Promotion of Women Small Businesses by Equity Bank Tanzania: FANIKISHA+ Loan Product Introduction

Transcription

1 SCBF # January 2014 Promotion of Women Small Businesses by Equity Bank Tanzania: FANIKISHA+ Loan Product Introduction 1. Development Relevance Macroeconomic and poverty context: Tanzania continued to do well in maintaining overall macroeconomic stability despite continued trend of low per capita income. Agriculture accounted for more than a quarter of Gross Domestic Product (GDP) in 2012, provided 85% of exports, and created employment for about 80% of the population. The country receives substantial donor funding that helps to rehabilitate the aging transport and communication infrastructure ii. The main drivers of economic growth have been agriculture, tourism, natural mineral resources (like gold or natural gas), manufacturing, wholesale and retail trade as well as transport and communication activities. The newly found natural gas resources will play an important role in Tanzania s socio-economic transformation over the medium term. Despite growth in exports, the trade balance was in deficit and stood at -13.8% of GDP in Inflation has declined to single digit in Tanzania proved relatively resilient during the global economic crisis period due to growing production, high gold prices and well managed fiscal and monetary policies. Population and economic indicators Population in million (2012) 44,9 GDP growth (average: ) 6,5% Inflation (average: ) Trade balance (% of GDP) (2012) -13,8% Foreign Direct Investment (net) (% of GDP) (2012 ) 6% Net ODA & official aid received (% of GDP) (2011) 10% Remittances received (% of GDP) (2012) 0,2% Economic Freedom Index i (2012; among 179 countries) 110 The country is politically relatively stable. Corruption remains pervasive in all aspects of political, judiciary and commercial life. Tanzania's economic freedom scores below world average but ranks 15th out of 46 in Sub-Saharan Africa. Improvements in investment and trade freedom were largely offset by deteriorations in property rights, corruption, government spending and business freedom. Doing business in Tanzania remains challenging, ranking 145 out of 189 countries for the ease of doing business. To create and sustain an enabling business environment the country is strengthening the human resource base and reinforcing overall institutional capacity and efficiency. Continued emphasis on sound economic management, improved transport and communication infrastructure, strengthening political governance and improved bilateral and multilateral trade relations will greatly improve socio-economic conditions and ultimately attract local and foreign investment that increases employment and income opportunities. The slow progress in poverty reduction, largely due to underperforming agriculture and significant infrastructure bottlenecks, indicates that Tanzania faces enormous challenges in the transformation process. The underperforming agriculture sector has been a key factor contributing to high unemployment rate in Tanzania. The rapid aggregate growth in GDP has not induced substantial reduction in poverty or improvement in overall socio-economic conditions for most of the population. Poverty is still widespread and acute, and is significantly higher in rural areas. The rural areas experience low living standards such as limited access to sanitation, electricity and health services iii. Poverty indicators GDP per capita (2012, current USD) 599 Gini Index (2007; 0=equality, 100=inequality) 37,6 Multidimensional Poverty Index (2012; 1=poor 0=not poor) 0,476 International poverty rates (2007; 1.25 USD/day) 67,9% National poverty rates (2012) 28,2% National rural poverty headcount ratio (2012) 33,3%

2 2 Financial sector context: Tanzania s financial sector and the microfinance industry in particular are relatively young and shallow with a financial deepening of only 31.7% as of Over the past fifteen years, the financial sector as a whole has undergone major changes from the originally state-owned and controlled system to a liberalized financial sector. Principal elements of the reforms included liberalization of interest rates, restructuring of state owned financial institutions, strengthening the Bank of Tanzania s role in regulating and supervising financial institutions and allowing entry of local and private banks into the market. The financial sector expanded credit to the private sector and significantly remained highly profitable and healthy. Foreign banks account for about 48% of the banking industry s total assets. The competition among commercial banks led to improvements in efficiency and quality of financial services provided. However, the interest rates remain relatively high. Due to outreach expansion of mobile telephony services, the uptake and use has increased. Tanzania also aims at increasing financial inclusion through non-banking retail outlets. Furthermore, insurance regulations for low-income households and micro-enterprises are being drafted. Despite the progress, access to financial services remained stunted for the majority of Tanzanians especially in rural areas where the limited access to financial services severely constrains small entrepreneurs. The microfinance sector is rather small and the lack of access to investment capital impedes the institutions ability to lend at affordable rates. Of the estimated 800 institutions providing financial services