Documents
Country Feasibility Studies
South Africa
UNDP Microfinance Assessment Report
Prepared as a component of the MicroStart Feasibility Mission - March,
1997
Reda Mamari, International Consultant, and
Roland Rasoamanarivo, National Consultant
Table of Contents
In brief, this report discusses the practical issues involved in Microfinance Services in the Republic of South Africa. The following issues are discussed:
South Africa's Socio Economic Situation and the Existing Micro-Credit initiatives in the country:
While current efforts reach only 24,000 of the estimated more than 4,000,000 "survivalist" and "microenterprises," the existing programs indicate a wide acceptance of group lending, and considerable local expertise.
The Demand for Microfinance Services:
Interviews in the poor Black villages of Northern Province indicate a high level of poverty and unemployment. Consequently, a high percentage of the residents are involved in very small scale economic ventures, principally petty trading. Villagers are enthusiastic about the possibility of receiving loans for these activities, and understand and accept the group lending concept. (Return to top.)
B.
The Socio-Economic Situation in South Africa
South Africa's population in 1995 was estimated at 41.2 million, with a projected population in the year 2010 of 58.4 million, and 73.2 million by the year 2025. With a per capita gross national product of more than R 8,500, South Africa is classified as a middle income country by the Human Development Report (1995). However, among comparable middle-income developing countries, South Africa has one of the worst records in terms of social indicators (health, education, safe water, fertility), and among the highest income inequality in the world. The average monthly earning among the Black poor is R 281, while the white norm is over R 5,000. Given its resources South Africa can afford to feed, house, educate and provide health care for all its citizens, yet apartheid and economic exploitation have created vast inequalities. The South African economy is characterized as a dual economy - the largely white private sector representative of a first world economy, and the under-developed "black" or disadvantaged economy largely divorced from the mainstream economic activity.
South Africa's high unemployment rate, estimated at 40% of the aggregate labor force, and in some provinces such as the Eastern Cape as high as 80%, coupled with low productivity is a major constraint to economic development. Employment trends in South Africa indicate a situation of increasing unemployment.
According to the National Manpower Commission (NMC), the Economically Active Population (EAP) in South Africa (excluding the homelands) was 12 million in 1992 and 12.3 million in 1993. Forty six percent of the EAP was not employed in the formal sector of the economy in 1993. The Community Banking project estimates that formal unemployment is expected to rise to 7.5 million by the year 2000. The modern urban industrial sector, cannot absorb much of the growing labor force. However, it is estimated that there are 800,000 small, medium and micro-enterprises in South Africa, and these businesses contribute over 60 percent (45 percent from small and medium-sized enterprises and 15 percent from informal microenterprises) of the country's GDP. The bulk of new entrants to the labor force will likely need to be productively employed in businesses and service sector enterprises that fall into this sector.
The smallest microenterprises tend to be run by people unable to find a paid job. Little capital is invested and the individuals running the microenterprises often have no skills training and limited growth opportunities. These are survivalist enterprises. Some slightly larger microbusinesses may involve the owner and one or two paid employees. These enterprises are not formal businesses and do not possess business licenses, are not registered for value added tax (VAT), and lack accounting procedures. They have a limited capital base and only rudimentary business skills. Self-employment in the form of such enterprises remain critically important survival strategies for the poorest sectors of the economy, especially for women living in rural areas.
As Nelson Mandela wrote in the 1996 UNDP Human Development Report: "Despite the welcome growth, very few jobs have been created. In fact, against the backdrop of new entrants into the job market, there has been a shrinkage in opportunities. We need a national vision to lift us out of this quagmire. If we do not act together in the public and private sectors to develop and implement such a national strategic vision, the danger is that even the modest growth we have attained will peter out in a matter of a few years, as the strains of limited capacity, skill shortages and balance of payments and other constraints start to gather momentum, and as increasing unemployment and accelerating poverty bear down on our society."
On March 20, 1995, the South Africa Parliament published a White Paper on National Strategy for the Development and Promotion of Small Businesses in South Africa.
