Life in Africa, Ned Uganda and Microfinance

We need to think about what Life in Africa, Ned Uganda and Microfinance will look like once the Life in Africa communities in Kampala and Gulu have transitioned to a coop structure and Life in Africa has transitioned to a US based non-profit.

The community in Gulu currently has a microfinance fund from Omidyar.net that's disbursed and managed using a small lending group guarantee system.

Life in Africa is also currently a Kiva partner, where loans for individuals in both Kampala and Gulu are sourced against a community guarantee.

Mark has also mentioned the possibility of microfinance available through ned.

We need to think about what running these existing and future programs should look like in the context of a coop biz unit structure. We also need to discuss how/whether the relationship with Kiva should change to reflect the new structures.

Let's please have that discussion here.

Last comment added: Fri, 19 Oct 2007 01:34:58 PDT

Comment 1 on Life in Africa, Ned Uganda and Microfinance

If microfinance/banking was a business unit of 3-5-10 people inside Ned/Uganda/Gulu and Ned/Uganda/Kampala and each business unit managed the relationships with Kiva, C-4, etc...how would or could that work?

Comment 2 on Life in Africa, Ned Uganda and Microfinance

Mark, could you elaborate a little more on how you envision this might be set up?

Comment 3 on Life in Africa, Ned Uganda and Microfinance

Well, banking is a service and the MFI loans carry an average interest of about 25-35% (I assume). Each outside org (Kiva, C-4, Acumen, others) is an outside entity and the team members work with those groups to manage the local business on the ground. Each "partner" org does things somewhat differently, so in essence each one becomes a different "service offering" within the coop.

So let's say a business unit of 5 people has $500 USD in pledges/donations towards their launch, but they need $1,750 USD total. The banking unit looks at the 5 members and helps determine which "financial instrument" (ie. Kiva, C-4, etc) best suits the needs of that business...and those 5 people. Each take a loan of $250 USD, take a loan as a group of $1,250 USD, take the time to build out more donations, pre-sell some product/service to make sure the cash flow will be there.

Something along those lines perhaps.

Comment 4 on Life in Africa, Ned Uganda and Microfinance

BTW, I assume this is pretty much as things operate now.

Main differences being more options for financing, and the business unit teams taking loans. Also (as I think we all know) a need for more standardized open financial reporting and accounting.

Comment 5 on Life in Africa, Ned Uganda and Microfinance

Yes I think it could work much like you envision, Mark.

What I'm not at all sure of is whether Kiva would be interested in separate relationships with the ned locations. Thinking outloud, what I do know is that these days they don't start new relationships with mfis that have less than 1000 clients - they still have more lenders than borrowers at the site, so they are looking for their partners to scale as much as possible. Given the interface set-up work that they have to do on the back end, the partner pages, the account management, etc. I can understand their need to work with larger orgs.

One of the reasons (I now realize) we have never been able to achieve the scale that I'd originally intended/planned for the microfinance program is that the LiA community was not able to absorb the expansion to include members of other communities. So while there is definitely potential for the microfinance programs to expand in both locations, I'm not sure we should expect miracles in the near future. If, on the other hand, we can also provide access to the Kiva opportunity to other existing communities through the Life in Africa connection (without all the other member programs tagged on), then we could foreseeably scale the LiA presence on Kiva to the scale that Kiva would like to see it within a couple of months.

ReachOut Mbuya is an HIV/AIDS community that is an ideal one when I think about this - they have a community microfinance program already but are limited in capital. They serve over 2000 families and have staff that's already computer literate enough to be able to learn how to upload to the Kiva site. Whoever extends microloan funds to other groups will have to have some kind of guarantee mechanisms (including a guarantee fund) in place. I think LiA may better positioned to handle that than each center separately will be as far as the Kiva loans are concerned. So basically that gives an oversight role to LiA for the portfolio on Kiva that comes through community based orgs instead of MFIs.

I'm thinking aloud right now - need to ponder a couple more things before this can make more sense.

Comment 6 on Life in Africa, Ned Uganda and Microfinance

Taking stock of what's been developed and implemented over the past 1.5 years of community guaranteed lending through Life in Africa, this is where we are at in terms of what's working, that the communities intend to build on.

