Community Participation in the Funding of Informal Businesses FinMark Forum 21 January 2009

Contents Introductory movie Background Business Model Methodology Key lessons learnt Conclusion Coenraad Jonker

Why are we doing this? Cost effective lending to informal small and micro enterprises Institutional development in communities Capital formation

Results as at end November The amount of money that has been lent The number of loans The average size of the loans The beneficiary gender split (female) The default rate R7.1m 630 R % 7.13%

Contents Introductory movie Background Business Model Methodology Key lessons learnt Conclusion Coenraad Jonker

CIF 2 CIF 3 CIF 1 Business Model - A CIF is capitalised from a central trust and thereafter becomes a revolving source of funds Standard Bank Community Investment Trust Donor 1 Donor 2 Donor 3 Loan The CIF uses donor funding for the purpose of on-lending to informal micro enterprises Community peer pressure and moral persuasion are used to ensure repayment. No collateral required Repayment Donors do not accrue any profit – all returns are reinvested into the fund etc All donor funds accrue to an umbrella fund which disburses monies to the various CIF’s

Loan terms Repayments are made over a maximum period of 24 months, and the repayment schedule is linked to the nature and requirements of the business Interest is charged at 3% pm on outstanding balances Loan size ranges from R R There is an initiation fee of R100 and a monthly charge of R15

Contents Introductory movie Background Business Model Methodology Key lessons learnt Conclusion Mike Shongwe

The lending process Community Investment Fund Process Flow Launch fund Receive Loan application Site visits The fund manager and panel physically verify screened applications and further assess the required loan amount and ability to repay Panel screen applicant Applicants are judged based on their ability to repay the loan as a function of their character, as judged by the CIF panel which is representative of the broader community Receive repayment Beneficiaries are given up to 24 months to repay the loan in full Reinvest funds in CIF Loan repayments are reinvested in the CIF – donors do not take any profit out of the fund Disburse loan Successful applicants receive a loan up to the value of R50 000

Contents Introductory movie Background Business Model Methodology Key lessons learnt Conclusion Mike Shongwe

Lessons learnt Community Investment Fund Process Flow Launch fund Receive Loan application Site visits 1.Decisions are taken on your feet – you do it while you are physically there 2.Have to be passionate. Have to get to the level of the people 3.It is a community process, not an efficiency process (the time to listen) 4.Try to avoid giving loans that will not repaid Panel screen applicant 1.Initially 50% of applications are deferred, but approvals increase as experience grows 2.Experience is important in assessment Receive repayment Reinvest funds in CIF Disburse loan 1.Entrepreneur hand-holding by other service providers 1.The community partners must “see the opportunity”. 2.Partners can take various forms and are community specific 3.Panel independence must be understood upfront and reinforced all the time

Contents Introductory movie Background Business Model Methodology Key lessons learnt Conclusion Coenraad Jonker

Conclusions  What we don’t yet know: –Optimal scale of funds –Optimal operation once the funds are independent –How to replicate lending skills and maintain performance at scale FoundationMaturationGrowth

What we have learnt Disbursed over 630 loans to those considered uncreditworthy by conventional standards The structure is low cost (a single professional per fund / per two funds) Performance of the funds is good (7.13% default rate) The structure is low cost (a single professional per fund / per two funds) Performance of the funds is good (7.13% default rate) Trained 60 community members as fund panel members, providing them with skills in the areas of character introduction and making lending recommendations Trained 3 community members as resident CIF Managers Trained 60 community members as fund panel members, providing them with skills in the areas of character introduction and making lending recommendations Trained 3 community members as resident CIF Managers Standard Bank has become known in the CIF communities as “the bank that cares” Informal businesses constitute a worthy market Institutional capacity at community level adds value and reduces risk Building a skills base in micro-lending is an intense people orientated development process The involvement of communities in the lending process reconnects people and institutions

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Background on presenters Coenraad Jonker  Coenraad is a cum laude MBA graduate from the Gordon Institute of Business Science and currently lectures the MBA course on doing business in informal markets. He also holds B Luris and LLB degrees, both cum laude.  Coenraad is currently the Director of Community Banking at Standard Bank and has served Edward Nathan Corporate Law Advisors for 9 years of which 5 years were as Chief Executive Officer. Mike Shongwe  Mike Shongwe is a career banker. He left conventional banking when he was the Head of National Sales and Marketing at Standard Bank Swaziland in July’ 99 following his appointment to spearhead a vision by the bank and other corporate partners, to set up the Inhlanyelo “Seed Capital” Fund; a private enterprise initiative, established to promote socio-economic development targeted at the under privileged and unbanked population across Swaziland. The Fund has since established itself as an unrivalled informal micro enterprises financier in Swaziland.  In September 2007 he joined Standard Bank of SA [SBSA] to design an implementation model for the bank’s new Community Investment Fund – a job creation and poverty reduction intervention in SA’s informal business sector