Micro Leasing for the Disadvantaged Poor in Rural Tanzania

Micro Leasing for the Disadvantaged Poor in Rural Tanzania

Tanzania
Budget: 
$10,000 - $50,000
Project Summary
Elevator Pitch

Concise Summary: Help us pitch this solution! Provide an explanation within 3-4 short sentences.

In order to generate and sustain jobs, small entrepreneurs in developing countries need business skills and different types of financial services. Microfinance institutions have traditionally focused on provision of credit only for working capital. However, many small and micro enterprises need medium-term investment. This project will provide business skills training followed by a micro leasing operation to disadvantaged poor in rural Tanzania.
The leasing operation will be on hire purchase, where by part of the ownership of the equipment is transferred with each payment, upon payment of the last instalment, the lessee becomes the full owner. Down payment of 30% of the purchase price will be made; the lessee will be required to pay the remaining 70% with monthly instalments.

About Project

Problem: What problem is this project trying to address?

Tanzania is one of the countries with the lowest percentage of people who has access to financial services despite its importance and strong demand. The survey conducted in the country by Finscope in 2007 indicated that only 10% of nearly 42million Tanzanian households had access to formal financial services, 3% had access to semi formal formal microfinance institutions including SACCOS, 35% had access to informal associations and 54% most living in rural areas are basically excluded in any kind of financial services other than the 20% who serve, borrow or lend by non monetary means. Barriers to access of financial services in Tanzania have included long distance to the nearest bank outlet especially in rural areas, high minimum account opening and operating balance, difficult loan requirements and unfavourable terms including high interest rates, unfriendly banking atmosphere and procedures, and highly priced payment services. More than 80% of Tanzanians live in rural areas where they are engaged in farming, fishing and trading activities, only few are employed. Many rural areas have poor infrastructure including lack of power. For the last 50 years since independence it has been nearly impossible for ordinary Tanzanians living in rural areas to get appropriate, affordable and reliable finance. One of the chief constraints is poor infrastructure, ie roads and communication throughout much of the country side. With a land mass of 945,000 sq kilometres and a rural population that is widely dispersed, the operating cost discourages financial institutions from taking services to the country side where more than two third of the Tanzanian population lives. rds left (1600 characters).

Solution: What is the proposed solution? Please be specific!

Existing Microfinance program focus on provision of credit only for working capital, the only existing leasing company in Tanzania TUNAKOPESHA LTD focus only on salaried workers in urban ecntres and not micro entrepreneurs in rural areas. The great advantage of leasing especially for the poor is the absence of collateral requirements. The equipment itself serves as security because the lessor retains ownership. If the lessee is unable to make the payments, the lessor can reposses the asset. In most countries this is a relatively straightforward procedure. No risk of fund diversion, in leasing the funding provided goes directly to the purchase of equipment without even passing through the hands of the lessee. This averts the risk that the lessee might use the funds for purposes not agreed upon. It also avoids the risk that the lessee might use the credit to pay back a loan from another financial institution. Fund diversion is a problem; clients of micro-lessors in Africa argued that they prefer leasing over loans precisely because they do not have to handle cash when taking a lease. Especially for women it can be hard to use a loan taken from a bank solely for the business purposes it was originally meant for. The pressure to spend part of it on other family needs-useful or not-is very real. A piece of equipment, however, can’t be used for unbudgeted expenses.
Impact: How does it Work

Example: Walk us through a specific example(s) of how this solution makes a difference; include its primary activities.

• Promotion of the program and awareness creation • Selection of program beneficiaries and needs assessment • Training on entrepreneurship and business skills • Implementation of the leasing program The equipment supplier will be selected basing on location, quality of equipments sold, prices and discounts, reliability in terms of delivery and after sale service. • Monitoring of the Leasing program Regular monitoring visits will be done to the lessee’s enterprise; during the monitoring visit the lease officers will assess the state of the business and the condition of the leased equipment. This will include checking whether the equipment is still working, if any damage has been caused to the equipment, either by factory defects or misuse by the lessee or if the equipment is being used only for the purpose stated in the contract. mately 200 words left (1600 characters).
About You
Organization:
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About You
First Name

Petro

Last Name

Mattaba

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About Your Organization
Organization Name

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Organization Country
Country where this project is creating social impact
How long has your organization been operating?

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Innovation
What stage is your project in?

Idea phase

Share the story of the founder and what inspired the founder to start this project

I have been working as a Credit Officer for 7 years, first with Microfinance bank and later with a Commercial bank. I have met many people who would like to access financial services but only few qualify. The major constraint has been informality of their businesses, the lack of information on debt capacity and credit worth ness especially the rural poor, which along with low-income and lack of tangible assets to offer against loans, has made financial institutions oblivious to their needs.
This is why I saw the potential for development of a product specifically targeting towards asset finance for the micro and small enterprise sector in rural Tanzania. The idea came after in depth interview with entrepreneurs to examine their needs and the challenges they face in growing and expending their businesses. The interview revealed that there is there is large un met demand for leasing among micro and small enterprise seeking short and medium term financing ranging from approximately US$ 120-$8,500. Majority of these entrepreneurs operate in trade and service sector requiring financing for lower cost assets such as sewing machines, refrigerators, freezers, carpentry tools etc; whilst those in the transport, agriculture, health and education sectors are small to medium sized and use assets with greater financing requirements.