The White Paper described some of the economic challenges and new directions for post-apartheid South Africa as follows:
"Since the elections of April 1994 the issues of economic empowerment and growth have been placed high on the agenda of the Government of National Unity of South Africa. With millions of South Africans unemployed and under-employed, the government has no option but to give its full attention to the fundamental task of job creation, and generating sustainable and equitable growth.
"Small, medium and micro-enterprises (SMMEs) represent an important vehicle to address the challenges of job creation, economic growth and equity in our country....This White Paper represents government's thinking about what it can contribute to the process of stimulating (these businesses.)"
The White Paper specifically described the importance of micro-enterprise development to meet the basic needs of poor people:
"Taking into account the very large micro-enterprise segment of the small business sector, as well as those struggling in survivalist activities, it should be clear that the small business sector plays a crucial role in people's efforts to meet basic needs and help marginalized groups - like female heads of households, disabled people and rural families - to survive during the current phase of fundamental structural changes where the formal economy is unable to absorb the increasing labor supply, and social support systems are grossly inadequate.
"Experience has shown that in the past Black people have been able to make far greater progress in the micro and small-enterprise segments of the economy than in medium-sized and larger enterprises. Thus the sector has - all its impediments notwithstanding - proven to be a highly significant vehicle for Black economic empowerment."
C.
Existing Micro-credit Initiatives in South Africa
Khula Enterprise Finance Limited
One of the outcomes of the White Paper was the creation in 1996 of Khula Enterprise Finance Limited, an independent, limited liability company, with its own board of directors that is dedicated to improving access to finance for small, medium and micro-enterprises.
Khula's Mission
Khula was created to improve access to finance for small, medium and microenterprises. Conventional lending institutions are reluctant to assist SMMEs because they typically fail to meet lenders' criteria. They therefore have to raise money themselves or resort to informal lenders. This is risky because most have little business of financial experience; they are highly vulnerable to dubious lending practices.
Khula's mission is to narrow the gap of access to financing to SMMEs by "aid(ing) the growing network of outlets which fall within a category of business called Retail Financial Intermediaries (RFIs)..." These intermediaries are banks, non governmental organizations and provincial development corporations. Capitalized by grant funding from government, overseas and local donors, Khula has developed a series of products to assist RFIs in creating sustainable small, medium and micro-enterprises.
Khula bases its activities on the following fundamental statements and principles. The statements and principles are in line with the recommendations of the White Paper on Small, Medium and Micro-Enterprises:
Vision Statement:
It is the vision of Khula to become a sustainable catalyst in the mobilization of credit and equity to aspiring emerging small entrepreneurs through sustainable Retail Financing Institutions (RFIs)
Mission Statement:
It is the mission of Khula to ensure enhanced availability of loan and equity capital to SMMEs by offering in a sustainable manner Loans, Guarantees and Seed Funds to RFIs in need of capital and capacity. In meeting its mission, Khula will endeavor to reach the previously disadvantaged groups and in particular marginalized groups such as rural women, the disabled and the informal sector.
1. Khula's Strategy
As an accountable financial institution, Khula will be guided by the following principles:
- sound banking
- best practices of corporate governance
- independent operational decisions
- independent selection of its clients
- application of criteria favorable to previously marginalized groups.
Khula has developed a series of products designed to assist RFI's in creating sustainable small, medium and micro enterprises, including:
Business Loans: Loans between R 1 million and R 100 million made to RFIs specifically for on-lending to SMMEs. They may not be used to finance the RFI's own operations.
Seed Loans: Loans for new organizations entering the RFI market that need start-up capital. The finance may be used for the loan portfolio or to fund initial operational expenses. The terms of the loan are structured to provide the applicant with the best possible assistance.
Capacity Building: Given that it is in the interests of the RFI itself, its clients and Khula, that the organization has the skills and ability to manage the portfolio it develops, Khula will match funds provided by the RFI to finance the building of skills and ability.
Equity Fund: Here Khula will consider participation of up to 49% for businesses in the upper end of the SMME scale.