to low-income borrowers, most are reluctant to move into rural areas due to the poor national infrastructure, perceptions of high risk and due to the higher expense of operating costs. It is estimated that microfinance service providers have a combined outreach of approximately clients, which is only about 5% of the estimated total country s credit demand iv. In Tanzania, there are three categories of microfinance institutions: NGOs, banking institutions offering microfinance products and co-operative based institutions. The most prominent market players in microfinance services sector include NGOs such as PRIDE Tanzania, FINCA and BRAC Tanzania, commercial banks providing microfinance services like National Microfinance Bank, Equity Bank, Access Bank Tanzania and Akiba Commercial Bank, regional and community banks, and cooperative based institutions that provide predominately saving based financial services. Other players include umbrella associations such as the Tanzanian Association of Microfinance Institutions (TAMFI), the Savings and Credit Co-operatives Union League of Tanzania and the Community Banks Association. As the micro-finance sector is relatively young, the industry stakeholders have been encouraged towards placing microfinance development on a sustainable path. Tanzania s financial market has also embraced best practices in credit risk management by establishing a Credit Reference Bureau in Equity Bank adopted these in November Source: Mix Market v Gross Loan Portfolio (USD) Borrowers Deposits (USD) Depositors National Microfinance Bank (2012) 773'508'940 n/a n/a n/a Equity (2013) 52'238'356 5'500 68'067'265 66'250 Akiba (2012) 46'766'487 27'111 65'870' '104 PRIDE (2011) 37'028' '055 14'241' '354 Access (2012) 32'596'119 15'819 40'817' '947 BRAC (2012) 20'267' '225 n/a n/a FINCA (2013) 29'593'107 82'288 5'460' '664 Partner Financial Intermediary: Founded in 1984 in Kenya as a building society, Equity Bank developed to the largest commercial bank in the region with operations in Kenya, Uganda, South Sudan, Rwanda and Tanzania over the years. The bank s purpose is to transform the lives and livelihoods of Tanzanian people socially and economically by providing modern, inclusive financial services that empower them and maximize their opportunities. It is an emerging regional bank with a strongly branded parent and a unique banking model, which endeavours to include the unbanked, with the capacity to access almost all the bankable population through the Agency Model and Alternative Business Channels. Equity Bank Limited Tanzania opened its doors in February 2012 with two branches: Dar es Salaam and Arusha. At the beginning, Equity Bank faced various difficulties: entry challenges because the bank was unknown in the Tanzanian market, high initial set up and operational costs as well as limited distribution channels (branches and ATMs). By end of June 2012, the bank had mobilized over 13,500 customers. By the end of 2013, the bank had more than 73,000 customers (51% women), and it served through 7 branches, one each in Arusha and Mwanza, and five in Dar es Salaam. The majority of clients are small and medium depositors whose requirements are transactional, micro, small and medium scale loans. Equity Bank Tanzania offers savings and deposit as well as loan products and payment services. The distribution

3 3 channels are ATM services in the branches, vetted and trained agents acting in the name of the bank, e- banking and mobile-banking. Swisscontact, Equity Bank, the Trestle Group Foundation and Credit Suisse, with funding from the Swiss Capacity Building Facility (SCBF), teamed up to link expertise, financial capital, networks and resources to empower women entrepreneurs in Tanzania. The rationale of the project is based on the understanding that empowering women entrepreneurs in emerging economies drives economic opportunity, personal and professional growth and social progress. 2. Intervention approach and additionality Women entrepreneurs face various challenges such as lack of collateral for credit, business management skills, information, linkages and networks and limited access to financial services leading to low growth rates of their businesses. Lack of collateral, skills and information are unique to women entrepreneurs in Africa due to social and cultural factors that aggravate their exclusion from economic activities. Financial institutions in Tanzania mainly look at the market in a broad sense without further segmentation into the specific needs of women and other social-economic groups with unique needs. There are some financial products tailored to financially excluded groups like small-scale entrepreneurs in agriculture but with no special considerations to the unique constraints faced by women. To exploit this market opportunity, Equity Bank in co-operation with Swisscontact, the Trestle Group Foundation and Credit Suisse developed the Fanikisha+ product that specifically targets women entrepreneurs and combines financial and non-financial services. Introducing the product to the Tanzanian financial market, where women were almost totally excluded, was a challenge because further support to women entrepreneurs was needed in areas of entrepreneurship training, coaching and tailored credit products. Furthermore, women entrepreneurs owning small businesses are considered a substantial risk. Equity Bank therefore needed to collaborate with other organisations in the area of research and capacity building of its staff in order to customise its products and services to women entrepreneurs. The innovative partnership linked human and financial capital, networks and resources to build a sustainable pipeline of women entrepreneurs in Tanzania. The three-tiered approach focused on the following: 1. Introduction of Equity Bank's customized Fanikisha+ financial product, designed specifically for Tanzanian women Micro, Small and Medium-Enterprises (MSMEs) at an early business stage as well as existing high potential businesses (detailed in the Fanikisha+ product table below). 