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Small loans prove big business for the Small Enterprise Foundation

Non-profit has dispersed nearly R8.7bn to the ultra poor since 1992, creating some 200 000 jobs in the process.

NOMPU SIZIBA: The Small Enterprise Foundation has managed a great feat, dispersing around R8.7 billion to mostly poor businesspeople in rural areas since 1992. It’s a non-profit business and its main thrust is to help transform, in particular, the lives of the poor. The organisation has helped to create some 200 000 jobs in the process. It was set up by John de Wit and Matome Malatji. Interestingly, SEF says only about 0.2% of the loans it disperses are at risk of not being paid back.

Read: The SA lender you’ve never heard of with almost no bad debt

To tell us more about the work of the Small Enterprise Foundation and its impact on the communities it serves, I’m joined in the studio by John de Wit, the managing director at the Small Enterprise Foundation. Thanks very much for joining us, John, in the studio. You’ve been operating since 1992 and you’ve dispersed some R8.7 billion up to now, and your clientele have tended to be those who have no assets or collateral to speak of. So, what’s your business model?

JOHN DE WIT: Essentially our organisation is a non-profit organisation. It was started to try and tackle the problem of poverty in our country and the problem of unemployment. The way that we try to do this is to recognise that poor people, even very poor people, have got the ability, they have got the determination, and the desire to employ themselves if they can’t find employment. If they are given a chance, they will start a small income-generating project, a small business. Of course the problem for them is that they are very poor and don’t have the money to start the business.

NOMPU SIZIBA: That’s right.

JOHN DE WIT: So if we could just provide them with that key ingredient, we could give them the first step towards self-employment.

NOMPU SIZIBA: When we talk about the Small Enterprise Foundation’s micro-loans, what’s the minimum and maximum you lend to people, and what sort of interest rates do you charge?

JOHN DE WIT: The minimum we lend is R1 000. And then, in our main programme, which is the one which has been going since 1992, the maximum is R25 000. The average first loan people take is R2 000; the average loan overall is R4 000. There are not that many people who are taking the R22 000 level.

You asked about the interest rate. If you are borrowing a loan of R1 000, over the life of the loan you are going to pay interest of R112. Now, if you take a declining balance and you do effective calculations and so on, that’s going to land up with what sounds like a shocking rate of 32%. Obviously 32% is a very high percentage. R112 on R1 000 is not that significant, especially when the R112 is spread over six months – this would be a six-month loan. That means that your income per month, R112 divided by six, is only R21.

Why such a high rate? Why the 32%? We work in rural villages – our main focus, 90% of our clients are in South Africa’s rural villages – and the deepest rural villages that you could mention. We go out and we see our clients in those villages twice a month. So, there’s that cost of getting out to the villages to these people. And not only do we provide them with funds, we also provide then with financial education. And so these things add to the costs and [we] land up with that.

NOMPU SIZIBA: Just add on that non-financial assistance that you give people – what does that entail?

JOHN DE WIT: We’ve been experimenting with lots of different models – how can you bring capacity-building, how can you bring training to very poor people, especially as many of them are illiterate? We experimented with classroom models. So, we did have training, which we did for several years. We would do something like, how do you do costing and pricing, how do you do marketing, as a classroom environment. And that worked to some extent.

But, following a lot of efforts all around the world to achieve the same things, what’s proved to be the most successful in very rigorous studies of it, is where you focus on building people’s initiative. So, if you can aim at that, if you can build people’s self-confidence, then you get much more success than if you did technical skills training in a classroom.

NOMPU SIZIBA: How do you do that?

JOHN DE WIT: We have our facilitators. They see every client twice a month. On one of those occasions what they’ll do is they are meeting with 30 or 40 clients, and they will pose a question to the group of 30 people or so. They’ll say something like, “Okay, everybody has got challenges of selling on credit, which your customers are demanding; they want to buy things on credit. How do you go about doing that?”

Then somebody will stand up and give some ideas. “Oh, I sell on credit. This is how I do it.” Then you say, “Okay, anybody else?” They [the facilitators] must not provide the answers. They must not provide the conversation. They must just encourage conversation and help people to express their own experiences.

NOMPU SIZIBA: And learn from each other.

JOHN DE WIT: Learn from each other.

NOMPU SIZIBA: How do you capture new clients? Do you do any marketing, or is it all by word of mouth?

JOHN DE WIT: It’s very much by word of mouth. The process is, when we are going to start working in a new village, we’ll go to the leadership of that village – whether it’s tribal leadership or civic leadership or both – and get the go-ahead from them to talk to the village. Then we’ll have a community meeting, a village meeting, where we will present what we are going to do and ask for the go-ahead to operate.

The next step is that we will meet with representatives of each section of the village and ask them to help us identify the poorest households. It’s a participatory process, where we are identifying the poorest households.

Now, as we are going through all these steps in the village, and people are hearing about us, people start coming to us and saying, “Oh, you know, I used to run a little business, but it has collapsed because of this and that. Could you help me to start a business? Could you give me a loan to start a business?” So it’s by word of mouth. We are there.

NOMPU SIZIBA: How much capital did you start with in 1992, when you and your partner, Matome Malatji, set up the Small Enterprise Foundation?

JOHN DE WIT: I had enough money that I wouldn’t need to earn a salary for two years. That was all it was. I was just out of university, so I could live on R1 000 a month in those days. A student lives in very humble accommodation.