Credit Guarantees: This mechanism will guarantee the purchase of fixed assets and to secure working capital through banks for RFIs. In addition an RFI that feels it is exposed to a level of risk outside its normal prudent lending ambit, may need to offset the risk with guarantees.
Khula's development strategy is to create personal wealth by dispensing its limited capacity responsibly, balancing the need to minimize financial risk with the need to provide assistance to individuals who are often more expensive to serve than sectors of the market. When determining the eligibility of an RFI for assistance, Khula examines the current number of clients (and expansion plan) of the RFI, the cost of service delivery, the extent to which the RFI targets women as clients, the management of loan repayment and the general level of anticipated risk associated with the loan portfolio, the economic sector or type of employment likely to be created through the RFI's on-lending efforts, as well as the ability of the RFI to work with clients who have never been self-employed or received loans from an institutional source.
Khula has already financed most of the largest micro-enterprise retail financial institutions in South Africa; therefore, in order to continue to expand services to this sector, it needs to create a new tier of RFIs. According to commitments from senior Khula staff, UNDP funding for operations, loans and an external technical assistance provider will be matched many times over by funds from Khula's Seed Loan and Capacity Building components. Other Micro-credit Initiatives in South Africa
Khula and the Development Bank of Southern Africa (DBSA) commissioned a study of thirteen of the major NGOs providing credit to Small Medium and MicroEnterprises (SMMEs). While these are programs that Khula/DBSA supports, they are also the principal microlending organizations in the country. The thirteen programs taken together serve only 24,000 "survivalist" and micro-businesses. This is a minuscule proportion of the country's estimated 3.5 million "survivalist enterprises," and its 800,000 small, medium and micro-enterprises, most of them informal as well. Nearly 21,000 of the 24,000 enterprises are served by just five programs: the Get Ahead Foundation, Small Enterprise Fund, Rural Financial Facility, Start-Up Fund, and IBEC. The remaining eight programs collectively serve less than three thousand micro-businesses. It is estimated that another 25,000 "survivalist" and micro-businesses are served through the "Development Corporations" which were established in the Black townships during the previous regime. Since Development Corporations are being phased out it is unlikely that these businesses will be served in the future unless services can be extended to them through existing or new RFIs.
Taking the sample of thirteen programs as a whole, key indicators are as follows:
Borrowers and businesses:
- 66% of the borrowers
are urban; there has been little effective penetration of the rural
areas except by the Small Enterprise Foundation (which has demonstrated
that effective group lending is possible in the rural areas of South
Africa);
- 71% of the borrowers
are female, reflecting the general attraction and relevance of micro-lending
to women;
- 55% are in retail businesses, indicating the close fit between small, short-term loans and trading, and the preponderance of trading businesses in the Black townships.
Portfolio:
- The portfolio
of all thirteen programs totals R 32,460,771, ($7,377,448);
- 16% of the overall
portfolio is in arrears; 2% has been declared unrecoverable, a generally
acceptable level of loan recovery by international standards;
- 85% of the loans
are first loans; (this may indicate that either the capital needs
of the enterprises are very small, or that the programs need to be
fine tuned to better meet the evolving needs of the business owners);
- 70% of the loans
range between R300 and R2,000, and 8% are smaller than R300; 78% of
the loans made to date, then, are within the micro-loan category;
- the median interest
charged is 42% per annum, compared to 20% to 30% per annum for commercial
loans. There seems to be a general tolerance of above market rates
of interest for the lead organizations;
- almost half the programs utilize some form of savings.
These data show the feasibility of micro-lending, and, more specifically, of group lending, in South Africa. They also indicate that there is an enormous unmet demand for micro-credit in South Africa and a need to bring in new players to the micro-credit arena. Given that there are an estimated 4.2 million unemployed South Africans, with an additional 2.4 million people currently involved in informal sector activities, there appears to be a vast potential market for micro-credit for self-employment. (Return to top.)
D.
