Microfinance – A Means to Eradicate Poverty in the Developing World
Microcredit has captured a lot of attention in recent years—often being referred to as a revolutionary mechanism for the developing world. However, it hasn’t worked nearly as well in Africa as it has in parts of Asia. This has said to be in part because it is newer in Africa and the models haven’t been adjusted, or because populations are more rural and dispersed, or because the underlying economies are growing more slowly and so investment opportunities are fewer.
Sub-Saharan Africa (SSA) has experienced slow economic growth over the past several years primarily due to its poor capital accumulation. Individuals do not commonly save their own money in Africa yielding a general dependence on public savings. This contrasts to Asia where private savings are critical. Microfinance may not be the only solution but it can be an instrument used to promote much-needed private savings so as to generate sustainable economic growth. Micro-financing institutions could make capital accessible for the poor and more importantly, allow them to securely invest their savings so they can earn interest off of those deposits and make larger investment expenditures in the future.
Microfinance also yields non-material benefits for its participants. It brings individuals to feel confident and self-empowered as they obtain the financial means to play a larger role in their development. The potential of microfinance far exceeds the micro level, scaling up to address macro problems associated with poverty eradication. This alone does not build roads, supply water and develop communities, but it is an essential means to achieving these things.
Microloans come with very high interest rates, which sometimes places its participants in a worse situation than before. These small loans are extremely expensive, and so borrowers often pay annual interest rates of 20 to 30 %. This becomes an issue because when the money is not invested soundly, the borrower becomes stuck in mounting debts.
MF is commonly thought of as small loans, but this sector provides access to savings accounts and insurance services that would not otherwise be accessible on account of economic and/or social status. Micro lending has proven itself to be a powerful system for helping people become self-sufficient. Ultimately, you are giving low-income people an opportunity to empower themselves by providing a means of saving money, borrowing money and accessing insurance.
Women constitute the vast majority of users of micro-credit and savings services. Interestingly enough, it has done more to bolster the status of women, and to protect them from abuse, than most laws have been able to accomplish (Half the Sky, Kristof & WuDunn). One reason why microloans are almost always made to women is because women tend to suffer the most from poverty. Mortality data shows that in famines and droughts, it is mostly girls who die, not boys. When Tanzania experiences extreme rainfall patterns, the numbers of unproductive old women killed for witchcraft doubles, compared to normal years. Other murders do not increase, only those of “witches”. This was found in a study done by an American development economist, Edward Miguel.
Another reason is to place more monetary control in the hands of women. One early pair of studies found that when women hold assets or gain incomes, family money is more likely to be spent on nutrition, medicine, and housing and consequently children are healthier. In developing countries, females are a commonly marginalized group. If the family savings are in the woman’s name, and thus in her control, that gives her more heft in family decision-making.
It is not just for anyone living below the poverty line, but also for segments of the poor population that are considered to be economically active. Those who carry out activities of their families, even if these revenues are low and precarious. Micro finance offers help to get them started by giving them access to financial services they are generally excluded from, and in ways that are suited to their economic and management skills.
Micro financing is not a new concept. This idea of providing small microcredit has existed since the 1700s. The rate of payment default for loans is surprisingly low – more than 90 % of loans are repaid. It is not just a financing system, but a tool for social change, especially for women.
MFI’s might also offer plus activities such as entrepreneurial and life skills training, and advice on topics such as health and nutrition, sanitation, improving living conditions, and the importance of educating children.
Sales and Distribution of the Yogurt – Progress with the Kitchen
We are waiting to receive product approval for distribution of the yogurt in stores and other restaurants. SIDO was the organization that visited the kitchen to inspect the production facility’s overall health and cleanliness a couple of weeks ago. We have yet to hear back from them after submitting a letter requesting the approval for our product. This is recognized to be a time consuming process. While this option has been a long time objective of all those involved with the project, it does not quite fit with the competencies of TWG. They are struggling to understand the necessity of selling the yogurt outside of the kitchen—therefore, it is unlikely the women could work effectively downstream with different distributors. Important to note that for other groups in the future, business training is an important component in preparing the women for commercial growth.
The packaging is working very well for distribution of the product in the market. The Mamas are using the new packaging—partly because it is easy and they are proud of its aesthetic appeal. The stickers are not waterproof. This is not an issue at present time as they are packaging and selling the same items within a days’ time in the market. However, when inventory runs low in a few months, this should be a requisite when ordering new labels as it will facilitate a longer shelf-life for the Fiti yogurt.
The Mamas also do not have a thermometer, which we believe might be one of the main reasons behind the yogurt’s inconsistency. We are buying one this week—expected to cost around 6, 000 tsh. This will be with money from the kitchen, not our own funds. We recently purchased 5 additional buckets for the Mamas to transport the yogurt to the markets. They did not have extra buckets needed to be selling in the markets. In addition, the issue in the past has been overall lack of motivation for the Mamas to bring yogurt into the market. This has changed substantially. Their efforts have been concentrated on boosting yogurt sales in the market and less on selling chapattis in the breakfast kitchen. After one of the meetings in which the interns explained how much more profitable the yogurt kitchen can be than the breakfast kitchen, they now understand how attainable profits are if effort is put forth by all of the Mamas.
Currently there is a lack of marketing efforts behind the sales and distribution of the Fiti product. To better position ourselves to grow the business it is essential the Fiti brand have a strong presence amongst our targeted consumer group. Without a basic awareness of our product, growing the business will fall back on itself, as we will be growing production of a product that is essentially unknown—ultimately increasing supply of something that lacks any remote demand.
