Small and Medium Enterprise loans- answers thread

Discussion in 'Kiva | Loans That Change Lives' started by jbcarioca, May 26, 2012.  |  Print Topic

  1. jbcarioca
    Original Member

    jbcarioca Gold Member

    Messages:
    17,507
    Likes Received:
    57,455
    Status Points:
    20,020
    Many of us at the Kiva DO, on MilePoint and on Kiva Friends, among other places have expressed worried and sometimes consternation about these loans.

    The very first one:
    http://www.kiva.org/partners/212
    http://www.kiva.org/lend/426323

    generated lots of commentary.
    Kiva has new nearly completed an additional disclosure document for the borrower (Martin Canning) and Field Partner Barefoot Power (actually they are called a Tanzania Field Partner but they have no direct business there and are an Australian solar equipment manufacturer).

    With that additional information it seems we need a new thread to deal specifically with such issues, beginning with Barefoot Power/ Martin Canning.
    There are more new Field partners which will have similar issues, although most of them will ahev much smaller loans than does Barefoot Power
    http://www.kiva.org/partners/218 Strathmore University, Kenya
    http://www.kiva.org/partners/210 Mobile Transactions (MTZ) Zambia
    http://www.kiva.org/partners/229 Entrepreneurs du Monde, Burkina Faso

    So, as there are more of these added we can here ask the questions and provide the answers that will help all of us to be more productive. We can expect that we'll have lots of discussion here from Kiva people, Kiva Friends and everyone who cares to participate.
     
    MissBurrill, sobore, milchap and 3 others like this.
  2. tondoleo
    Original Member

    tondoleo Gold Member

    Messages:
    16,063
    Likes Received:
    100,905
    Status Points:
    20,020
    Hip Hip Hooray to Kiva for enabling Barefoot Power to fulfill their loan to the Anglican Church front man Martin Canning at 0% interest. Do these new documents show that Mr. Canning also pays back BP at 0%. The church should not have to pay a vigorish for their charitable enterprise.
     
  3. jbcarioca
    Original Member

    jbcarioca Gold Member

    Messages:
    17,507
    Likes Received:
    57,455
    Status Points:
    20,020
    Yes they do. Other documents reveal that the Tanzania government has joined teh group by letting solar panels in the country duty-free.

    BTW, the only thing waiting for the posting is formal Kiva approval to make the post.

    PS: This is costing me lots of loans!!:D
     
  4. tondoleo
    Original Member

    tondoleo Gold Member

    Messages:
    16,063
    Likes Received:
    100,905
    Status Points:
    20,020
    1. How is this costing you loans?

    2. Is this a dastardly plot by Kiva to electrify parts of Tanzania so they can set up their back office operations there at very low costs?
     
  5. jbcarioca
    Original Member

    jbcarioca Gold Member

    Messages:
    17,507
    Likes Received:
    57,455
    Status Points:
    20,020
    1. They did a lot of work to answer our questions that I presented, so...;)
    2. It seems they may be diversifying a bit from Kenya.:cool:
     
    MissBurrill, fcjapan, kiwi and 2 others like this.
  6. kiwi
    Original Member

    kiwi Gold Member

    Messages:
    16,851
    Likes Received:
    27,973
    Status Points:
    20,020
    Thank you jbcarioca for taking the time and effort to find out more about these loans and educate ignorant folk such as myself.
     
    MissBurrill, milchap, fcjapan and 2 others like this.
  7. jbcarioca
    Original Member

    jbcarioca Gold Member

    Messages:
    17,507
    Likes Received:
    57,455
    Status Points:
    20,020
    You're quite welcome. However if you're ignorant we're all in serious trouble:rolleyes:
     
  8. kiwi
    Original Member

    kiwi Gold Member

    Messages:
    16,851
    Likes Received:
    27,973
    Status Points:
    20,020
    What is this thing about flapping wings to fly I keep hearing about?
     
    MissBurrill, YULtide and canucklehead like this.
  9. milchap
    Original Member

    milchap Gold Member

    Messages:
    27,699
    Likes Received:
    148,169
    Status Points:
    20,020
    I just love the due diligence that some members of the MP team do for the group. :cool:
     
  10. jbcarioca
    Original Member

    jbcarioca Gold Member

    Messages:
    17,507
    Likes Received:
    57,455
    Status Points:
    20,020
    Awww
    bashful blush.jpeg
     
  11. jbcarioca
    Original Member

    jbcarioca Gold Member

    Messages:
    17,507
    Likes Received:
    57,455
    Status Points:
    20,020
    Update: The final revisions are taking place during this week so we'll have a response to post probably by Friday PM.
     
