This blog comes from Brian Doe on our Field Team. Brian was hired as the Africa Field Program Manager in 2010 to manage growing Whole Planet Foundation support in Africa. Today as Regional Director, he provides oversight to current partners and works to expand Whole Planet Foundation’s work across the continent with our microfinance partners.
Many of the borrowers we support in Africa use business loan capital to buy something in bulk and resell it at a mark-up that repays the loan and leaves some profit with the entrepreneur.
This is a low-risk business strategy that returns the loan capital fairly easily and quickly, allowing the entrepreneur to repay her loan in time. However, the profit comes in very small margins.
Recently, Whole Planet Foundation’s programs team has been analyzing the importance of productive assets to microcredit client businesses in Africa. ‘Productive assets’ are essentially things that help create income for a business owner without needing to sell the asset itself. If an entrepreneur invests in a larger asset like a vehicle, plow, sewing machine, refrigerator or other equipment, the possibility for higher profit can be transformative over time.
We have several new partners in Zambia, Madagascar and East Africa focusing more exclusively on the procurement and sale, on affordable terms, of these productive assets to entrepreneurs in rural areas.
Take Loy (below) who I met in Uganda. She took out a business loan of about $175 with our microfinance partner BRAC Uganda’s youth loan program and used it to buy calves. She resells the cows when they are grown and has been repeating this process over and over for the past three years.
After we went inside Loy’s house, she showed me a recent new addition to the business thanks to a program launched by BRAC Uganda. The program allows youth participants to boost income with access to various productive assets combined with training.
In Loy’s case, she received a sewing machine and sewing training. This has allowed her to make steadier and larger profits from her work repairing and tailoring clothes. Self-employment for rural youth is an area of enormous need in a country like Uganda with 78 percent of the population under 30 and youth making up 64 percent of the unemployed workforce.
Loy was qualified to receive a subsidized sewing machine through BRAC Uganda’s program, in which select participants obtain assets for free or at reduced costs. However, for most businesswomen it would be very hard to buy a sewing machine with a 6-12 month loan and actually earn enough from the machine to pay for the loan. Even if a client could repay the loan, it would be difficult to make enough additional profit to support her other expenses before the loan came fully due.
This is one of many reasons it can often be very hard for clients to invest in productive assets, but think of the opportunities that entrepreneurs are missing out on:
- A farmer growing maize could earn more with a mill to grind it into flour.
- A woman selling clothes could earn more if she could build a shop in the central market area.
- A person selling vegetables could sell twice as much if she could buy a truck or cart to transport the stock to and from her rural markets.
Whole Planet Foundation’s team in Africa has been very focused on testing ways our partners (or possibly complementary partnerships with other social ventures) can help meet business owners’ needs for productive assets.
In Zambia, the Foundation supports a social business called Rent To Own, which offers larger assets on a repayment plan. Rent to Own also includes the procurement, delivery and set-up of assets like this solar pump pictured below, purchased by one client who can now support year-round vegetable gardening in addition to a seasonal maize crop:
Our partners in East Africa are also looking into offering similar access to productive assets- though still currently at a much smaller and more basic level. There is still a lot of work to do in getting significant assets like these into the hands of poor business owners. Most asset and equipment purchasing programs remain accessible only to larger businesses.
In the meantime, Whole Planet Foundation has continued to support institutions that also offer their clients the ability to save money in addition to providing small business loans. Maintaining savings can be the best way for business owners earning small profits to keep some funds aside to eventually invest in productive assets like buildings and equipment.
Whole Planet Foundation’s team in Africa works with microfinance partners to ensure microentrepreneurs have the option to receive beneficial loan products and productive assets. We have seen the impact that access to large productive assets can have on client businesses first-hand and look forward to working with our partners to find solutions that will increase access for generations to come.