We had to start. We had to go out and try and fund-raise. We started in Tzaneen, in the Limpopo Province, and the leading businessman there liked what we were going to, and so he offered to introduce us to all the businesses in Tsaneng, Tzaneen, and he wrote a letter of introduction. We sent it out. Forty letters went out, and we had two responses. The one response said, “Sorry, we are overcommitted”, and the other said, “Here is R4 000”. That was the first little bit of capital. Even in those days, with R4 000 you couldn’t do anything.

Then we were lucky in that IBM gave us enough money so we could hire two staff, and we would have enough loan capital to do the very first loans. So it was donor-funded in the beginning.

NOMPU SIZIBA: Excellent. So, basically, the interest that you earn helps to run your business, run the venture of helping other people?

JOHN DE WIT: Now we are working with close to 200 000 people – we started with zero then, obviously. They have total loans of nearly R600 million. So, we are borrowing R500 [million] of that R600 million. Then we have to pay prime plus one, prime plus two, or typically prime plus three, on that money. The interest earnings go towards paying that cost, and then paying all the operating costs, all the salaries and the vehicle expenses and so on and so forth.

No only that, but, because we want to reach more clients next year, and more clients the year thereafter, we have to keep growing our capital. So, any surpluses that we make in a year we have to put back into the organisation, and that enables us to borrow more money in the future.

NOMPU SIZIBA: Understood. When people ask for loans, do you generally ask what the funds are for? Let me put it another way. Do you have an idea, broadly, of where most of the funds have actually gone, and the kind of impact they’ve had on communities?

JOHN DE WIT: When we are working we are always stressing that our money is for business. This is for people who want to start a business. So, our development facilitators, that’s our front-lying people on the ground in the villages, they will be stressing that if you take a loan it must be for business.

Nevertheless, other things happen in people’s lives. So, maybe they take that first loan, they use it for business. They come back, they take a second loan. And then something happens in the family – somebody is sick – and they take the loan money and, instead of using it for the business, they use it for medical expenses. Or, they are just getting the loan at the time that school fees are due, college, university fees, or school uniforms or something like that. All those other things that happen in people’s lives.

Although we keep stressing that the money be used for business, we know that some of the money does leak into non-business purposes.

NOMPU SIZIBA: One of the things that really fascinates me – how is that by your estimation, only 0.2% of your loan portfolio is at risk? How come you’ve been so successful in this area where traditional banks don’t fare so well, and have to write-off a greater proportion of the loans that they dispense, even though they are serving a more well-off clientele?

JOHN DE WIT: Why do we have such a high repayment rate, if I can put the question that way? As I’ve mentioned, we are working with poor people and people who live not only below the poverty line, but below half the poverty line, so very poor people. One of the key things is that the people we work with incredibly appreciate the opportunity that’s given to them. Here is a chance to start a business, here is a chance to break the cycle of poverty. They have huge respect for that.

If somebody wants to take a loan from us, our problem is we don’t know them, they can’t provide any collateral, they can’t provide a written business plan – many people are illiterate and don’t have those kind of financial skills – so how do we now give a loan to somebody who can’t provide you with a business plan, can’t provide collateral?

This is the challenge which many people around the world were facing in the 1980s. Many different programmes, with the same objectives, wanting to help people come out of poverty, recognised enterprise development as a really good way of doing that, knowing the poor could start enterprises if only they could get money into their hands. But you have to get it back again to reach more people.

NOMPU SIZIBA: That’s right.

JOHN DE WIT: People were trying lots of different things in different countries, and a professor in Bangladesh, Muhammad Yunus, came up with the idea of saying, if you want to give one poor woman a loan, ask her to go and find four other woman whom she knows very well, whom she really trusts. Let the five come together and let them all guarantee each other’s loans and all five will get their own loan for their own business. It’s not a co-operative business. Everybody gets a loan, but for their own business.

We tested that model in South Africa, and it really works. Essentially, when a poor person makes a commitment that “I will repay this loan, and I will guarantee my fellow group members,” they keep that commitment. We have to do some work, we have to organise things well. We have to be good at administration, we have to make sure that groups are well formed. We have to design the loans in a sensible way. If you give somebody a loan that’s badly designed, they are going to default on the loan.


JOHN DE WIT: So, by getting all those little details together, we get this very high repayment rate.

NOMPU SIZIBA: John, a pleasure talking to you. What a fantastic initiative, and well done for helping so many people.

JOHN DE WIT: Thank you.

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Thanks Nompu for the interview and John for your time

I urge those about to comment about 32% to go to and fully understand what SEF does.
Incredible company (non profit) helping the poorest of the poor run their cash businesses or otherwise. And yes 32% is high but so are the costs to support the borrowers. Also its been around for nearly 30 years – low bad debts and most customers are repeat clients. And lastly nobody else is helping in this space.

I am so impressed by this company. Indeed the government have never touched the poor but SEF did. Keep going.

Well said John and I am happily to say; keep going, do not be intimidated by any negative comments. I know for a fact without a doubt that most kids are men and women today because of your company. They are well educated and have proper jobs. Some works for your company. Keep going and we support you for doing this. At first I was thinking you are loan shark but I realised in 1998 that you are not but development micro finance.

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