The Importance of
Training ...
Perspective of
Peter Ryan,
Founder and CEO
of the
Microloan Foundation
By, Peter Burgess, Correspondent , New York
( Microfinance Focus) , March 2nd, 2009
I caught up with Peter Ryan last month in Boston. Peter is the founder and CEO of Micro-Loan Foundation (MLF),
a UK charity that has established a successful growing microfinance organization in Malawi, and now starting to
expand into neighboring countries. Peter was visiting the Boston area to celebrate the first anniversary of the
MicroLoan Foundation USA that is helping to fund the growth of MLF.
Peter Ryan first saw the potential of microfinance when traveling with friends in the Philippines. A small loan got
paid back and did some visible good. In 1997 Peter saw the depth of poverty in Africa during a business visit to
Malawi and recognized that microcredit could be the catalyst for development and poverty reduction that was
not mere charity but truly sustainable. Because Peter had a business background, and had started a number of
businesses, he was aware of some of the critical issues that cause business to fail ... and the MLF program he
designed reduced these risks.
MLF Malawi opened its first office in 2002 in Nkhotakota, a small fishing town that combined the greatest need
with the least provision of microfinance services. The first loans were made in 2002 and by 2003 the MLF had a
staff of five, had made over 600 loans and had a 97% repayment rate. A second office was opened in Dwangwa,
north of the first office in 2004 and more offices added over the next five years so that there are now 15 offices,
with 5 more to be opened this year. In addition MLF is expanding into neighboring countries starting with Zambia.
It will start in other countries in Southern Africa: probably these will be Mozambique, Namibia and Botswana
. The Zambia program will be headed up by the Kenson Chiphaka who was MLF Malawi CEO who built up
the Malawi operation so successfully. The new Malawi CEO will be another Malawian. James Kajama with strong
development and banking credentials.
By some standards the interest rates charged
by MLF in Malawi are high ... maybe around
66% per annum ... but this interest income
makes it possible for MicroLoan to be sustainable
over a long period while having a substantial
microloan portfolio and providing critical
training to its clients.
Because people in the rural areas of Malawi are
poorly educated, the people have little opportunity
for progress. While the lack of money is
one constraining factor, in Malawi, according to
Peter Ryan, there is in addition a big deficit in
education and knowing the basics of business.
This is why MLF is very committed to the idea
of training as an integral part of its program.
Almost all of the MLF loans are made to women
who are starting their own businesses. But before
they may take a loan they must go
through a training course. The women are required
to form into business groups electing a
Chairman, Teasurer and secretary and are
then given a six to eight week crash course on
key aspects of business management. During
the initial stages of the business, they are provided
with constant guidance as their modest
business takes off. This includes support in
practical training for very basic business skills
like cash-flow planning that enables people to
get businesses up and running very quickly.
Within 4 months MLF trainees are running real
businesses and usually have repaid the initial
loan in full.
Many of the businesses are trading businesses,
such as buying fish from the lake (Lake Nyasa),
rice or tomatoes, and selling them in the capital,
Lilongwe, where they earn a profit. Others
are small production or “value adding” businesses,
such as bread or knitted products
which are hand-made and then sold in the local
street markets. Without MLF these people
would have no access to the money needed to
buy the equipment and materials to start these
businesses.
------------------ // ------------------
During the MLF training the potential clients are
given the opportunity to learn something of
what it is that they need to know to be successful.
It is a comprehensive curriculum.
Many businesses start ups fail because of they
do no know or understand the market. Borrowers
starting up a business must know about the
product or service, the competition, the prices,
and all sorts of hidden problems and issues.
People in a poor community need the basics.
They need food, and clothes, and also things
like medicine, fishing lines, firewood, spare
parts, and such. A good business satisfies real
needs and will succeed if it supplies the goods
or service at a low cost. Market research need
not be complicated, but there must be a sound
analysis and application of common sense.
MLF helps to ensure that the potential clients
know how to start the business in accordance
with local custom. In Malawi, setting up a small
business requires consulting with the local chief
or village head man. This may not be written in
the national law and regulation, but it is a customary
requirement and is an important part of
the ‘due dilgence’ that the MLF carries out before
loans are given as it helps ensure high levels
of repayment.
In real estate there are only three things that
matter ... location, location and location. The
same goes for a small business. The place
where the business is set up makes a big difference.
This may not be obvious ... it is part of
the training. Customers must be able to get to
the business easily, and it must be possible for
the business owner to bring the products. Convenience
is a big value in a society where walking
is the norm for most travel!
Growth is not the top priority ... first of all learn
how to have a sustainable small business keeping
costs as low as possible, and grow because
there is demand for the goods and services not
because there is an overly big overhead cost to
be covered! It is much better to have low overhead
and low costs and low prices and a growing business than to have high prices, high
costs and no business.