  12. jbcarioca
    Original Member

    jbcarioca Gold Member

    Messages:
    17,507
    Likes Received:
    57,455
    Status Points:
    20,020
    Thanks to all the people at Kiva for really good work on this. Here is the new explanation of Barefoot Power. I also show the link to the Kiva blog in which it is posted:
    http://www.kiva.org/updates/kiva/2012/05/29/q-barefoot-power-and-kivas-approach-to.html
    Recently, Kiva launched a new partnership with Barefoot Power, a producer of solar energy products that also makes loans to distributors and retailers in order to expand access to affordable solar lighting in rural Africa.

    The first loan Barefoot Power posted was for Martin, a distributor based in Tanzania looking to buy solar lighting equipment to resell at low prices to families in rural communities. His loan for $49,525 is the largest loan amount ever funded on Kiva.

    Since the loan appeared on the site, we’ve heard from a number of lenders wanting to learn more about the large size of the loan, how the funds will be used, and Kiva’s plans to post more loans like it. We’d like to address these questions, and shed light on why we’re excited to work with partners like Barefoot Power and branch into new types of loans.

    We hope you find the below Q&A helpful.

    [​IMG]

    Who was involved in the loan?

    This is the first loan posted by Barefoot Power, one of Kiva’s newest Field Partners. You can read more about our partnership with the company on the Kiva Blog here. The loan was raised for Martin, who works at Watu Na Nuru, a solar lighting distribution business in Tanzania. He will use the loan to purchase bulk stock of solar lighting products from Barefoot Power, which he plans to sell at an affordable price to rural customers who have had limited access to electric lighting.

    What is Watu Na Nuru?

    Watu Na Nuru -- “Light for the People” in Kiswahili -- is a charitable social enterprise run by the Anglican Church of Tanzania. It operates as a for-profit business, aiming to make a small profit to cover its operating costs and scale up distribution of solar lighting to the 35 to 40 million Tanzanians who depend on burning kerosene for light.

    Under Tanzanian law, any surplus that Watu Na Nuru generates must be distributed to other charitable projects of the church, which include health, education and microfinance efforts. If profits are not distributed, Watu Na Nuru incurs an increased tax liability.

    As a social enterprise, the company strives to create as many solar retailer and micro-retailer jobs as possible. It actively invests in training these individuals, and oversees the maximum margins charged on the solar products they sell. See below for more discussion of profit margins.

    How is Martin, Barefoot Power’s first borrower, affiliated with Watu Na Nuru?

    Martin is the manager of Watu Na Nuru’s wholesale business, its primary distributor of solar products. He purchases lighting equipment from Barefoot Power, and sells it to retailers who are part of the Watu Na Nuru network. This is a part-time job for Martin. He devotes approximately 50% of his time to it, and the other 50% to building out a microfinance program as another social enterprise unit of the Tanzanian Anglican Church.

    Why did Kiva choose to work with the Anglican Church?

    Across Africa, church groups are often the only functioning civil society organizations active in remote rural areas. Because Kiva aims to enable the distribution of solar lights to families and communities in rural areas at the lowest margins possible, we opted to work through Watu Na Nuru.

    By piggybacking on the church’s network of dioceses and community centers, Watu Na Nuru is able to use storage and distribution facilities at low to no cost. This drives down operating expenses and allows the enterprise to offer products at lower prices to end consumers in under-resourced areas.

    Aside from the Anglican Church, there are other groups in Tanzania that buy and sell similar solar products. Barefoot Power has no religious preference for its distributors and retailers. Additionally, sales and other charitable community development projects of the Anglican Church do not provide services on the basis of religious affiliation. In other words, products and services are available to anyone who needs them.

    What types of products will Martin buy with his loan?

    With the USD$49,525 he borrowed, Martin will purchase approximately 1,800 Firefly Desklamps, 230 5-watt PowaPacks, and 70 15-Watt PowaPacks. You can find a full listing of products offered by Barefoot Power on its website here.

    What are the profit margins affiliated with this loan?

    There are three points along the supply chain where markups are applied to Barefoot Power products. These are:

    1. The markup that Barefoot Power applies to goods it designs and manufactures and then sells to wholesalers like Watu Na Nuru.

