By: Anna Majavu
Women-owned microenterprises in rural areas can have a 98% success rate if they are funded by low-interest development microfinance. The Phakamani Foundation, which lends no collateral loans of between R1000 and R30,000 to female businesses in rural areas at interest rates as low as 6%, has found that of the 550,000 loans it has issued, 98% have been repaid.
Speaking at a Jobs Fund webinar, Phakamani CEO Eric Crawford said the organisation currently had 36,000 active clients who borrowed an average of R2978 each. One client had used a tiny R1000 loan to set up a successful business melting down scrap metal and making pots, and then renting out the pots to caterers. Another success story was a client who styled hair on the side of the road took out a small loan and within three years, had a fully functioning hair salon, had built a house, and also built additional rooms to rent out.
The foundation has lent R1.2 billion in the 15 years it has been operating. It only lends to groups of rural women who have lived in the same area have known each other for at least two years and are willing to receive business training and meet monthly. The loans are short terms of four to six months, and “collateral is social collateral held across the members of the group”, Crawford added. The female business owners are never handed over to debt collectors or reported to the credit bureaus if they default.
The foundation on’s finance manager, Kudzayi Rujuwa, said: “We stay focused on our social mission by keeping the loan size inclusive and low despite it not being profitable. We don’t aim to seek profiteering first. We continue focusing on development rather than consumption loans.” However, the development of microfinance in rural areas is expensive and needs to be subsidised for at least 10 years until it becomes self-sustaining with loan repayments. Phakamani runs off multiple loans, including low-interest loans from the government, which it is able to service and lend to clients.
Rujuwa added that development microfinance organisations like Phakamani could fund many more successful businesses if the government set up policies to support the development of microfinance. “The capitalisation of microfinancing situations is critical and needs to be given considerable attention,” said Rujuwa, adding that development microfinance organisations should also be exempt from VAT.
The rural microenterprises were also hard hit by load-shedding, crime, and service delivery protests. “Communities without essential infrastructure like decent roads, reliable power supplies and good transport systems are almost not able to benefit from microfinance products,” said Rujuwa. Since 1990, over 45 development finance associations have started operating and closed down with only three remaining in the country – the 32-year-old Small Enterprise Foundation with 150,000 clients, the 15-year-old Phakamani Foundation with 36,000 clients, and the two-year-old Sunrise Women’s Development with 2000 clients.