Posters sporting the Fiti brand label are an inexpensive and attention grabbing means to achieving this goal. We are looking into this alternative for the short run, as the Mammas work on upping sales in the markets. We are in the midst of reviewing the locations the Mammas are selling at, and the consumers visiting these sites so as to determine what medium of advertising would be the most effective.
We are also mindful that in generating overall awareness of the product, it is important to communicate its ability to promote general health and not simply a medicine for people living with AIDS. We are looking at different ways to broadcast this message – so as to deter people from thinking it is only for PLWA’s.
New Sites/Groups for Second Kitchen
We held an introductory meeting with the chairperson and members of the Buswelu Group—a potential new woman’s group to partner with for another kitchen. We discussed the prospects of starting up a new business and establishing a partnership with Western Heads East. The director of the Kivulini’s Women’s Rights Organization directed our attention towards this group. They are enthusiastic and have business experience. They are currently involved in selling oil that is intended to alleviate skin infections caused by HIV/AIDS. We visited their area to assess the community kitchen location to ensure it can sustain the probiotic yoghurt operation. They informed us that if we were to go through with starting up a new kitchen, it would most likely be situated out of their main center. We explained that before we could commit to them (or any group for that matter) we had to meet other groups and look into funding alternatives to support the venture. We are trying to locate funding via submitting different proposals to various organizations at present time.
The group is tight-knit and dedicated, one that will hold each other accountable. They have experience with advocacy/marketing with their current business in selling the skin treatment product. They were very excited about it, asking many questions about the project. The group does not have a hierarchy; the group holds a chairperson that seems to lead in a very amiable and trusting manner. We did not get the sense that the women saw themselves on different levels of importance, but all as equals.
We also had a meeting with a business-training specialist (Bernard Makachia) a week ago. He could be very valuable when the time comes to train the new group. He said his services would cost around 150 USD per person for a 4-day seminar, but could be greatly discounted depending on the situation. Esther attended a seminar with him last week and said it was extremely helpful. We have a couple of his power points outlining subjects such as writing up proposals and necessary steps when developing a business model. We have his contact information and believe he would be a valuable addition to the development of a new yogurt group.
On a side note—this introduction of local competition will hopefully motivate the TWG to boost sales and operate in a more cost effective manner (e.g. purchase high quantities of milk for discounts and sell all of it). It will hopefully translate their coasting mindsets into more competitive ones.
Funding for New Group
From this point on we are focusing efforts on locating funds for a new group—the TWG kitchen does not need any further funding. These past two months have been the first operative periods in which the TWG has not had external sources of funding. It has revealed their inability to manage cash inflows and outflows. Therefore, we are trying to teach them some basic general management skills needed to run a business. Our last meeting focused on communicating how expenses and revenues must match up to generate any kind of profit—e.g. the relationship between purchased milk and daily sales.
We have met with several individuals from city hall to inquire about various funding alternatives for a new start up venture. We are in the midst of writing up all of the expected start up costs for a proposal for central government funding. They have already submitted their budget so we don’t expect to receive the funds until June 2011. It will be loan type funding. This will be a form of micro financing, if the city receives the funding from the government, they will then propose for a soft loan to give to us. In the meantime we are constructing a proposal and were asked to make it very general.
TWG Kitchen Morale
Still having meetings every Monday with interns, Mamas and Esther. The attendance at these meetings is lacking. Therefore, the Mamas want to implement a penalty fee for meeting absences. The Mamas, Esther and the interns are currently working on revising the constitution for the Mwanza kitchen. Acceptable absences are going to be a sector outlined in this new constitution.
There was an immediate increase in the amount of yogurt sold after sales targets were displayed on graphs and posted up in the kitchen. The 3 graphs show the incremental amounts of profit the Mammas –individually and as a collectivity—could be making if they grow revenues through concentrated efforts on selling the yogurt outside the kitchen. Visual representation of this potential success proved to resonate well with the Mammas as over the last two weeks they have averaged sales of 38 liters –with a high sales point of 60 liters during a three-day peak. Their previous sales were averaging 20 liters a week. They have also increased the amount of yogurt they are purchasing from Isamilo and Bwiru –their two current suppliers –from 50 liters to about 80 liters a day to accommodate larger sales. We plan to work with the Mammas to try and lessen the gap between purchases and sales in the future. They are currently accepting milk as offered by their suppliers. We hope to work out a schedule of deliveries to take some of the uncertainty out of the production process.
A visit to the new site is needed. They have yet to dig a large enough hole to provide feed to the cows. One of the cows is producing 1 to 2 liters of milk a day, which is being delivered to the kitchen. The other cow is currently sick. They need to be producing a combined 7 liters a day at this site to be breaking even.
The Mamas neglected to pick up the probiotics from NIMRI for a two week time period in June. We are uncertain as to why this happened but have reason to believe it is due to lack of communication amongst the Mamas regarding who was responsible for picking it up. We reminded them this is unacceptable when running a business founded upon providing probiotics via yogurt.
We have emphasized how important it is to focus efforts on not just production at the Mabatini site in our meetings, but building brand equity via a strong sales force in the market. We have not had a long enough time frame to really evaluate the growth of the kitchen—however, short-term results look promising.
They are using the packaging Olivia recently purchased to sell in the market. We believe this to be a more business savvy approach than what they were doing previously—selling the yogurt with re-washable cups. We intend on performing some market research in the upcoming weeks, with the objective of determining how well the Fiti brand is growing in our distribution points. Does our target market recognize our stickers, and if so, what image do they associate with our product? Is there still a stigma surrounding probiotic yogurt and its affiliation to people living with AIDS? These are just a few of the questions we hope to investigate through our latter assessment.