2. Business development services 3. Executive human capital support for high-potential women-led SMEs. The project envisaged the following activities for the period of May October 2013: Equity Bank, in partnership with Swisscontact developed a strategy for the up scaling of its existing financial product for women from Kenya and customized it to the needs and demands of the Tanzanian market. This involved: Research and focus group discussions on Tanzania women entrepreneurs to establish gender challenges and explore existing organizations of women entrepreneurs in Tanzania. Address challenges faced by women entrepreneurs by designing, contextualising and implementing financial and non-financial services. Internal capacity building of Equity Bank staff to understand and support women entrepreneurs in accessing financial services including information, financial and business literacy skills. Equity Bank Ltd. TZ (in million USD) Total assets 47,56 80,94 Gross loan portfolio 15,96 45,69 Total deposits value 23,62 56,92 Total staff/women 147/72 187/97 Total Office Training and mentoring early-stage as well as coaching high potential women entrepreneurs Equity Bank staff underwent a Training of Trainers (TOT) using the International Labour Organization curriculum, used in more than 30 countries. Equity Bank trained early stage women entrepreneurs in financial literacy and entrepreneurship. The training period was 5 days, 8 hours per day, each class consisting of between 20 to 25 women entrepreneurs. The Trestle Group Foundation identified and worked with women entrepreneurs networks to mobilize three high potential women entrepreneurs; Flagships. With the support of Credit Suisse executive women, they coached the high potential women entrepreneurs intensively in executive issues during approximately six months. The aim of this coaching was to support the women entrepreneurs expand their businesses across borders.

4 4 In addition to basic Monitoring and Results Measurement (MRM) to facilitate scaling up of the project, Equity Bank organised the Fanikisha+ clients in an association of women entrepreneurs known as Fanikisha Enterprise Club, with the aim of giving them a platform to further support each other with experiences, lessons learnt, sharing networks and coaching. An official launch of the Fanikisha+ product is planned for the project when the early stage training, the high potential coaching has taken place, and the first loans have been disbursed and are being repaid. This constitutes the proof of concept and initial piloting of the Fanikisha+ product Sharing outcome and experience of Fanikisha+ in Tanzania to the financial market around East and Central Africa. Additionality: The project designed, introduced and piloted a business case of how to serve women entrepreneurs successfully in the Tanzanian financial sector. This may well prove to be a key to serving a neglected market segment with substantial potential. The project bridged the gap between financial service providers and women entrepreneurs' network by facilitating contact, relationship building and trust. Crowding-in by competitors is expected. 3. Results achieved 3.1. Client level: Equity Bank had already designed the Fanikisha+ product for the Kenyan market and needed adaption for the Tanzanian market. Today, there are five loan products for the Tanzanian market: 1. Fanikisha Maisha mostly for start-up businesses in groups with loan amount of USD 12,5 to Fanikisha Shaba for growing clients for group lending with loan amount of USD 625 to Fanikisha Imara for individual lower SMEs with loan amount of USD 62,5 to Fanikisha Dhahabu for upper SMEs with loan amount of USD to Fanikisha Tanzanite for Corporate clients with loan amount above USD Fanikisha+ Product name 1 Maisha 2 Shaba 3 Imara 4 Dhahabu Product Features Lending to individuals within the women groups (10-35 members must be running small micro enterprises or willing to start profitable micro enterprises). Access to loans from Tshs up to Tshs. 1M Repayment period of up to 12 months Interest rate of 1,67% per month Weekly meetings Targets women who are in business since 2 or Lending to individuals within the women groups (5 to 20 members) Access to loans from Tshs. 1M to Tshs. 10M Repayment periods from 3 to 24 months Interest rate at 2% per month Weekly meetings Lending to individuals Targets women who are in business since 2 or Access to loans from Tshs to Tshs. 20M Repayment period of up to 18 months Interest rate of 2% per month Lending to individuals Target women who are in business since 3 or Registered businesses with between 25% - 100% women ownership Access to loans from Tshs. 20M to Tshs. 200M Repayment period of up to 48 months Interest rate of 1,83% per month reducing Services Included Access to free business training