Demand for Microfinance Services
The differences between conditions along the modern highways and through the bustling, largely-White town centers and those along the rutted, dirt roads encircling the vast network of Black villages were stark and dramatic; they left little question where poverty was concentrated. These villages, numbering from scores to well over a hundred in each of the districts the team visited, are largely Black and very poor. One of the strongest continuing legacies of apartheid is the separation of Black men from their families in rural areas. Because Blacks were forbidden to travel or live in certain areas under apartheid, those who sought work in cities often had to leave their families behind. Typically, their wives, children and parents depended on their (often uncertain) remittances and pensions. In post-apartheid South Africa, the women, children, old and infirm who remain in the rural areas continue to exist in dismal poverty. With the exception of the rare teaching or civil service post, employment opportunities are highly limited. The unemployment rate ranges from 40% to 80%.
The villagers do what most people under similar conditions worldwide do: they struggle to create their own jobs through self-employment. Of those interviewed in the villages, 75 percent were involved in some type of informal economic activity -- mainly petty trading. Some provided services such as hair cutting, clothes mending, food preparation, construction -- while a few make clothing, brew and sell beer, and build simple furniture. Subsistence agriculture is also practiced.
Not surprisingly, these economic activities are largely rudimentary -- "survivalist" is the term the government uses -- and business skills are minimal. The business and training services needed to grow these income generating activities are almost non-existent, and banks and other financial intermediaries are uninterested in serving these businesses. The only credit option is the money lender, but money lenders charge an interest rate reported as 700 percent per annum.
The mission team asked many villagers if they could use a R200 ($45) loan to grow their businesses. Most answered "yes" immediately. They were able to explain exactly how they could use the loan to increase their income. A seamstress would buy a bolt of cloth to reduce the costs of her raw materials; a petty trader would either sell more, increase the variety of what she sold, or, with more resources, start a new service or manufacturing business.
When questioned about whether they would be inclined to take a loan if they had to adhere to the borrowing group methodology (including loans guaranteed by groups) favored by many international practitioners, villagers typically replied "yes" -- provided they could control who joined their group and that the individual group members' responsibilities were very clearly defined. Their concerns about group loans were the same as the typical concerns of borrowing group members in many parts of the world. (Return to top.)
E. Case Studies of Community Based
Organizations
What follows is a brief synopsis of what the team documented for each organization visited. What is written is based on a first appraisal by the review team.
1. Create a Craft
PO Box/Posbus 1929/
55 Rabe Street/Straat Potietersrus 0600
Tel: 00 27 154 7709
Fax: 00 27 154 7766
Contact person: Annelie Rossouw, Director
Description:
Created eight years ago by Annelie Rossouw, Create a Craft's mission is to provide four week training courses to groups of villagers in dress making, baking, upholstery, and other activities for which there is a local demand. The courses emphasize commercializing and marketing the products the trainees have learned to produce. Trainees receive one meal for attending, they pay nothing for the course. The objective of Create a Craft is to "create an entrepreneurial culture" in the villages, and to "keep money circulating in the village."
Create a Craft, with its staff of 18, including fifteen trainers, a Director, a Training Manager and an administrator, has the capacity to teach twelve courses of eight participants each per month. They have already provided training courses in over seventy villages and there is a considerable demand for the courses, with requests coming from far outside the region Create a Craft is mandated to serve.
Recognizing the need for loans after the training is complete, Create a Craft hopes to implement the "One Up Business Course." One Up combines a business education curriculum with loans starting at R300. Unfortunately the organization does not have the necessary funding to begin this component.
Assessment:
Create a Craft has several strengths as a vehicle for micro finance:
- Create a Craft has been in existence for eight years; it has survived and grown under difficult conditions;
- it has a capable and enthusiastic staff;
- it has served seventy poor Black villages and apparently has a good reputation based on the mounting requests for service within the villages, and from outside the districts it is responsible for;
- it has mounted a successful skill development and enterprise training program;
- the staff has a strong awareness that in order to be successful those who graduate must be able to produce and market what they produce locally;
- from observations of the rapport the staff had with the villages, the existing staff could be easily be retrained as micro finance field workers.