Social Impact
Please describe how your project has been successful and how that success is measured

My project is still on idea phase it has not been implemented. The project aims at improving the livelihood of rural poor through access to asset finance and training on entrepreneurship and business development skills. A simple poverty score card for Tanzania developed by Mark Schreiner will be used. The poverty score card was constructed using the Tanzania’s 2007 Household Budget Survey. The score card can be used to track changes in poverty rates over time. It uses ten simple indicators that field workers can quickly collect and verify.
All points in the scorecard are non negative integers, and total scores range from 0 (most likely below a poverty line) to 100 (least likely below a poverty line). The poverty scoring will be taken before the program starts and after the program to track changes over time.

How many people have been impacted by your project?

How many people could be impacted by your project in the next three years?

101- 1,000

How will your project evolve over the next three years?

The project will start by leasing to sectors with low risk and which generates regular income like trading and services. Together with the training offered on business and entrepreneurial skills, our clients will be able to start and run viable business businesses which can generate sufficient income for lease instalment payment and a surplus for their families.
After one year of successful operation, less risk sectors will be added depending on the needs of our clients. Repayment schedules will be flexible to meet the cash flow of clients running businesses with seasonal income. When we have gained sufficient experience in one region for two years we will expand our operation to another region during the next year.

Sustainability
What barriers might hinder the success of your project and how do you plan to overcome them?

• Targeted beneficiaries may not turn up as expected
More efforts will be devoted in the promotion campaign involving functions which attract our target clients like drama, performing arts and the like.
• Beneficiaries may not be willing to participate in the needs assessment
Selection of new participants will be done if the first selection is not willing to participate.
• Selected participants may not afford to appear for the training
The reason why they can not appear will be examined and it possible resolved, the anticipated reasons may be transport cost and appropriate time. The training will be conducted at the best possible near by place and at the convenient time for our participants.
• The program participants may drop out of the program or move out of the area or not repay their instalments on time
Regular monitoring visits will be done to the lessee’s enterprise even if the lease instalments are being paid in time, during the monitoring visit the lease officers will assess the state of the business and the condition of the leased equipment. This will include checking whether the equipment is still working, if any damage has been caused to the equipment, either by factory defects or misuse by the lessee or if the equipment is being used only for the purpose stated in the contract.
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Tell us about your partnerships

The organisation will work in collaboration with the local government, other NGOs and private enterprises. The most important collaboration will be with the equipment suppliers. Because the equipment serves as collateral for the lease, the organisation will make sure that it is reliable, appropriate for the lessee’s business and likely to retain its market value for the whole lease term.
Having collaboration with few reliable suppliers limit the risk of supplier-related problems likes late delivery, deficient post sale services and un availability of spare parts. Limits the scope for the supplier to collude with entrepreneurs and give quotations above the real price of the equipment. Fewer suppliers also means volume discounts for the lessor, extended warranty periods, and improved post sale service.
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Explain your selections

My project is still an idea I have not implemented it yet, all costs I am incurring now are covered by me.

How do you plan to strengthen your project in the next three years?

My project is still an idea; its operation is subject to availability of funds. When it starts I am planning to run it in a profitable way so it can attract funds from the commercial market and stop relying on grants or donors.

Challenges
Which barriers to employment does your innovation address?
Please select up to three in order of relevancy to your project.

PRIMARY

Lack of skills/training

SECONDARY

Lack of efficiency

TERTIARY

Underemployment

Please describe how your innovation specifically tackles the barriers listed above.

The training on business and entrepreneurship skills will provide our clients with the skills and knowledge needed to start and run viable businesses. The leasing program will increase production, save costs, improve quality or open the way for new products or services.

Are you trying to scale your organization or initiative?
If yes, please check up to three potential pathways in order of relevancy to you.

PRIMARY

Influenced other organizations and institutions through the spread of best practices

SECONDARY

Enhanced existing impact through addition of complementary services

TERTIARY

Please describe which of your growth activities are current or planned for the immediate future.

I am planning to operate within the same region in the first year of operation so as to assess the project perfomance,challenges and find solution to problems before expanding our operation into another region.

Do you collaborate with any of the following: (Check all that apply)

NGOs/Nonprofits, For profit companies.

If yes, how have these collaborations helped your innovation to succeed?

The project will work in collaboration with the local government, NGOs and private enterprises. The most important collaboration will be with the equipment suppliers. Because the equipment serves as collateral for the lease, we will make sure that it is reliable, appropriate for the lessee’s business and likely to retain its market value for the whole lease term.
Having collaboration with few reliable suppliers limit the risk of supplier-related problems likes late delivery, deficient post sale services and un availability of spare parts. Limits the scope for the supplier to collude with entrepreneurs and give quotations above the real price of the equipment. Fewer suppliers also means volume discounts for the lessor, extended warranty periods, and improved post sale service.