Visits by consultants to analyse the business Field trips to visit successful businesses Opportunity to network and share business ideas Access to group mentorship programme Interest rate discount of 10% on interest paid 100% on time Access to free business training Access to business advisory services Opportunity to graduate to next level Opportunity to network and share business ideas Access to group mentorship programme Interest rate discount of 10% on interest paid 100% on time Access to business training Access to business advisory services Flexible collateral requirement Opportunity to graduate to next level with relaxed security requirements Access to individually tailored mentorship programme Interest rate discount of 10% on interest paid 100% on time Access to business training Access to advisory services Flexible collateral requirements Opportunity to attend motivational talks and trade fairs Opportunity to graduate to next level Access to Executive Coaching and mentorship programmes Access to a Relationship Manager Rent assignment is also acceptable as collateral 25% lower security margin requirement

5 5 5 Tanzanite Fanikisha Enterprise Club Lending to individuals Target women who are in business since 3 or Registered businesses with between 25% - 100% women ownership Access to loans above Tshs. 200M Repayment period of up to 72 months Interest rate negotiable The Fanikisha business club is the core of Equity Bank Fanikisha strategy. It is a business community of women that offers services to both, Equity Bank clients and non-clients. The range of Fanikisha services will be limited for non-clients. The Fanikisha Enterprise Club will also include volunteer professionals who are staff of Equity Bank or other professionals from the industry that will assist in the provision of complementary advisory services. Access to business training Access to advisory services Flexible collateral requirements Opportunity to attend motivational talks and trade fairs Opportunity to graduate to next level Access to Executive Coaching and mentorship programmes Access to a Relationship Manager Rent assignment is also be acceptable as collateral Attracts a 25% lower security margin requirement Life Membership to Fanikisha Business Club Through a network of volunteers, Equity Bank also provides paid and discounted assistance to Fanikisha members in the following areas: Business plan development, Strategic planning retreats, Mini consulting Clinics, Mentoring sessions, Business advisory services will be developed according to the needs of the SME. Fanikisha+ products have unique features such as longer repayment periods, lower collateral requirements, longer grace periods and lower interest rates than the market rates. The women entrepreneurs also get opportunities to attend trade fairs for networking, access business advisory services to enhance their entrepreneurial skills as well as fast loan processing. Equity Bank personnel trained 274 early-stage women entrepreneurs (90% from low-income households) in Mwanza, Arusha and Dar es Salaam regions. The training included: a) Dissemination of knowledge regarding business fundamentals, self-awareness, articulating business idea and business case, b) Knowhow on networks particularly on purpose, form, structure of networks and how to maintain and grow them, and c) Capital issues such as how to become creditworthy and how to assess individual and business needs for financial services. Thereafter, the women entrepreneurs were eligible for Fanikisha+ loans. 18% of the trained women declared that they were enlightened on how to run their businesses with the acquired knowhow and needed no loans. The three high potential women entrepreneurs Anna Matinde of H & AN Enterprises, Dina Bina of Dina Flowers and Fatma Ryami of Nature Ripe Kilimanjaro Limited were coached and mentored. Thereafter, these flagship women entrepreneurs became mentors to inspire and support other early-stage women entrepreneurs. Applications for loans were processed after the entrepreneurs training. 96 out of 274 trained women entrepreneurs (35%) received Fanikisha+ loans of an average of USD by the end of November 2013, amounting to USD in total. 90% of the women who applied for the loans received Fanikisha Imara loans. 46% of the women entrepreneurs requested more time to reform their businesses before applying for a loan facility. All the 96 start-up MSMEs that applied are going ahead with their business plans and are being followed-up. Outreach of Equity Bank TZ # of borrowers 2'325 5'163 % of female borrowers 45% 47% Rural/urban borrowers n/a n/a Average loan balance per borrower (USD) # of depositors 30'292 66'206 % of female depositors 49% 51% Average deposit balance per depositor # of borrowers using Fanikisha products 0 96 Average loan balance Fanikisha products 0 1,120 A women entrepreneurs workshop was organised in the Kipawa region in Dar es Salaam and attended by more than 500 women who were small-scale entrepreneurs. The project also sponsored a women entrepreneur get-together in Dar es Salaam that was attended by more than 300 women entrepreneurs Partner financial institution level: The project facilitated Equity Bank to enter into a new Tanzanian market, with the particularly risky market segment of early stage women businesses. This has been successful and the new Fanikisha+ loan product is being disbursed through Equity Bank branches since December 2013.

