunate to have the occasion to meet with Madame Traore at the Senegal headquarters of Forever Living, a direct selling company that produces aloe vera and other natural health products. Forever Living is based in Arizona, but markets its products through a worldwide network of tens of thousands of independent distributors, including Mme Traore.

Mme Traore is the sole breadwinner for her elderly mother and fourteen-year-old son, who she hopes will have the chance to go to university in Europe or the US someday. She has a genius for marketing, and our conversation soon turned to the benefits of her products. She gave a riveting presentation, skillfully weaving international statistics, personal experience and client success stories into a mesmerizing narrative that left me thoroughly convinced that aloe vera toothpaste is, after all, a must-have staple of good oral health. 

Mme Traore used her Zidisha loan of $780 to purchase a large inventory of Forever Living products, which ought to have boosted her earnings substantially. Unfortunately, most of the inventory was lost to a thief who broke into her home and stole her stock before she had the chance to sell it. Completely out of money to buy new stock but undeterred, Mme Traore contacted her best clients one by one and offered a deal: she would give them a special discount if they would agree to pay in advance for the products, rather than upon delivery. She used the advances to restart selling, at a profit margin that was razor thin due to the discounts. She makes up for the narrow profits with volume: her notebook contains the names of several hundred clients, many of whom are located in rural villages a day's journey from Dakar city. On the days she "goes into the bush" to deliver her products to the villages, Mme Traore wakes up at four in the morning to prepare the day's meals for her fourteen-year-old son, and returns home as late as one o'clock the following night. This strategy has enabled Mme Traore to slowly reconstitute her working capital, while also making regular repayment installments on her Zidisha loan, which is now 78% repaid.

She seemed completely undeterred by all of these obstacles. By way of explanation, Mme Traore cited the example of Bill Gates: he started on a small scale as well, and she is simply doing the same. She is a voracious reader. On the day we met, she was reading a French translation of "The Leader in You" by Dale Carnegie. Mme Traore said she was inspired by Mr Carnegie's idea that there is a "mine of gold" inside each one of us, and that the best way to fully realize our potential is to develop our own business. She values her freedom, and says that nothing can stop her from reaching her ambitions.

Best,

Julia Kurnia
Director, Zidisha Inc.

Future Plans...

Ouréye Faye is an entrepreneurial mother from Dakar, Senegal. She not only supports her three daughters and her son, but also the families of her brothers and sisters. Being the oldest member of her family carries many responsibilities! Mrs. Faye studied dressmaking, knitting, and embroidery, she earned degrees for each. After receiving her degrees she started her own sewing company making boubous (see picture).

Our in-country Client Relationship Manager, Stephen, recently wrote about his meeting with Mrs. Faye. Read about their encounter below:




Hello Lenders,

Friday, I had a wonderful experience with Oureye Faye. She apologized for not finishing her last payment sooner but wants to thank the lenders from the bottom of her heart for everything that she has been able to accomplish with this loan. 

Business
From the 400,000cfas loan that she received with the help of Zidisha, Madame Faye was able to buy a new sewing machine which she uses for her booba making business that is a very popular industry in Dakar. She buys her fabric from Mali because it’s the best quality and she makes boobas and sells the rest of the fabric in Senegal. She now has three sewing machines

Education.
Madame Faye has also used her money to invest in education. In Senegal, the public education system has a reputation for not being the most efficient in terms of quality and outcome. With the funds Madame Faye has earned, she has been able to put her 4 children through private school. Even though Madame Faye is married, she is the main provider of her household. She explained to me that every morning she wakes up at 5 a.m. and works until 9 p.m. The majority of her earnings are for her children, her main priority. However, she also pays for the gas bill. Even though Madame Faye is married she is obligated to work like most women in Senegal because consistent salaries are not guaranteed. One works today and possibly tomorrow.

Future Plans 
For a future project, Madame Faye explained that she would to love buy a glass door and some furnishings to organize her shop and display her work. This will also enable her to work very close to home. She has big plans for this project and is ready to take her business to the next level. 


Client Relationship Manager Intern
Stephen 

From the Ground Up

Rose Karanja is from Ongata Rongai, Kenya. Rose has had a difficult life. But when times got hard, Rose blossomed. Being a single women raising two younger siblings is no easy feat by any means. Consider the fact that Rose then decided to enter the male dominated construction industry, and you can start to get an idea of Ms. Karanja's tenacity and work ethic.