Weaknesses include the following:
- Create a Craft has no experience in credit, and presently lacks sufficient administrative capacity to administer a credit program;
- Although the endorse the idea of self-sufficiency, self-sufficiency is not built into their current program design.
Conclusion:
2. Centre for Opportunity Development
Northern Province
Branch P.O. Box 2401 Pietersburg
Tel: 0152-292-1686
Contact Person: Miss Dimaktso Tlaka, Branch Manager
Description:
The Centre for Opportunity Development (COD) is a business training organization for out of school youth between the ages of 18 and 35. The Centre has three branches, one in Pietersburg and the other two in Capetown and Johannesburg. The Pietersburg branch was started in 1995; COD first began operations in 1994 in Johannesburg.
The program works like this. A group of 35 completes a nine week program at a site in their village or nearby. The course starts with two weeks of business skills training followed by three weeks where cosmetics - lipstick, moisturizer, etc. - are produced collectively in small groups. As they produce, the group members learn production, marketing and group skills. The marketing of the cosmetics nets each student between R80 and R100, which is used to start their businesses. Business planning starting their businesses occupies the remaining four weeks of the training course.
Retail trading is the most popular type of business started, although many also start services, such as hair dressing. After one year 65% are still in business, although most are only operating at a the survival level, and the staff admits that few businesses have thrived. The staff feel credit would help the businesses grow and suggested that loans in the R 3,000 to R 10,000 range
Last year the Pietersburg branch, with its staff of eight including six trainers, completed twenty two courses within a 60 km radius of the office; 660 students, 70% of them women, were trained. The cost per student trained was R 2,000. The course is free. Students are recruited through youth organizations, civic associations and schools. Those selected rate high on their level of interest in the training and their level of skills in English and mathematics. The Overseas Development Agency through the Joint Educational Trust provides the funding.
Assessment:
- It is oriented to business development;
- it has quickly developed an infrastructure capable of mounting 22 courses and training close to 700 students per year in less than two years;
- there is an enormous demand for the courses from the villages with courses quickly filling. This indicates both the quality of the training and the high level of interest in self-employment;
- the Centre has graduates in some 50 villages with the number of villages reached growing quickly with each course the program provides; these graduates could become the core members of a Micro-Start initiative.
- the staff appears to be very capable and committed.
Possible weaknesses include:
- the staff is interested in adding a credit component, but is resistant to offering credit services generally in the community. They believe credit should be provided only if it is combined with the kind of training they provide;
- the training program is completely subsidized and comparatively expensive, so the entire venture is vulnerable if donors tire of funding it;
- there is little acceptance of the concept of self-sufficiency.
Conclusion:
3. AKANANI
Northern Province Louis Trichardt Tel: 015-556-3120 Contact Person: Andrew Godani, Director, Small Enterprise Development Unit
Description:
Akanani operates in an area where 70% of the men work down country. The area is dotted with villages, one every 2 km to 3 km. Those left behind carry out a range of micro-ventures including brick making, fruit juice preparation, sewing and trading. The Small Enterprise Development Unit that Andrew Godani heads with an assistant, provides management training for community facilities, for local community based organizations, for schools and health posts; assists in the development of cooperatives, and works with a few individual businesses. Akanani has a staff of seventeen including the two in the small Enterprise Development Unit.
Currently the Small Enterprise Development Unit is working with twelve small cooperative ventures, and has trained some 30 businesses in basic bookkeeping. Godani sees credit as a powerful tool to uplift the standard of living of the poor, and believes, "people should produce what they need here." He is also interested in the creation of "industrial hives," and encouraging the development of a number of types of businesses including canning, furniture making, tourism, community gardens, rugs and batiks.
Assessment:
By trying to do too many things the Unit's activities lacked the focus the previous two organizations described.