    2. The markup that the Watu Na Nuru distributor applies to reach the wholesale price offered to retailers.

    3. The markup that Watu Na Nuru retailers apply between the wholesale price and the retail price offered to consumers.
    With his loan, Martin purchased a mix of three major Barefoot Power products: the Firefly desklamp, the 5-watt PowaPack, and the 15-watt PowaPack. Here is a look at the various purchase prices along the value chain (all prices converted into USD):

    [​IMG]

    Thus, the approximate markups for each product are as follows:

    [​IMG]

    What do these markups cover?

    Watu Na Nuru’s 30 to 39% markup for retailers allows the company to cover customs, transport, office expenses, warehousing and other operating costs. Martin manages these tasks and doesn’t earn a commission on any sales.

    Retailers’ 50% markup for consumers allows them to cover the costs of marketing, outreach and employee training. Note that Watu Na Nuru applies a maximum markup of 50% for all retailers. If micro-resellers work with a particular retailer, they must split the markup -- usually 25% for the retailer and 25% for the micro-reseller. Watu Na Nuru requires that retailers charge no more than this maximum markup. The goal is to keep prices low for end consumers while creating as many jobs as possible

    Which currency is Martin working with?

    Martin purchases solar equipment from Barefoot Power on standard CIF (cost, insurance and freight) prices. He sells to retailers in Tanzanian shillings. He must factor exchange rate fluctuations into his costs.

    In the past year, the European debt crisis and seasonal factors in Tanzania have caused the exchange rate to fluctuate between 1,530 and 1,810 Tanzanian shillings for every U.S. dollar. Some weeks, the exchange rate has fluctuated up to 8% -- usually down suddenly with gradual recovery.

    Watu Na Nuru’s policy is to absorb currency fluctuations on behalf of the retailers as much as it can. Right now, the business has the capacity to maintain its wholesale and retail prices in shillings up to an exchange rate of 1,700 Tanzanian shillings per U.S. dollar. If the exchange rate drops below that level, the business will have to increase prices, which hurts sales. Accordingly, the current margin is designed to absorb about 5% loss on currency exchange fluctuations.

    How will Martin store the solar equipment he purchases?

    Once Barefoot Power delivers the goods to Dar Es Salaam, Tanzania, Watu Na Nuru has to clear the stock from customs and pay to have it transported to Dodoma where Martin is based. From there, he is responsible for organizing storage and filling orders across Tanzania.

    Currently, stock is stored in internal, secure, office-sized rooms in the building where Martin works. This building is owned by the Anglican Church of Tanzania. The stock is insured against fire and theft. More conventional storage options, such as bonded warehouses, are often prohibitively expensive in Tanzania.

    Who are the retailers that Martin sells to?

    Martin sells to a network of retailers that Watu Na Nuru has recruited and trained. Many of them are regional church dioceses that have started up sales programs. But Martin also works with retailers who are not affiliated with the church. All of these retailers typically need credit ranging from USD$5,000 to $25,000 to purchase stock from Watu Na Nuru’s wholesale business.

    Does Barefoot Power work with other distribution channels in Tanzania besides Watu Na Nuru?

    While Watu Na Nuru is currently the largest distributor of solar products in Tanzania, Barefoot Power has also sold products to other groups in the country. The largest of these is SolarAid, a U.K.-based charity that sells products to end-consumers (similar to Watu Na Nuru’s model), instead of giving them away.

    Kiva opted to pilot this new type of loan with Watu Na Nuru because its credit needs are high, it has low operating costs, and its socially-driven mission reaches into remote, rural areas.

    How is Martin paid?

    Martin’s salary is paid for by donors based largely in Europe. He does not receive commission for sales of solar lights, and does not gain personally in any way from his activities with Watu Na Nuru. Eventually, the enterprise hopes to use profits to hire trainers who can further build out the network of solar retailers in rural areas. In order to do this, it needs to reach a scale allowing it to invest profit margins in activities other than the purchase of additional equipment.

    If Martin didn’t get this loan at 0% interest, what would his other options be?

    To date, Watu Na Nuru’s financing costs -- both for the wholesale distributor (Martin) and its retailers -- have been close to 0%. This is because it benefits from philanthropic loan capital provided at 0% interest by a foundation in Australia.

