POVERTY: Microloan Foundation spreads the wealth in rural Africa

August 16, 2010
Peter Ryan explains to David Woodward of Director magazine, why his Microloan Foundation is enabling inexperienced entrepreneurs to kickstart enterprise in sub-Saharan Africa

Enterprise can be an effective solution to poverty in rural Africa. But when the average villager gets by on only a few pennies a day, how does a business idea attract the capital it needs to get started? Without collateral, a leap of faith is required. It's Peter Ryan's job to supply that faith. Ryan runs the Microloan Foundation, a social enterprise that provides small loans and business mentoring to women in rural Malawi, Zambia and northern Namibia.

Ryan's entrepreneurial customers are inexperienced and often uneducated. To a conventional bank manager, they look a risky prospect. But out of the 50,000 sub-Saharan loans the Microloan Foundation will make this year, 99 per cent of the capital will be returned, plus interest.

The secret to Ryan's model is peer lending. The Foundation's loan managers gather small groups of like-minded women, providing microloans of around £70 to each member to start a business. The loans are "cross-guaranteed" by all the group members, who provide peer support should any of the women fall behind.

Like Grameen Bank, run by Nobel Peace Prize winner Muhammad Yunus, the Microloan Foundation doesn't provide any loans to men. "It's the women who manage the purse strings," explains Ryan. "They are the ones who have to put food on the table." It might seem strange to a European, adds Ryan, but gender-specific banking hasn't proved divisive. "The men are very happy that the women are being encouraged to go and earn money to support them," he says.

Ryan's aim is to kickstart rural economies. The Foundation's expansion into new regions is achieved through local loan managers, who develop relationships with village headmen before a Microloan branch is established. Groups of female entrepreneurs emerge naturally, says Ryan. Each group nominates a chairperson, a treasurer and a secretary. They are then taught the basics of accounting, finance and peer support and given bank accounts, before receiving their loans.

Interest is charged for two main reasons, explains Ryan. The first is to ensure that borrowers understand the price of money. Ryan's ultimate goal is to move his customers away from dependence on social enterprise and into the formal banking system. The second reason is to make the Microloan Foundation both sustainable and profitable. Profits are used to pay administrative staff at the Foundation's 20 branches and for expansion of the organisation. "We want to make a million loans a year across sub-Saharan Africa", he says.

Exporting capitalism to third-world communities requires sensitivity, no matter how good your intentions. Although the Foundation's record of repayment is good, there are other, more important measures of success to consider. "What you have to do is get your social mission right," says Ryan. "It's easy to say we get 99 per cent repayment, but if you're leaving a community in a worse state than they were before then that's not success. You don't want to drive people into the ground by eradicating the weak, you want to support the weak so that if it doesn't work for them they don't come out of the process slaughtered."

Ryan takes care to measure the social impact of the Foundation's work, tracking and monitoring the ways in which poverty is alleviated through enterprise. "You might call it TQM, but with a social mission," he says. But assessing progress can be a challenge when borrowers only deal in good news. "It's about communication. If you ask an African a question you'll get an answer. But is that really the true answer? It's a continual process of pealing away the onionskin," he says.

Ryan's success in Africa seems ripe for duplication in the UK. With an estimated 250 graduates chasing every available job, many are seeking start-up capital to fund their own ventures. But despite governmental pressure on banks to make more loans, many applications are unsuccessful. Ryan says microloans, backed by his Foundation's peer lending model, would reduce risk for lenders and help stimulate enterprise. "If people are brought together they can form a community of self-support," says Ryan. "Two to three hundred pounds is not a lot of money, but that would enable someone to get into painting and decorating, garden maintenance, something quite simple."

Simplicity is also the key to success in Africa, says Ryan. Most entrepreneurs start trading in areas they know well, "buying rice and beans and fish to sell at market." Some progress by opening teahouses at the side of the road, starting knitting and sewing businesses, buying livestock, or even setting up poultry operations.

The profits pay for secondary education, which in sub-Saharan Africa costs around £5 a term, much-needed medicine, home repairs and extra food. "Before these loans they might have one meal a day, afterwards they can have two to three meals a day," he says. "It's about improving quality of life."

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