The Microfinance Interview is a monthly question-and-answer feature through which we engage key stakeholders of the sector such as MFIs, funders, service providers, development partners and regulatory authorities amongst others on issues of topical and mutual interest. This is in recognition of the influential role of microfinance as one of the four pillars of the National Financial Inclusion Strategy (NFIS) alongside financial innovation, financial literacy and financial consumer protection. In this installment, the spotlight is on Thrive Microfinance, a developmental microfinance institution. Brian Nyabadza (pictured), the company’s Operations Director talks about the company’s origins and reason for existence, its business model, and its impact on the targeted market. He also talks about several topical issues such as the capping of interest rates, the importance of savings as the key to long-term financial security, how the company is mainstreaming Client Protection Principles (CPPs) in its operations and playing a part in the Social Performance Management movement through a poverty assessment initiative. He concludes by outlining the developments he would you like to see in the microfinance sector in Zimbabwe. Thrive was founded by current Managing Director, Henry Bartram.
MFSB: Tell us a little about Thrive Microfinance. The when, the how and the why it was founded.
BN: Thrive was founded in March 2012 for the benefit of bottom-of-the-pyramid women entrepreneurs who normally fail to access financial products and services from conventional lenders owing to their inability to meet conventional lending requirements. The vision was and still is a world in which women entrepreneurs are supported reasonably enough to reach their full potential in business.
MFSB: Why the name Thrive?
BN: To thrive is to grow or develop well, in this regard we seek to provide products and services that enable our borrowers to develop and progress well. We have a strong beneficiary focus and we target economic and social transformation. We exist to enable our clients to thrive by offering them reasonably priced and customer oriented products and services.
MFSB: Can you briefly describe Thrive Microfinance’s mission and the approach that you use in an effort to fulfill that mission.
BN: Thrive’s mission is to provide training and micro-credit to women entrepreneurs in a manner that is socially responsible and financially sustainable. We target the previously excluded and our products are designed to enable their inclusion. 80% of our loan book consists of loans secured by group guarantee. While our target market (women) generally do not have assets to borrow against, they often have very closely knit social ties. We proactively support them to systematically develop those ties before we allow them to borrow against them and so far it has been working very well.
We measure their poverty likelihoods when they get their first loans and we track changes over time. Throughout the life cycle of the relationship we provide additional training and support that allows them to not only grow their business acumen but also slowly build assets that cushion them against socioeconomic shocks.
The model we use is a high cost one and should not be used by financial institutions looking for a quick return. Because of the client care and monitoring we provide, our efficiency metrics suffer and so does profitability. For us, striking the balance between financial and social objectives is the challenge of making it as a double bottom line organisation and our resolve could never have been stronger.
MFSB: What’s your current outreach, loan book size and number of customers like?
BN: At present we have branches in Harare, Chitungwiza, Marondera and Juru. Our gross loan book size is $1,4m and active clients are 5500. Over the past 5 years we have trained and provided micro-loans to 11000 entrepreneurs.
MFSB: Given that you are a credit-only MFI, could you outline your current sources of funding?
BN: Our biggest supporter is the Zimbabwe Microfinance Fund, they have basically nurtured us through our teething problems. We have also managed to attract funding from international lenders such as Kiva, Care International’s Lend with Care and the Whole Planet Foundation in addition to shareholder capital.
MFSB: Can you tell us about the cost structure of your loans and also give us your views on the capping of interest rates by regulatory authorities.
BN: Our interest rates range from 3% to 6.5% flat per month on the various products we offer. We do not have any other charges (application fees, insurance or arrangement fees etc) as these have the effect of disguising the true cost of borrowing to clients. Transparency and appropriate pricing are important issues for us as they go a long way in preventing borrower over-indebtedness.
The capping of interest rates by the regulator is in principle absolutely correct. Excessively high interest rates eventually drive loan poor performance as they make the borrowing cost unbearable. However, to go with the capping, the regulator or someone has to address the cost of funds in this economy. As it stands, MFIs are picking up very expensive capital for on-lending and because of the high operating cost structure in the country, they can only pass on the burden to the borrowers because it makes business sense. Having said this, MFIs should proactively seek to be more efficient, responsibly!
