SOUTH PACIFIC BUSINESS DEVELOPMENT’S MODEL
For the poor, unsecured credit is impossible to get. Banks won’t give them credit because they have no assets, no collateral to offer. Microfinance comp-anies are a “huge risk” for investors as the people the money is lent to have little or no formal edu-cation or experience running businesses. So why would Trade Me founder Sam Morgan invest NZ$ 700-thousand in a Pacific Island-based microfinance company that lends capital to women wanting to start their own businesses? Has he gone mad?
South Pacific Business Development (SPBD) has been working in Samoa for 10 years and has now expanded to Tonga. It provides loans and training for people in impoverished countries and lower socio-economic communities that do not have access to banking services and business mentoring.
The company wanted to promote a way out of poverty for people in countries where it was impossible to get credit. It lends money primarily to women be-cause they are more likely to reinvest their profits back into their businesses and families.
Rather than base their lending criteria on collateral, which their borrowers obviously don’t have, SPBD instead relies on character assessment: what do women in their community’s think of them? Will they work with us?”
The loans SPBD extends are used to start a variety of businesses from crab fishing to sewing to corner stores and taxis. According to the Samoan Gov-ernment, for every NZ $1.00 the company lends, NZ$ 7.00 is created for the country’s gross domestic product. Since the company started its microfinancing operations in 2000, more than 29,000 loans, worth NZ$ 17-million, have helped 1,200 Samoan families become more financially viable.
Most women SPBD lends to have proven creditworthy and they’re making reasonable returns. Only 2% of its customers are in arrears and that’s pretty remarkable. Most banks wouldn’t have portfolios like that.
For SPBD, this is a way to get people out of poverty because handouts breed dependency. Creating meaningful business opportunities helps families and SPBD helps them finance their micro enterprise and housing improvements.
As to the earlier question we posed, Sam Morgan isn’t crazy as you’d think just yet. He has chosen to invest in this company because of its strong principles and rigorous and strategic operations. “I haven’t had a report come late or payments”, Morgan says.
GROWING INTEREST IN NEW ZEALAND
A reduction in philanthropic and government re-sources resulting from the latest economic down-turn begs for new ways to serve low-income fam-ilies and communities, especially ones that lever-age the reduced resources.
Self-Help, for example, has leveraged US$ 10-mil-lion of grant funding from the US Department of Education into over US$ 80-million of loans to non profit schools that serve low-income children. Over the next 5-10 years, that leverage will grow from 1-to-8, to 1-to-16: the U.S Government’s US$ 10-million investment in Self-Help will deliver $160- million to schools.
Another, less tangible, aspect of leverage is the accountability and discipline inherent in having to make monthly loan payments, and in having a friendly, knowledgeable lending advisors committed to a program’s success. Frequently, the management assistance provided to borrowers is as valuable as the loan itself.
The growing interest in the social lending field in New Zealand is illustrated by several initiatives:
- Prometheus Finance, based in Napier, already makes loans to nonprofits and other socially-positive projects throughout New Zealand.
- Two of New Zealand’s premier foundations – the ASB Community Trust and the Tindall Foundation, commissioned a report ‘A New Funding Par-adigm’ last year evaluating Programme Related Investments (PRIs) and the possibility of adding them to their funding programs. PRIs are where a government or a foundation makes a loan that relates to its giving programmes. For example, a funder that supports early childhood edu-cation might make a PRI instead of a grant to allow a provider to add a room onto its building. The loan would be repaid out of increased earnings from the additional children served.
You can download the Full Report here.