Micro Credit in South Africa

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Micro Credit in South Africa
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What is Micro-Credit?

• Micro credit or micro finance is the extension of
  small loans to entrepreneurs too poor to qualify
  for traditional bank loans
• Enables those without access to lending
  institutions, to borrow at bank rates and start
  small businesses
• Makes small loans accessible to poor
  entrepreneurs with no collateral

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Who Are the Clients of Micro Credit?

• The typical microfinance clients are low-income
  persons that do not have access to formal
  financial institutions
• Microfinance clients are typically self-employed,
  often household-based entrepreneurs
• In rural areas, they are usually small farmers
  and others who are engaged in small
  income-generating activities such as food
  processing and petty trade
• In urban areas, microfinance activities are more
  diverse and include shopkeepers, service
  providers, street vendors, etc

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Why Target Women?

• 1.2 billion people are living on less than a
  dollar a day
• Women are often responsible for the upbringing of
  the worlds children and the poverty of the women
  generally results in the physical and social
  underdevelopment of their children
• Experience shows that women are a good credit
  risk, and that women invest their income toward
  the well being of their families. At the same
  time, women themselves benefit from the higher
  social status they achieve within the home when
  they are able to provide income

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Microfinance Recipients

• Individuals. Some microfinance programs only lend
  to individuals
• Start-up or existing businesses. Some programs
  only lend to start-up businesses, others only
  lend to preexisting businesses. Each program
  differs according to the need and the services
  available
• Small, solidarity groups (peer lending).
  Generally these programs require that individuals
  form groups (usually consisting of 5 or more
  unrelated borrowers) in which each member acts as
  collateral for one another. These groups of
  borrowers decrease the costs of operating the
  program as they increase the group members'
  support leading to higher repayment rates and
  sanction the behavior of other group members

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Foundation for International Community Assistance
(FINCA) South Africa
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Who is FINCA South Africa?

• FINCA South Africa is a micro credit organization
  
• An affiliate of FINCA International which
  operates in 22 countries and serves over 215,000
  small business entrepreneurs
• Serves Kwa-Zulu Natal and bordering areas with
  head office in Durban
• 94 of FINCAs clients are women

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Mission Statement

• To improve the quality of life for
  economically disadvantaged people in South Africa
  through the provision of financial services to
  low-income entrepreneurs

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How FINCA Helps Its Clients

• Teach responsible borrowing
• Encourage savings
• Gain economic independence
• Increase value of businesses and profitability
• Solidarity groups promote self-esteem and
  self-reliance

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Two Types of Progammes

• Self-Employment Partnerships (SEP)
• Serve the small woman-owned business
• Clients include hawkers, crafters, street
  vendors, seamstresses, etc.
• Does not require physical collateral instead a
  group guarantee
• Clients have weekly meetings this increases
  solidarity , builds trust, increases self-esteem
  and facilitates group problem solving
• Minimum loan is R750 (140.00 Cdn.)
• Maximum loan is R 5000.00 (950.00 Cdn.)

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Two Types of Programmescontd

• Individual Loans
• FINCA also offers men and women collateralized
  loans for more developed businesses
• Clients include the owners of tuck shops, small
  scale production, shoe manufacturing and service
  providing businesses
• Each potential client completes a business plan
  with a FINCA loan officer. The decision to
  disburse is based upon the current condition of a
  clients business and the ability and willingness
  to repay the loan
• Loans start from R5000.00 (950.00 Cdn.)

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Problems with Credit in South Africa

• Credit -credit unions and/or micro credit
  organizations have bad reputations in South
  Africa because of the history credit has played
  in the country
• Stockveld was a tradition whereby people
  congregated and exchanged goods for money
• This tradition created the misconception of
  credit as people do not always receive their
  money when they exchanged their goods
• Pre apartheid Governments only provided credit to
  the privileged upper races

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Thank You