    To increase its inventory, Watu Na Nuru has used capital from the Barefoot Power Trade Finance Fund, a working capital facility managed by Oikocredit. The fund charges interest rates between 10 and 36%, and the loans are short-term -- three months is the maximum repayment term. Martin’s only alternative would be to take out a loan from a local Tanzanian bank with interest rates ranging from 15 to 18%.

    When interest is charged, prices for end consumers must go up to help Watu Na Nuru cover its costs. Because Watu Na Nuru is still quite young -- it was founded in 2010 -- it’s not yet operating at a scale that allows for a surplus to buy sufficient stock. Low financing costs are key to keeping retail prices low.

    Why is Kiva partnering with a for-profit company?

    Kiva believes in market-based solutions to poverty. Our work is grounded in the belief that sustainable, socially-driven business models are the most effective vehicles for creating long-lasting change. For this reason, we have historically worked with microfinance institutions that are capable of covering their own costs or are headed toward sustainability.

    But sustainability is only one side of the equation. We also want to work with organizations that create social good. They do this by serving more and more marginalized borrowers, offering innovative loan products that better serve people’s needs, promoting health, literacy, child welfare, women’s empowerment, and more. You can read about Kiva’s strategic initiatives to encourage these services on our blog.

    We’re also excited to work with organizations that promote renewable energy in developing countries. By partnering with micro-solar companies and groups like Barefoot Power, Kiva’s goal is to replace harmful fossil fuels -- particularly kerosene -- with clean, affordable alternatives. In doing so, we also strive to create jobs and support as many micro-entrepreneurs as possible. You can read more about our clean power efforts here.

    When we set out to find our first solar energy partners, we hoped to address two challenges: the dire lack of access to electricity in rural areas -- particularly in Africa where 80% of the population lives off the grid -- and extremely limited financing for solar retailers and distributors. Both Barefoot Power and Watu Na Nuru directly address these problems in Tanzania.

    Martin, in particular, sits at the intersection of these issues. Before his loan posted to Kiva, he had a hard time finding the capital he needed to get solar lighting and equipment to the rural communities that need it most. By funding Martin and others like him, Kiva hopes to abolish kerosene use as quickly as possible, and bring light to the over 80% of Tanzanian households that currently lack access to electricity.

    We’ll know we’ve succeeded when organizations like Watu Na Nuru no longer require subsidized capital to reach rural customers. At that point, we’ll turn our attention to other distributors and retailers that need flexible capital at critical points in their growth.

    Will Kiva post more loans like this to the site?

    Yes. In the micro-solar space, we’ll continue to post new loans for distributors and retailers. In the coming months, lenders can expect to see more retailer loans affiliated with the Watu Na Nuru network. These will probably be smaller than the loan raised by Martin, but will still be larger than typical loans on the Kiva site.

    We’ll also be experimenting with loans for other types of retailers and distributors working in the clean energy space -- including sellers of affordable biodigesters, clean cookstoves, solar chargers and power storage solutions.

    Going forward, we’ll share more information about these loans -- including markups and distribution models -- on the Kiva Blog and individual loan pages.

    Have more questions? We’re happy to help. Send them our way at contactus@kiva.org.
    [​IMG]
     
    MissBurrill, YULtide, Toula and 3 others like this.
  13. milchap
    Original Member

    milchap Gold Member

    Messages:
    27,699
    Likes Received:
    148,169
    Status Points:
    20,020
    Thanks JBC for your advocacy.
     
    MissBurrill, YULtide and jbcarioca like this.
  14. jbcarioca
    Original Member

    jbcarioca Gold Member

    Messages:
    17,507
    Likes Received:
    57,455
    Status Points:
    20,020
    Please read this carefully and encourage others among us to do so also. Kiva wants the SME process to be as good as it can be; they need our help to make that happen.

    For the first time ever we actually see the way the margins pass and the nature of the manufacturer/distributor role. It is also very interesting to note that Barefoot has disclosed much of the data that usually would not have gone to actual lenders.

    Because this is the prototype for many others to come please look at it very carefully.
    Are there things here that we do not need to have?
    Are there things you absolutely think should be added?
    Do you have opinions about how to disclose: 1) distributors (e.g. Martin Canning)?, 2) resellers?, 3) ultimate consumers?

    Remember that there will be many others. This is the best chance for us to help get the process done right now.
     
  15. tondoleo
    Original Member

    tondoleo Gold Member

    Messages:
    16,063
    Likes Received:
    100,905
    Status Points:
    20,020
    Thank you for posting this information jbc.

    I will still not loan to this MFI.
     