MFSB: We note that you view savings as the key to long-term financial security. Given the loss of savings in the past and the inflationary impact of the current operating environment, how do you allay the fears of your clients?
BN: This is one of our biggest challenges since inception. While savings are key and after continued training, our clients often demonstrate significant behavioural change, banks and inflation have over the past 10 years made it difficult for our people to develop the sort of savings culture prevalent in East and Central Africa (where almost everyone belongs to a SACCO or Internal Savings and Lending (ISAL) schemes. As a result a lot of our clients remain financially exposed, with a number of them still regrettably exchanging chants such as “gara wadya, kufa kwakauya”. Unfortunately this state of affairs further drives the cycle of poverty and it breaks the hearts of genuine development practitioners.
MFSB: Considering that you encourage and assist groups to open savings accounts with local banks, are you not thinking of becoming a deposit-taking MFI yourselves to diversify your funding sources as well as your product offering.
BN: We aspire to be deposit taking in the future but we are still a long way off. We will need a much stronger balance sheet and our focus over the next few years will be to achieve that. We just hope that banks develop better community banking products and banking confidence improves in the short term so that we continue referring our borrowers to banks for a while.
MFSB: The MFSB is informed that borrowers undertake a training programme prior to applying for a loan? Would you like to tell us more about this? How is it done and what is covered?
BN: We provide group dynamics and financial literacy training to all our borrowers. Group dynamics training is particularly important since 80% of our loan book consists of group business loans. The training therefore supports our borrowers in forming and maintaining cohesive borrowing units that enable them to access micro-loans against social guarantees. In this way we not only combat financial but social exclusion by bringing community members together. Through the same groups we provide voluntary non-financial training on esteem, health and legal issues since these affect the extent to which women can benefit from micro-loans.
Furthermore, we provide training on financial literacy. Financial literacy is a very broad subject but we only focus on topics that enable borrowers to make appropriate borrowing decisions, manage their businesses and cash flows better.
The provision of borrower education is however a significant cost. Thrive only does it because we believe it is a pre-requisite for financial inclusion if a socially responsible outcome is sought. Including the previously excluded and obviously more vulnerable requires the financial institution to be very careful lest the inclusion process leaves borrowers worse off and discouraged. This should be avoided at all costs.
MFSB: How would you describe the impact of Thrive Microfinance so far in Zimbabwe?
BN: Thrive, just like a lot of other MFIs in Zimbabwe has made a great impact on household poverty and wealth creation. Unfortunately we do not have commonly accepted social impact measurement frameworks. At best, we can say Thrive has enabled countless families to survive poverty en route to building tangible assets. Our in-house impact measuring tools suggest that our borrowers’ poverty likelihoods decrease progressively over three years but they also show that the impact (though we can never claim 100% causality) we make in borrowers’ lives reduced significantly over the last two years owing to the worsening macro-economic conditions. In addition, Thrive (though it still has a long way to go) is making strides towards addressing the discrepancy between male and female access to productive capital.
MFSB: We understand that your company is “an enthusiastic adopter” of the Client Protection Principles (CPPs). First tell us more about these CPPs in general and more specifically how you are mainstreaming them into your operations.
BN: Client Protection Principles (CPPs) are developed by the Smart Campaign and are expressly referred to in the Microfinance Act. They are guidelines that prescribe the standard of care that a financial institution ought to take when dealing with vulnerable borrowers. Similar but further to these are Social Performance Indicators (SPI) as developed by the Social Performance Task Force (SPTF). Though we are not yet Smart certified (on account of cost), we are both CPP and SPI compliant as confirmed by a recent social impact audit that was conducted on Thrive by a Barcelona based independent auditor known as Inclusion Social Rating (ISR). The specific principles and how we measure up to them are as follows:
- Appropriate product design and delivery: all our products derive from client needs and best interests. Product development for us is the internal effort we make in trying to meet a client’s need efficiently and profitably.