Basic business know-how and financial discipline
is a cornerstones of MLF training philosophy
and success. Potential borrowers are required
to demonstrate that they can manage
money by saving up a small sum themselves –
10% or 15% of the loan - before receiving their
money.
MLF does not walk away as soon as the loan is
disbursed, rather they stay very much involved.
The business training goes on for six
weeks so that the clients can learn to run
meetings, have elections for their group leadership:
chairperson, secretary, treasurer, etc.,
keep records, bank money, manage their cashflow,
budget for their business and ensure that
they make a profit. Many of these people do
not read or write, and they do not have calculators.
All of this has to be done using talk and
using mental arithmetic.
MLF business start up borrowers meet every
two weeks with their loan officer to review their
business progress, and to make repayments
against their loan. This is a tight schedule and
borrowers find it difficult, but the discipline is
extremely valuable. Critical problems can be
identified quickly and steps taken to solve the
problem with the help of the loan officer. The
role of the loan officer is crucial. The loan officer's
experience can be used to help a struggling
business and do something to correct the
problem. This is a level of engagement that is
costly, but incredibly valuable.
MLF uses a group lending model with business
start up groups of between eight and fifteen
women. The group is collectively responsible
for the repayment of each individual loan. If
one member of a group gets into trouble, the
others have to be prepared to help her out.
This happens, for example, if one member of a
group becomes ill and they cannot operate the
business for a while. In the case of a group
member dying before her loan is repaid the
loan is written off, but where someone is suffering
from an illness other members of the
group take responsibility for carrying her
through the period of the illness.
------------------ // ------------------
MLF provides know-how, start-up capital, and
on-going support but the individual borrowers
design and run the businesses for themselves.
97% of the loans are re-paid in full. But it appears
from what Peter Ryan talks about that
the results are really a whole lot better than
these financial results. Small rather remote
communities that were doing nothing more
than existing ... and declining ... have found
ways to have businesses that satisfy needs and
earn income.
The 3% failure rate results from factors that
are out of MLF control, mostly that the borrower
has died. With life expectancy of only 37
years, mainly because of the high incidence of
HIV/AIDS, it is a sad fact of life that some of
the businesses will fail because the borrower
dies.
MLF Malawi is demonstrating that a very basic
sensible approach to development can be sustainable
and make a big impact. Training is
central to the success of the MLF in Malawi. The
approach does not use rocket science ... just
very advanced common sense.
Training ...
Perspective of
Peter Ryan,
Founder and CEO
of the
Microloan Foundation
By, Peter Burgess, Correspondent , New York
( Microfinance Focus) , March 2nd, 2009
I caught up with Peter Ryan last month in Boston. Peter is the founder and CEO of Micro-Loan Foundation (MLF),
a UK charity that has established a successful growing microfinance organization in Malawi, and now starting to
expand into neighboring countries. Peter was visiting the Boston area to celebrate the first anniversary of the
MicroLoan Foundation USA that is helping to fund the growth of MLF.
Peter Ryan first saw the potential of microfinance when traveling with friends in the Philippines. A small loan got
paid back and did some visible good. In 1997 Peter saw the depth of poverty in Africa during a business visit to
Malawi and recognized that microcredit could be the catalyst for development and poverty reduction that was
not mere charity but truly sustainable. Because Peter had a business background, and had started a number of
businesses, he was aware of some of the critical issues that cause business to fail ... and the MLF program he
designed reduced these risks.
MLF Malawi opened its first office in 2002 in Nkhotakota, a small fishing town that combined the greatest need
with the least provision of microfinance services. The first loans were made in 2002 and by 2003 the MLF had a
staff of five, had made over 600 loans and had a 97% repayment rate. A second office was opened in Dwangwa,
north of the first office in 2004 and more offices added over the next five years so that there are now 15 offices,
with 5 more to be opened this year. In addition MLF is expanding into neighboring countries starting with Zambia.
It will start in other countries in Southern Africa: probably these will be Mozambique, Namibia and Botswana
. The Zambia program will be headed up by the Kenson Chiphaka who was MLF Malawi CEO who built up
the Malawi operation so successfully. The new Malawi CEO will be another Malawian. James Kajama with strong
development and banking credentials.
By some standards the interest rates charged
by MLF in Malawi are high ... maybe around
66% per annum ... but this interest income
makes it possible for MicroLoan to be sustainable
over a long period while having a substantial
microloan portfolio and providing critical
training to its clients.
Because people in the rural areas of Malawi are
poorly educated, the people have little opportunity
for progress. While the lack of money is
one constraining factor, in Malawi, according to
Peter Ryan, there is in addition a big deficit in
education and knowing the basics of business.
This is why MLF is very committed to the idea
of training as an integral part of its program.