Our in-country Client Relationship Manager, Achintya Rai, recently met with Ms. Karanja. Read about his encounter with Rose below:

Hello lenders,

My name is Achintya Rai and I am Zidisha’s Kenya Client Relationship Manager. This Friday (9th March 2012) I visited Rose Karanja at one of her building sites in Ongata Rongai near Nairobi.

Rose is a beautiful young woman whose is a fascinating story of grit and entrepreneurial spirit. Rose’s mother died when she was young and she was brought up by her grandmother. When Rose was in from four (the last year of secondary school) her grand mother also passed away. She has been working since then to take care of her two siblings.

She started by supplying food to people working on construction sites. That is how she learnt about the construction business, traditionally considered a forte of men. She saw an opportunity and started a construction material supply business. Rose is a very confident and pleasant person and I can visualize her as a great networker. She made contacts that helped her get business. She got a contract to supply ballast (small pieces of stone), which she fulfilled by buying stones and then hiring labor to break them into small pieces. With the proceeds she bought sand and supplied in small quantities. Later she started sourcing sand directly from the rivers and her business grew. 

Her Zidisha loan was used to buy sand, ballast and other supplies. 

Recently, because of her contacts and good work, she also got contracts to build two houses on a plot of ½ acres. Rose seemed delighted with this development and is going to focus on the construction business as a priority. This new contract will entail hiring an engineer (which could cost 100,000 to 150,000 shillings a year), buying material, hiring labor and overseeing the construction work. 

With her next Zidisha loan, Rose wants to buy a vibrator machine, which is used to mix concrete. In the future, when she has sufficient funds, she wants to go back to school and get a degree in Civil Engineering (she has shortlisted a University in Uganda) and then start her own construction company.

I see in Rose the making of a great businesswoman and armed with her networking skills, business acumen and glittering smile, she is sure to be an entrepreneur to be reckoned with. And she is just 28.

Achintya
11th March 2012
Nairobi, Kenya 

Class is in!

Theresia Kabiti is the mother of three children living in Nairobi, Kenya. After working in several private education institutions she came to the realization that local children weren't receiving quality early childhood education because of costly school fees that poor families just couldn't afford to pay.

This caused many children to seek schooling by shady business people who sought to exploit their situation. With the current situation unacceptable, Theresia took action! She and several other concerned locals established "The Terrian School". Parents were asked to pay a small fee (equal to $5.50/month) to help sustain the teachers, many of whom are volunteers. Even if parents can't afford the small fee, NO child is ever turned away from The Terrian School.

Our in country Client Relationship Manager, Achintya Rai, recently meet up with Theresia. Read about their meeting below:

Hello lenders,

My name is Achintya Rai and I am Zidisha’s Kenya Client Relationship Manager.

On Tuesday (6th March 2012) I visited Theresia Kabiti. Theresia stays in an area called Githunguri in Embakasi where she runs a small school. The name of her school is Terrian Academy. She currently has classes from nursery to standard three. 

Earlier Theresia used to teach in a school. She found that in her area many people were not sending their children to schools because the school fees were high. Most of these people worked as laborers on daily wages. Theresia decided to start a school to facilitate education among the poor. She told me that when she started she had to go door to door to tell people about her school. Her first class had just 5 students. Today her school has about 80 students and every time she adds a class, this number goes up by 15 or 20. While the other schools in the area charge about 2000 shillings per month, she charges just 500 shillings as fees. 

Apart from running her school, Theresia is also pursuing a diploma in early childhood development. She will pursue a degree in the same area after she has finished her diploma and wants to then apply for a government job as a teacher. If that works out she will hire someone to run the school

Theresia used her Zidisha loan to construct on the plot of land she was renting for the school. She recently purchased a plot of her own where construction of semi-permanent classrooms has already begun. She wants to use the next Zidisha loan to construct a permanent building on her plot.

Theresia has two daughters and one son. Two of her children study in boarding schools and the youngest daughter studies in her school. When I asked her if her daughter gets any preferential treatment being the principal’s daughter, she laughed and said no. The little daughter wants to be a pilot and Theresia hopes to be able, with the help of Zidisha loans, to afford the high aviation college fees.

The best thing about Theresia’s school is that they have PE (Physical Education) class everyday. This is when the children are allowed to run free. If I were a parent doing hard physical labor the whole day, even I’d insist on the school tiring my kids before sending them home. 

I also saw the whole class of nursery students sleeping, not because the subject was boring but because it was their nap class. I tried to be quiet while taking a picture, but some smart ones did manage to sneak a peek at the camera.

Achintya
9th March 2012
Nairobi, Kenya