Conclusion:
4. Capricorn Development Trust
Tzaneen
Tel: 0152-307-6060
Contact Person: Mrs. Hazel Sayer, Development Officer
Description:
Capricorn Development Trust was started in 1992, and is entering into a period of rapid growth. Capricorn has two principal activities:
- helping communities with specific projects such as pre-schools, school classrooms and vegetable gardens (22 of these projects have been completed since Capricorn was founded);
- creating and training community organizations capable of managing community infrastructure, principally water projects.
There is little question that the region needs help. Quoting from Capricorn's 1996 Annual Review: "In the Northern Province, 87% of the adult population is functionally illiterate and 62% are unemployed." The area around Tzaneen dotted with villages ranging from a few hundred to over ten thousand residents. There is a great scope for micro-enterprise development in these villages.
While Capricorn provided ten Capacity Builder workshops in 1995, and seven in 1996, it will carry out twenty to thirty workshops in 1997, showing both the demand for these services, and the organization's growing capacity to deliver them. The training package was developed by Coopers and Lybrand in 1994. The workshops are funded through Kagiso Trust, Mvula Trust and Ithuba Trust which fund infrastructure projects requiring ongoing local management.
A workshop consists of thirty or so trainees making up the management committees of at least five villages. They complete a four module training program including:
- Module 1: Committee Skills for Community Based Organizations
- Module 2: Financial Management for Community Based Organizations
- Module 3: Project Management for Community Based Organizations
- Module 4; Business Plan for Community Based Organizations
Each module lasts one day and consists of lecturing, role playing and workshop interaction.
Assuming an infrastructure project is implemented, the Project Manager and his assistant monitor its performance for the duration of the project as part of their responsibility. The communities involved are joined together in a zone organization with representation from each village.
Assessment:
Capricorn has apparently created a powerful mechanism for developing community committees that have the capacity to design community projects and manage them. This includes making collections and paying for the services provided (often water), the same financial skills required to manage a community based loan fund. Through this tool Capricorn will:
- soon have developed committees in nearly a hundred nearby communities;
- created a structure of zone organizations;
- developed a mechanism to mentor the progress of the committees
Conclusion:
Capricorn seems interested in exploring micro finance, but considerable study would need to be done to determine if the village organizations were interested in adding this function to their responsibilities, and the degree to which an organization likely made up the elites in a village would be interested in a program which is designed primarily for the poor. If this option seems, viable the community committees established at considerable cost for another purpose could serve to expand business credit services in a large number of villages.
Another factor to consider is that the Small Enterprise Foundation (SEF) operates in the Tzaneen zone. Capricorn is concerned that the micro-enterprise activities they carry out not conflict with SEF's activities.
5. Bushbuckridge Local Business Service Centre
P.O. Box 439 Acornhoek
1360
Tel: 013-797-0649
Fax: 013-797-0650
Contact Person: Jan Vermeluen, Co-Coodinator
Description:
There are 99 villages with a population of more than 1,000,000 people in the target area served by the Bushbuckridge Local Business Service Centre. Only two of the villages have water systems and roads are minimal. The highest cause of death amongst under five year olds is diarrhea; there is no industry and unemployment is reported to be 79%.
There is no doubt that the villages around Acornhoek could use a micro finance program but is the Bushbuckridge Centre an appropriate intermediary? Initially operating out of Johannesburg, the Centre moved to Acornhoek in 1993, started a credit union in 1994, and was fully accredited in 1995 as one of the first rural centers of its kind.
The Centre started with business training, but it was soon evident that businesses would not thrive in a setting where there was no financing available, and where communications and transport were uncertain. Based on that observation, the Centre decided to start the Pfunanani Cooperative. The consumer part of the cooperative now serves 125 members, and the credit union, housed at the cooperative has 80 savers, who have already deposited R 40,000. Other Centre activities include assisting two small furniture making groups and other business ventures with a total of about 20 participants; running a small crafts store which sells locally produced items, and securing two franchises from ACE hardware to provide hardware and supplies for the region.
Plans for the future include a network of village banks that would operate in all 98 villages; an African Village that would attract tourists, and further work with small businesses. The Centre has a staff of three; the Director, an administrator and an extension agent. Since funding is so limited it is difficult to pay even this small staff, and it is difficult to recruit good staff due to the remoteness of the area.