6 6 Ten employees (5 women/5 men) were trained by the International Labour Organisation to deliver the entrepreneurship training to women entrepreneurs. They form the team supporting the Fanikisha+ product and will in future, provide training to women MSMEs with the bank s support. The used ILO curriculum is called GET-Ahead (Gender and Entrepreneurship Together) 1 and gives women the tools through which they can manage both family and business. This enables them realize their potential in society. Eleven Credit Suisse executives volunteered over 520 skills-based hours over the course of the project. Three sub-teams of executives were formed, one focusing on marketing and communication, one on finance and one on business strategy. The deliverables were custom-crafted business plans, a financial dash board to assess product line profitability and a complete website for one of the woman entrepreneurs, Anna Matinde, H & AN Enterprise. The partnership between Equity Bank, Swisscontact and Trestle Group Foundation will continue to provide quality financial literacy and business training to women entrepreneurs at different business stages. Additional results: Credit Suisse executives independently acted as broker agents for Fatma s NatureRipe Kilimanjaro to access markets, linking them to Swiss Airlines, PAKKA organic and fair trade distributors and Globus department stores. NatureRipe was in discussion with PAKKA about the processes required to become a PAKKA supplier of cashew nuts. NatureRipe Kilimanjaro is categorized as an agro-business company growing and exporting mangoes and nuts. As a result of the flagship programme, Dina Bina Limited is now Tanzania s first Teleflora distributor. After the executive training and mentorship, she signed a contract with Teleflora to be able to supply them with her flowers. Another new revenue stream will be the supply of vegetables to a local market Financial sector level: It is expected that the project will have a multiplier effect on the Tanzanian financial sector in serving women entrepreneurs successfully. However, it is too early to draw any conclusions. 4. Lessons learnt and further challenges Key performance indicators Equity Bank Return on average total assets 0,40% -6,96% Return on average shareholder s fund 1,92% -10,78% Non-interest expense to gross income 86,39% 149,89% Net interest income to average earning assets 5,80% 11,30% Operational self-sufficiency 50% 100% PAR 30 and PAR % & 0.66% 4.8% & 2.83% Equity Bank's strong capital base and support from Equity Bank Group was crucial to successful implementation of the project. Research of targeted client segments prior to implementation is crucial for mutual understanding and appropriate design of the product. Participation in different women congresses and fora facilitated familiarization with different operational levels and classification of women entrepreneurs that subsequently informed interventions for appropriate targeting with regard to women empowerment. Knowledge acquired from implementing the Fanikisha+ activities also play a huge role for programme up-scaling. One surprise the first phase of the project was that none of the entrepreneurs, no matter the size or maturity of their businesses, had solid business practices and complete accounting data on hand. It is therefore almost impossible for them to have any degree of comfort or confidence with regard to decision-making. Training has an important impact on women entrepreneurs and is more than just disbursing loans; there is a need to observe and manage the effects of the trainings when women change their business practices irrespective of loan disbursement. There are issues that are more family-related than business oriented such as marital instabilities hindering success of women entrepreneurs through possibly barring their access to family owned factors of production used in the enterprises. Family related issues also pose other life related distortions and personal life displacements, hence there is a need to come up with other alternative or integrated solutions to address them. i Heritage Foundation, 2013 Index of Economic Freedom, ii Central Intelligence Agency, The World Fact book, Tanzania, accessed iii Oxford Poverty and Human Development Initiative, 2013, Multidimensional Poverty Index, Country Brief Zambia, accessed iv MFTransparency, 2011, Country Survey Tanzania, Country-Survey-Tanzania.pdf, accessed v MixMarket, Tanzania Market Profile, accessed GET-Ahead contains following modules: 1) Basics on gender and entrepreneurship, 2) business woman and her environment, 3) the business project - ideas, opportunities and challenges, 4) marketing 5) production, services and technology, 6) finance (money management, cost & pricing, book-keeping), 7) people, organisation and management, 8) business support and networking, 9) action planning