|
Tis is CA Reporting for:
Microfinance Focus
The Importance of Training ... Perspective of Peter Ryan, Founder and CEO of the Microloan Foundation
IMAGE Peter Ryan with Peter Burgess in 2009 in Boston
I caught up with Peter Ryan last month in Boston. Peter is the founder and CEO of MicroLoan Foundation (MLF), a UK charity that has established a successful growing microfinance organization in Malawi, and now starting to expand into neighboring countries. Peter was visiting the Boston area to celebrate the first anniversary of the MicroLoan Foundation USA that is helping to fund the growth of MLF.
Peter Ryan first saw the potential of microfinance when traveling with friends in the Philippines. A small loan got paid back and did some visible good. In 1997 Peter saw the depth of poverty in Africa during a business visit to Malawi and recognized that microcredit could be the catalyst for development and poverty reduction that was not mere charity but truly sustainable. Because Peter had a business background, and had started a number of businesses, he was aware of some of the critical issues that cause business to fail ... and the MLF program he designed reduced these risks.
MLF Malawi opened its first office in 2002 in Nkhotakota, a small fishing town that combined the greatest need with the least provision of microfinance services. The first loans were made in 2002 and by 2003 the MLF had a staff of five, had made over 600 loans and had a 97% repayment rate. A second office was opened in Dwangwa, north of the first office in 2004 and more offices added over the next five years so that there are now 15 offices, with 5 more to be opened this year. In addition MLF is expanding into neighbouring countries starting with Zambia. It will start in other countries in Southern Africa: probably these will be Mozambique, Namibia and Botswana . The Zambia program will be headed up by the MLF Malawi CEO, Kenson Chiphaka who built the Malawi operation so successfully. He is being replaced by another Malawian. James Kajama with strong development and banking credentials.
Malawi is one of the poorest countries in the world. It is a landlocked country in Southern Africa plagued by population growth and deteriorating agricultural productivity. The rural areas of Malawi suffer from extreme poverty. The AIDS epidemic is a serious problem and not getting much better. 50% of women tested are proving HIV positive and more and more families are looking after AIDS orphans as well as their own family members.
Peter Ryan says that by far the best way of helping some of the world's poorest communities is to help them help themselves. A small business can support a whole family, and puts energy back into the household, gives self dignity and helps support the many aids orphans in homes rather than institutions as well as giving them better food and nutrition.
------------------ // ------------------
By some standards the interest rates charged by MLF in Malawi are high ... maybe around 66%% per annum ... but this interest income makes it possible for MicroLoan to be sustainable over a long period while having a substantial microloan portfolio and providing critical training to its clients.
Because people in the rural areas of Malawi are poorly educated, the people have little opportunity for progress. While the lack of money is one constraining factor, in Malawi, according to Peter Ryan, there is in addition a big deficit in education and knowing the basics of business.
This is why MLF is very committed to the idea of training as an integral part of its program.
Almost all of the MLF loans are made to women who are starting their own businesses. But before they may take a loan they must go through a training course. The women are required to form into business groups electing a Chairman, Teasurer and Secretary and are then given a six to eight week crash course on key aspects of business management. During the initial stages of the business, they are provided with constant guidance as their modest business takes off. This includes support in practical training for very basic business skills like cash-flow planning that enables people to get businesses up and running very quickly. Within 4 months MLF trainees are running real businesses and usually have repaid the initial loan in full.
Many of the businesses are trading businesses, such as buying fish from the lake (Lake Nyasa), rice or tomatoes, and selling them in the capital, Lilongwe, where they earn a profit. Others are small production or “value adding” businesses, such as bread or knitted products which are hand-made and then sold in the local street markets. Without MLF these people would have no access to the money needed to buy the equipment and materials to start these businesses.
------------------ // ------------------
During the MLF training the potential clients are given the opportunity to learn something of what it is that they need to know to be successful. It is a comprehensive curriculum.
Many businesses start ups fail because of they do no know or understand the market. Borrowers starting up a business must know about the product or service, the competition, the prices, and all sorts of hidden problems and issues. People in a poor community need the basics. They need food, and clothes, and also things like medicine, fishing lines, firewood, spare parts, and such. A good business satisfies real needs and will succeed if it supplies the goods or service at a low cost. Market research need not be complicated, but there must be a sound analysis and application of common sense.
MLF helps to ensure that the potential clients know how to start the business in accordance with local custom. In Malawi, setting up a small business requires consulting with the local chief or village head man. This may not be written in the national law and regulation, but it is a customary requirement and is an important part of the ‘due dilgence’ that the MLF carries out before loans are given as it helps ensure high levels of repayment..
In real estate there are only three things that matter ... location, location and location. The same goes for a small business. The place where the business is set up makes a big difference. This may not be obvious ... it is part of the training. Customers must be able to get to the business easily, and it must be possible for the business owner to bring the products. Convenience is a big value in a society where walking is the norm for most travel!
Growth is not the top priority ... first of all learn how to have a sustainable small business keeping costs as low as possible, and grow because there is demand for the goods and services not because there is an overly big overhead cost to be covered! It is much better to have low overhead and low costs and low prices and a growing business than to have high prices, high costs and no business.
Basic business know-how and financial discipline is a cornerstones of MLF training philosophy and success. Potential borrowers are required to demonstrate that they can manage money by saving up a small sum themselves – 10% or 15% of the loan - before receiving their money.
MLF does not walk away as soon as the loan is disbursed, rather they stay very much involved. The business training goes on for six weeks so that the clients can learn to run meetings, have elections for their group leadership: chairperson, secretary, treasurer, etc., keep records, bank money, manage their cash-flow, budget for their business and ensure that they make a profit. Many of these people do not read or write, and they do not have calculators. All of this has to be done using talk and using mental arithmetic.
MLF business start up borrowers meet every two weeks with their loan officer to review their business progress, and to make repayments against their loan. This is a tight schedule and borrowers find it difficult, but the discipline is extremely valuable. Critical problems can be identified quickly and steps taken to solve the problem with the help of the loan officer. The role of the loan officer is crucial. The loan officer's experience can be used to help a struggling business and do something to correct the problem. This is a level of engagement that is costly, but incredibly valuable.
MLF uses a group lending model with business start up groups of between eight and fifteen women. The group is collectively responsible for the repayment of each individual loan. If one member of a group gets into trouble, the others have to be prepared to help her out. This happens, for example, if one member of a group becomes ill and they cannot operate the business for a while. In the case of a group member dying before her loan is repaid the loan is written off, but where someone is suffering from an illness other members of the group take responsibility for carrying her through the period of the illness.
------------------ // ------------------
MLF provides know-how, start-up capital, and on-going support but the individual borrowers design and run the businesses for themselves. 97% of the loans are re-paid in full. But it appears from what Peter Ryan talks about that the results are really a whole lot better than these financial results. Small rather remote communities that were doing nothing more than existing ... and declining ... have found ways to have businesses that satisfy needs and earn income.
The 3% failure rate results from factors that are out of MLF control, mostly that the borrower has died. With life expectancy of only 37 years, mainly because of the high incidence of HIV/AIDS, it is a sad fact of life that some of the businesses will fail because the borrower dies.
MLF Malawi is demonstrating that a very basic sensible approach to development can be sustainable and make a big impact. Training is central to the success of the MLF in Malawi. The approach does not use rocket science ... just very advanced common sense.
| 