Assessment:
Although the staff is committed, they need a clearer vision of what they hope to accomplish, and enough resources to implement their projects. Micro finance may provide this needed focus.
Conclusion:
If it is decided that the villages around Acornhoek are priority sites for microfinance, the operations of the Women's Bank should be studied before making a determination of which implementing institution would be most appropriate. Women's Bank is already carrying out a group based lending program in the area, apparently with some degree of success.
6. Ermelo Development Trust:
Mpumulanga Development Corporation Kanyamazane Tel: 013 -794-0223 Contact person: Philip Strydom
Description:
Although the team was slated to do a profile of the Ermelo Development trust, the experience of the Development Corporation is interesting in its own right. The Development Corporation has carried out an extensive lending program for "survivalist businesses" through groups, and has also made loans to individual micro-entrepreneurs. Between April 1, 1995 and March 31, 1996 the Development Corporation made 428 loans totaling over R 2,500,000 to groups with at least 2,500 members. In the last three months another R 1,000,000 in loans were made.
There are some important lessons that Khula can draw from the Development Corporation's experience that will help establish acceptable parameters for the performance of micro finance intermediaries. While the Development Corporation made many loans and many businesses were served, loan repayment, which only reached 85% the first year, fell considerably thereafter. Furthermore, the 12% interest charged (while the rate for commercial loans ranges between 20% and 30%) meant that interest income would only pay for a small fraction of the operational costs. (In truth, even if the cost of capital were 0%, interest income would not even pay for the losses to the portfolio, because of the high default rate.) Operational costs were also very high; while officers from the Development Corporation are responsible for no more than ten groups, the SEF field officers are responsible for up 35 groups each.
The Ermelo Development Trust was created as a Local Business Service Centre by the Mpumulanga Development Corporation. The Centre was part of the "rationalization process" of creating the small "lean and mean" units which would replace the old Development Corporations. The Centre services an area of some 680,000 people residing in the surrounding villages, and its mandate is to serve small, medium and micro-businesses. The Trust has ambitious plans for enterprise development, but to date, with only two staff, it merely serves as a referral service to channel business owners to other business services.
If funding is available the Centre plans to do the following:
- create an Embryo Manufacturing Technology Centre (MTC) for the greater Ermelo region;
- offer technical and business advice and training;
- acquire and maintain suitable premises for effective counseling;
- provide counselors to handle more established small business people;
- attract adequate funding;
- assist manufacturers at the MTC obtain markets for products.
There is no explicit mention of a credit facility.
Assessment:
The Ermelo Local Business Service Centre is has only recently been established, and it is unclear if it will be able to mobilize the necessary support to offer the services indicated in its objectives. It is also unclear if the Centre is oriented to the needs of poorer villagers, or is interested in serving villages that are not in close proximity to the office, or is even interested in running a credit program. One advantage the Centre has is that can build a credit component on the base of the already groups previously served by the Corporation. (This could also be a disadvantage since the groups are already accustomed to not paying their loans.)
Conclusion:
While the Centre does not seem to be a candidate for MicroStart, further study is required to determine what the priorities of the Centre actually are, and the agency's capacity to manage an extensive credit facility. The feasibility of using the existing groups as a base for a new credit initiative also needs to be explored.
7. Entrepreneur Development Centre
Portion 144 Middelburg
Town Lands Zuid Street, Middelburg Mpumalanga Province
Tel: 27-13-246-1039
Fax: 27 13 246-1087
Contact Person: Less Cass, Board Member and General Business Advisor
Description:
The Entrepreneur Development Centre (EDC) was started about a year ago, and, considering that funding is minimal, and that many of the staff serve as volunteers, the Centre has a clear vision of what it wants to accomplish, and has made considerable progress. While the Centre will focus its efforts on Middelburg during the pilot project phase, its objectives are to eventually serve the entire Province.