Group guaranteed lending:

borrowers form groups of 5. The group receives shs500,000, to divide equally among themselves, and receives no more until the entire shs500,000 plus interest is returned in monthly payments collected from the group leader. If it's returned ontime, the group can then get shs750,000. If it's returned late, the maximum they can get again is still shs500,000.

non LiA members of other community organizations may join in this system when they join as a group of 20 (organized into smaller groups of 5). A designated leader of the group of 20 is responsible for collecting payments from the groups of 5. The group of 20 will not receive further loan funds until all of the groups of 5 have returned the funds. The organization to which those members belong stands as a final guarantor in case of default by the group of 20.

the largest amount that a group of 5 can receive through this system is shs1m.

This system started in Gulu with shs8m from the Omidyar.net community. Additional loan funds are required to achieve increases in amounts disbursed to the groups over time. KIVA represents one option for sourcing that capital - they will allow groups to apply for a loan as a group.

Ideally, in my mind, members should have to participate in a group that has a clean repayment history until after the 1m group loan has been repaid. At that point, individuals in that group can qualify to apply for a Life in Africa guarantee for a loan of 250,000 as an individual, then climbing further through good performance and demonstrated ability to repay, to a maximum of shs1m.

more later.

Comment 7 on Life in Africa, Ned Uganda and Microfinance

I think this is a good plan and one that has some good safeguards built in. I especially like the fact that the individuals can only take small loans until they prove that they can repay responsibly.

This is what has concerned me over the last round of loans we processed. Peter and I both questioned that there were two loans submitted for individuals in Gulu that were over one million. We got no answer but a third loan was then posted for two million. I did not even edit that one. I really think we need to be careful of the size of loans that are submitted, especially for individuals. How do we convey this to the center in Gulu? It seems an incredible waste of time to keep submitted these high loans.

Comment 8 on Life in Africa, Ned Uganda and Microfinance

Hi, this is Taylor Moore. I am a Fellow from Kiva currently assisting LIA as they think through the new structure. First, a disclaimer, I am not a Kiva employee and in no way have authority to speak for them. My responsibility is only to aid the discussion and communication.

I have thought a little about the new NEDUganda structure and what that could look like in relation to a partnership with Kiva. I think that Cristina is right that Kiva will want one parent relationship with NEDUganda, not individual relationships with affiliate communities (Kampala, Gulu, ect.). I think that a few fundamentally questions need to be answered:

Who will bear the liability for defaults? NEDUganda could bear the liability or the individual communities; a third possibility is that the risk could be shared. The default liability should probably mirror the interest income generated from the loan.
Assuming the Kiva partnership is with NEDUganda, NEDUganda will be responsible for ensuring that its affiliates meet a certain level of performance and meet certain standards. How will this happen and what should those metrics be?
Would the guarantee structure continue and at what level?
Are there any legal incorporation issues to consider?

The concept of a franchise structure has been mentioned and I think that is a good idea. I have some questions regarding how accountability will be enforced if non-compliance occurs. I think for the concept to truly scale among multiple communities, NEDUganda needs to have systems and operating procedures in place. To do this, my guess is that would require some additional staff and capital investment.

Also, all of these issues are being highlighted with the current situation in Gulu. I think a position should be articulated as to whether or not Gulu should be extended microfinance services at this time.

I hope these thoughts are helpful.

Comment 9 on Life in Africa, Ned Uganda and Microfinance

HI Taylor,

Glad to see you here and I hope you are enjoying your stay in Uganda. I am wondering if you are in or have been in the Gulu area yet and would be interested to hear your take on what is going on there.

I agree that we need to be very cautious as we procede forward and we need to lock down the loan guaratee issue as soon as possible. You say that the franchise structure would require additional staff and capital. Can you elaborate more on what your idea is. What kind of staff addition are you referring to?

Comment 10 on Life in Africa, Ned Uganda and Microfinance

In Kampala we're favoring strongly that there will be no NedUganda as a legal entity. The two centers will collaborate in the nedUganda group online but will be independently responsible for their own accountability to various partners.

As I see it, I think Life in Africa should maintain the relationship with Kiva, and that Life in Africa should develop requirements and procedures for issuing a Life in Africa guarantee on loans that are managed by community groups (including - among others - the Ned groups).