Since groundnuts are traditionally grown in Dodoma, the capital of Tanzania which is located in the centre of the country, Medelina currently makes US$ 160 from the sale of her nuts and is requesting a loan of US$ 525 for capital to enable her to organize a bulk delivery of groundnuts from Dodoma. She will then roast these at her stall and sell them for a profit to customers unable to resist the tantalizing aroma of these fresh nuts!
Medelina is a veteran customer of SELFINA’s; this is her fourth loan with them. In the past, she has successfully paid off a loan of US$ 275 and two loans of US$ 425. Her successful repayment in the past has allowed her to request a larger sum this time around.
Medelina is a perfect example of why microfinance works and why the large majority of clients repay their loans. A lot of people who hear about microfinance (or Kiva.org) for the first time, ask anxiously, “But how do you make sure people pay back? Won’t they just take the money?” The implication is that the clientele who access microfinance (usually 'the poor’) are less trustworthy, efficient, or educated than ‘ordinary’ people.
Whether or not this is true is somewhat irrelevant, for a number of reasons. Firstly, most MFIs have due diligence processes in place to assess client risk, as well as measures such as collateral arrangements and group lending (where a defaulted loan is borne by the group as a whole) to address this risk.
More important than any of these deterrents, however, is an incentive. The incentive clients have to start a business, build a business, and repay their loan so that they can get another and another and another…The incentive is having on-going access to financial services from which they had previously been excluded.
SELFINA has taken a lead role as a pioneer of micro-credit in Tanzania through Micro-Leasing. The organization is engaged in the economic empowerment of women in Tanzania through the provision of a leasing and leaseback microfinance facility as a practical way to achieve the economic and social emancipation of women.
Customs and traditions in Tanzania normally make it difficult for women to own land and assets, thus they are termed non-creditworthy by financial institutions as they lack tangible collateral assets. This leads to poor financial support hence the poor access to basic needs and services for women with low incomes.
When a client needs working capital to buy a specific item, SELFINA buys the equipment for said client and extends a loan to her. The same equipment is then leased back to the client so they can use it while in process of paying back their loan – a process called a sale and leaseback arrangement. Once the loan has been repaid, SELFINA transfers the ownership of the equipment to the client.
The advantage of microleasing over traditional microfinance loans is that it allows clients to use the equipment as collateral for future loans with SELFINA, thus enabling them to borrow larger sums in the future.
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Success!! The loan was 100% repaid