- Prevention of over-indebtedness: our lending decisions are based on assessing whether the borrowing benefit outweighs the cost or whether a borrower can sustain a repayment pattern without becoming worse off or having to pawn assets. Our marketing is never aggressive, our loan officers have no portfolio size targets and we do not pay performance bonuses as they distort loan officer behaviour.
- Transparency: our borrowers will never sign a loan contract without them demonstrating that they are clear on the loan cost as well as the benefit from the borrowing.
- Responsible pricing: we price to nurture vulnerable borrowers, the less you borrow, the less interest you pay.
- Collection methods: we collect religiously within the confines of the CPPs. Breach of CPPs during collections is a serious loan officer offence, what we fail to collect within the CPPs, we write-off. (Using the court due processes is within the confines of the CPPs.)
- Client data privacy: we have a sound data privacy policy that compels us to only use client data for loan assessments and research.
- Client feedback mechanism: We have a robust feedback mechanism that goes up to board sub-committee.
MFSB: Tell us about poverty assessment in Zimbabwe and how your company is playing a part in the Social Performance Management movement.
BN: Poverty assessments are quite advanced in Zimbabwe particularly for organisations with dedicated research units capable of using metrics such as the ones USAID and the World Bank use. However small players (the likes of Thrive) are still very behind and most view it as a want, not a need.
In trying to change this, Thrive is a part of the ZAMFI led Progress out Poverty Index pursuit. This is a simple impact measuring tool which once in place will enable local development organisations to report their progress on a comparable basis that also fits the global template. This tool is developed by the Grameen Foundation (the pioneers of microfinance) and some American experts.
Thrive is also participating in a five-year study being carried out by the University of Portsmouth, which seeks to further characterize and understand poverty in our local context and the extent to which microcredit can be effective as an intervention.
MFSB: What developments would you like to see in the microfinance sector in Zimbabwe?
BN: Firstly, the Reserve Bank of Zimbabwe should find ways of issuing longer term licences for MFIs. While we recognise their skepticism and need to manage the sector carefully (probably because of previous bad behaviour by some of us), we wish to point out the extent to which the one year licence affects planning and fundraising.
We propose that they stop the one size fits all approach – for MFIs that have been around and have proven that they are well managed and aspire for best practice, they could issue two year licences, progressing to three or five year licences upon next renewal. They can retain the one year licences for the new entrants, giving them a chance to have a feel of the waters before they start giving them longer term licences over time.
Secondly, we seem to continue to lag behind in terms of effective utilisation of mobile financial services. Ecocash appears to be miles behind MPesa in terms of transaction costs, customer support and financial institution convenience (in my opinion). We hope to see the day the mobile financial service providers will genuinely engage the financial institutions in moving away from rigid to more flexible, well priced customer focused products.
Furthermore, microfinance is predominantly the provision of micro-credit in Zimbabwe, yet it is supposed to include more products and services such as micro-insurance. We want to challenge the insurance sector to innovate and develop insurance products whose premiums are affordable to the market segments that we serve. This way, we would partner them in ensuring that insurance does not remain a product for the middle class and the rich, the bottom of the pyramid needs insurance more. In addition, funding remains scarce and expensive in this economy.
Lastly, the regulator should do more to raise awareness about responsible lending and social impact management. What the bottom of the pyramid and generally the market segments we serve need is informed financial inclusion by responsible lenders. Without this, the borrowers will get worse off while the financial institutions post remarkable profit numbers. Unfortunately at the moment, the sector cannot even measure how well it is doing in terms of the social objectives of microfinance. It is to this end that the regulator or someone should ensure the sector has sound and common social performance management frameworks upon which we all report at agreed intervals. The regulator may give incentives to complying institutions as opposed to sanctions for non-compliance.
Brian Nyabadza has been in the microfinance field for the last six years and is the Director of Operations for Thrive Microfinance. He holds a degree in Applied Economics from the University of Zimbabwe and is a Management Accountant in training.