    MissBurrill, YULtide, Toula and 2 others like this.
  16. jbcarioca
    Original Member

    jbcarioca Gold Member

    Messages:
    17,507
    Likes Received:
    57,455
    Status Points:
    20,020
    1) What do you need to know to change your mind, if anything would?
    2) If nothing would change your mind, why?
    3) Because they are originating loans for distributors, is your objection to:
    3.1) the distributor (i.e. Martin Canning);
    3.2) the method (i.e. captive finance);
    3.3) the size of their loans;
    3.4) something else
     
  17. Stephen
    Original Member

    Stephen Gold Member

    Messages:
    853
    Likes Received:
    2,837
    Status Points:
    1,345
    Thank you a lot for this followup. It answered a lot of questions, and yes a lot more open than most, but I really think that being such a large loan and getting at 0%, it is the only responsible way to do things. You have to have tradeoffs for coming to a 0% loan source, and that means open business plan and socially ummm let us say accountable for your plans.

    I have only one concern left here and this is from the last point:
    >Yes. In the micro-solar space, we’ll continue to post new loans for distributors and retailers. In the coming months, lenders can expect to see more retailer loans affiliated with the Watu Na >Nuru network. These will probably be smaller than the loan raised by Martin, but will still be larger than typical loans on the Kiva site.

    Eh yikes, this is exactly what I feared! Retailers getting loans beyond micro, and then end users getting loans at micro level to buy these things. This is quite troubling, but that is all that remains troubling to me at this point.

    I personally, will likely not loan to such even with openness, but openness is what is required to make me from publicly questioning these loans and their stance on them. I do wish they would sort them OUT of normal microloan channels however.
     
    MissBurrill, YULtide and Toula like this.
  18. tondoleo
    Original Member

    tondoleo Gold Member

    Messages:
    16,063
    Likes Received:
    100,905
    Status Points:
    20,020
    I will answer your questions jbsocrates. Thank you for the opportunity.

    1. Nothing will change my mind regarding this loan. Not even a case of Chateau de Beaucastel Chauteauneuf du Pape 1986 would do the trick.

    2. Why? This is not a microloan intended to assist an individual or impoverished group out of poverty. Those are the loans I have and will make via Kiva.

    3. Yes to all. BTW, the distributor is not Mr. Canning. It is the AC. The problem I had with this fact is that Kiva did not mention it in their script about the loan. That was dishonest.

    4. I would appreciate any disclosure from Kiva whether any of their principals or staff who make decisions on MFI's are on the boards of the MFI or have any financial interest in the company. Yes, I am becoming more jaded about Kiva.

    Kiva will survive without tondoleo's money to loan. They did before January 12, 2012 when I joined and will once I no longer make loans via their portal to the impoverished.
     
    MissBurrill, scarecrow, kiwi and 4 others like this.
  19. misman
    Original Member

    misman Gold Member

    Messages:
    13,888
    Likes Received:
    49,369
    Status Points:
    16,520
    IMO, Barefoot is not a real MFI. There should be some new category set up in red flashing letters that shows this is some special arrangement, etc. As I read above, Barefoot is the for-profit concern that is going to be making money off of the loan.

    As I see it, GM could be the MFI for me for a 0% loan for me to sell cars to the impoverished in Albuquerque, provided that I don't make a profit, and that any profits are reinvested in my company or donated. In the end, GM is still making the profit off of this deal.

    I'm on Kiva to help people get ahead. This is a major business concern with good intentions... but I won't be loaning to anything like it on Kiva.
     
  20. Toula
    Original Member

    Toula Gold Member

    Messages:
    1,194
    Likes Received:
    4,807
    Status Points:
    2,400
    I'm another that would never make a loan to this type of borrower.

    For me the size of the loan is obscene, especially when you compare others in Africa asking for $500 to make a change to their life and here is nearly $50k going on one loan.

    Why can't they develop a sister site to cordon off loans such as Martin's and these humungous Strathmore loans?
     
  21. misman
    Original Member

    misman Gold Member

    Messages:
    13,888
    Likes Received:
    49,369
    Status Points:
    16,520
    Great minds think alike. I was thinking the same thing.
     
  22. Stephen
    Original Member

    Stephen Gold Member

    Messages:
    853
    Likes Received:
    2,837
    Status Points:
    1,345
    I recommend using a subdomain like not.kiva.org or large.kiva.org or something like this :)
     

Share This Page