The principal activity of EDC is an industrial "hive" which houses 19 businesses. This enables Black business owners from the nearby township to use an inexpensive work space and to take advantage of central services and technical assistance. The Centre receives 5% of each businesses' sales as rental which pays a fraction of the actual operational costs. The EDC staff have extensive contacts with business owners in the township, and are providing advice and access to credit for the few better established manufacturing establishments.
Assessment:
The EDC staff has a high level of business expertise; Mr. Cass has been an entrepreneur for 23 years, and is highly committed to making this venture work with Black owned businesses. The staff is well connected at the political and business level in Middelburg. While the commitment of the program so far has been for manufacturing, the staff seem open to the idea of MicroStart. The EDC has already done a lot with very little. Since the key staff is on leave from their usual business activities, their long-term commitment to working with the program over several years needs to be determined.
Conclusion:
The EDC merits further consideration as a potential MicroStart site. Although they lack the history of outreach into multiple communities, the staff seems capable, committed, well connected, and interested. (Return to top.)
F. Micro Finance Organizational Assessment
March, 1997
IDENTIFICATION:
1. Date of the interview
2. Name of organization, address, telephone, fax numbers,
3. Names, positions of those interviewed
4. What type of organization
5. Get business cards, brochures, etc.
A. WHAT IS THIS REGION LIKE?
1. Overall are things getting better? Worse? over the last few years
2. What are major difficulties faced by the poor, especially poor women around here?
B. FIRST WE WANT TO KNOW SOMETHING ABOUT WHAT YOUR ORGANIZATION DOES?
1. When organization started?
2. Who started it?
3. Why organization was created; what problem was to be addressed?
4. What services did it provide at first?
5. What types of services being offered now? If services are different that what was provided at first, why were these changed?
6. Description of services; If credit, for example, size of loans, purpose of loans, etc.?
7. How many are receiving these services now; how many a year ago, what are plans for how many to be reached over the next couple of years?
8. Where are services being provided; what is service area; where are services concentrated.
9. Who is being served - income level, men/women.
10. What does organization hope to be doing five years from now? How many will be reached? Where they will work?
11. What do they say ass the major challenges, difficulties to be overcome?
C. NOW I'D LIKE TO FOCUS ON THE ORGANIZATION ITSELF:
1. How many staff; of these how many field staff - i.e. loan officers? How many administrative? How many management?
2. Governance - Board, who is on it?
3. Do you have branch offices? Where?
4. Where receive funding; specify sources;
5. Overall budget - budget increasing, same, declining; how much?
6. Transportation, vehicles?
7. Types of administrative systems; reports generated?
D. WHAT DO POOR PEOPLE DO AROUND HERE TO MAKE A LIVING?
1. Farming? % Work in factories? % Remittances? Others? %
2. How important are informal sector businesses around here as a source of income for poor women? %
3. What kind of businesses do women do to make a living?
4. What problems do they face in expanding what they do?
5. Is any organization helping them? Comments on those providing services?
E. HAVE YOU THOUGHT ABOUT YOUR ORGANIZATION OFFERING MicroCredit SERVICES?
1. Why, why not?
2. Would you be interested? (Indicate that Khula is exploring the possibility of supporting these kinds of services)
IF INTERESTED
3. How would you go about this?
4. Where would you work?
5. What size loans, loan terms would you offer?
6. How many would you hope to reach? 1st year, within three years?
7. Would you have to add staff, other capacity?
8. What kind of training, support would you need?
9. Are there other organizations you could work through to help you deliver services; would banks or other institutions help?
F. THIS IS HOW Micro Finance WILL WORK
1. Describe the group methodology? Would people join? Do you think it would work?
2. What are the difficulties 3. Would they be willing to pay 40% per year for these loans so you could begin to cover your costs?
G. CONSIDERING ALL WE HAVE TALKED ABOUT?
1. How interested would your organization be in doing this kind of work?
2. How would you go about building a program to reach a hundred or so the first year; maybe two or three hundred the second year; and 1,000 businesses within three or four years? What are the major strengths your organization has to offer? What would need to change to make this work up to this level?