Almost all of the MLF loans are made to women
who are starting their own businesses. But before
they may take a loan they must go
through a training course. The women are required
to form into business groups electing a
Chairman, Teasurer and secretary and are
then given a six to eight week crash course on
key aspects of business management. During
the initial stages of the business, they are provided
with constant guidance as their modest
business takes off. This includes support in
practical training for very basic business skills
like cash-flow planning that enables people to
get businesses up and running very quickly.
Within 4 months MLF trainees are running real
businesses and usually have repaid the initial
loan in full.
Many of the businesses are trading businesses,
such as buying fish from the lake (Lake Nyasa),
rice or tomatoes, and selling them in the capital,
Lilongwe, where they earn a profit. Others
are small production or “value adding” businesses,
such as bread or knitted products
which are hand-made and then sold in the local
street markets. Without MLF these people
would have no access to the money needed to
buy the equipment and materials to start these
businesses.
------------------ // ------------------
During the MLF training the potential clients are
given the opportunity to learn something of
what it is that they need to know to be successful.
It is a comprehensive curriculum.
Many businesses start ups fail because of they
do no know or understand the market. Borrowers
starting up a business must know about the
product or service, the competition, the prices,
and all sorts of hidden problems and issues.
People in a poor community need the basics.
They need food, and clothes, and also things
like medicine, fishing lines, firewood, spare
parts, and such. A good business satisfies real
needs and will succeed if it supplies the goods
or service at a low cost. Market research need
not be complicated, but there must be a sound
analysis and application of common sense.
MLF helps to ensure that the potential clients
know how to start the business in accordance
with local custom. In Malawi, setting up a small
business requires consulting with the local chief
or village head man. This may not be written in
the national law and regulation, but it is a customary
requirement and is an important part of
the ‘due dilgence’ that the MLF carries out before
loans are given as it helps ensure high levels
of repayment.
In real estate there are only three things that
matter ... location, location and location. The
same goes for a small business. The place
where the business is set up makes a big difference.
This may not be obvious ... it is part of
the training. Customers must be able to get to
the business easily, and it must be possible for
the business owner to bring the products. Convenience
is a big value in a society where walking
is the norm for most travel!
Growth is not the top priority ... first of all learn
how to have a sustainable small business keeping
costs as low as possible, and grow because
there is demand for the goods and services not
because there is an overly big overhead cost to
be covered! It is much better to have low overhead
and low costs and low prices and a growing business than to have high prices, high
costs and no business.
Basic business know-how and financial discipline
is a cornerstones of MLF training philosophy
and success. Potential borrowers are required
to demonstrate that they can manage
money by saving up a small sum themselves –
10% or 15% of the loan - before receiving their
money.
MLF does not walk away as soon as the loan is
disbursed, rather they stay very much involved.
The business training goes on for six
weeks so that the clients can learn to run
meetings, have elections for their group leadership:
chairperson, secretary, treasurer, etc.,
keep records, bank money, manage their cashflow,
budget for their business and ensure that
they make a profit. Many of these people do
not read or write, and they do not have calculators.
All of this has to be done using talk and
using mental arithmetic.
MLF business start up borrowers meet every
two weeks with their loan officer to review their
business progress, and to make repayments
against their loan. This is a tight schedule and
borrowers find it difficult, but the discipline is
extremely valuable. Critical problems can be
identified quickly and steps taken to solve the
problem with the help of the loan officer. The
role of the loan officer is crucial. The loan officer's
experience can be used to help a struggling
business and do something to correct the
problem. This is a level of engagement that is
costly, but incredibly valuable.
MLF uses a group lending model with business
start up groups of between eight and fifteen
women. The group is collectively responsible
for the repayment of each individual loan. If
one member of a group gets into trouble, the
others have to be prepared to help her out.
This happens, for example, if one member of a
group becomes ill and they cannot operate the
business for a while. In the case of a group
member dying before her loan is repaid the
loan is written off, but where someone is suffering
from an illness other members of the
group take responsibility for carrying her
through the period of the illness.
------------------ // ------------------
MLF provides know-how, start-up capital, and
on-going support but the individual borrowers
design and run the businesses for themselves.
97% of the loans are re-paid in full. But it appears
from what Peter Ryan talks about that
the results are really a whole lot better than
these financial results. Small rather remote
communities that were doing nothing more
than existing ... and declining ... have found
ways to have businesses that satisfy needs and
earn income.
The 3% failure rate results from factors that
are out of MLF control, mostly that the borrower
has died. With life expectancy of only 37
years, mainly because of the high incidence of
HIV/AIDS, it is a sad fact of life that some of
the businesses will fail because the borrower
dies.
MLF Malawi is demonstrating that a very basic
sensible approach to development can be sustainable
and make a big impact. Training is
central to the success of the MLF in Malawi. The
approach does not use rocket science ... just
very advanced common sense.
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