A Promising Loan
As I noted in an earlier blog, the bulk of the Center for Community Transformation’s loans are made to small variety store owners for inventory restocking. This capital is necessary, and often allows owners to diversify their offerings, but it is clear there are few opportunities for much business growth. Competition is rampant, and demand local and limited.
It was inspiring then to meet a “round rag” maker in Manila who had developed partnerships with two companies interested in purchasing her rags. The companies needed thousands for use in their factories, and the borrower was having difficulty satisfying the new orders. A single employee working with a single sewing machine was simply insufficient. The production process is quite simple: scrap fabric from a local t-shirt factory is sewn into two sunflower shaped pieces six inches in diameter. Smaller pieces of colorful fabric are placed in the middle of one of the sunflowers and the other is sewn on top creating a thick, ravioli-like rag (see below). The borrower mentioned she had spent the last week looking for an affordable new sewing machine (she would purchase it with a CCT loan) to help her expand production. She also intended to hire an additional employee.
It was an exciting moment. Here was an example of a borrower in the vast informal sector developing sustainable ties to larger businesses in the value chain, and in doing so tapping a pool of sustainable demand that could support genuine business expansion. Given the tight margins she earned on each rag, efficient, rapid production was necessary, and the CCT loan would allow her to achieve this.
This type of opportunity is not available to all borrowers, as it requires skill at producing a particular good that is in high demand, enough physical space to produce it, and established, often personal, connections with large potential customers. For the most part these markets are already saturated and their growth limited by macroeconomic constraints like a difficult regulatory environment and poor infrastructure. When businesses offer promise despite these constraints, they should be supported.
The growth of medium business can create wage jobs that serve as a stable source of income, generally preferred to the low and volatile income made by running a variety store. CCT has recognized this and established “growth enterprise loans” specifically to target these businesses. In 2009 the largest such loan, at Php 680,000 (~$15,000), was made to a junk shop that used the capital to hire twenty-six workers and expand. As the rag maker continues to grow her business, she can be certain CCT will support her through the process.
By Nick Whalley, KF12, Philippines. Nick is working with partner CCT in Manila.