Lending a helping hand

Olivia van Rooyen has little patience with the fuss made of her pioneering Kuyasa Fund, which has lent millions of rands to thousands of South Africa's poor to improve their homes.

It is a simple business, she says, no more special than the thriving retail chains where the poor buy their furniture on credit. As for being honoured as Ernst & Young's social entrepreneur of the year, she says: "I kind of heard two years ago that there’s this new buzz thing called 'social entrepreneur'."
Actually, she is just a development worker in a subsector that can pay for itself, she says. And she has it easy because her clients, despite being poor, are "in a place of hope" when they look for finance to improve their homes, compared to social workers who have to deal with despair.
At one stage she called herself "the aunty from the NGO", or at least that is how she believes she was perceived by the lecturers at Stellenbosch University where she did her MBA part time. The designation scored her at least 5% extra for her assignments, she says, just for being different to the executives who did the course with her.

Van Rooyen’s self-effacement stems from her mission to prove that ethical lending to the poor is viable, even easy. Kuyasa was started in the late 1990s as a R350 000 experiment by the Development Action Group, a housing NGO, to prove to the banks that the poor are credit-worthy even if they lack formal-sector payslips or assets.
Ten years later, Kuyasa has made its point. It has lent R103-million to 18 325 poor people, 93% of whom earned less than R3 500 per month. Kuyasa turns down only 4% of applicants and boasts a default rate of only 5%. With 8 600 clients, a field force of 60 loans officers and six branches in the Western and Eastern Cape, Kuyasa is about to break even.

The Ncita family of Site C, Khayelitsha, are typical Kuyasa beneficiaries. It is hard to imagine that the small lounge and open-plan kitchen William Ncita is sitting in was the two-room hokkie in which he lived since 1986. Except for the Saturday morning township sounds outside, he could be anywhere in suburban South Africa.
Phakama, his wife and a domestic worker, heard about Kuyasa through the stokvel to which she belonged and applied for a R5 000 loan to top up their R28 000 government subsidy. It allowed them to add a stoep and garage to the rudimentary shell.
Repayment was R355 a month over two years. A second loan of R10 000 followed for ceilings, painting and flooring. The Ncitas are currently paying off R1 054 per month on a third loan of R15 000 for finishing the bathroom and garage. Phakama received the loan despite the fact that William was retrenched from a carpentry business in Ottery. He now works for himself, installing kitchen cupboards for local families who are also improving their living conditions.

Van Rooyen paints a rosy picture of the market opportunity. By 2005, 2.1-million households had been given a platform upon which to uplift themselves through the housing subsidy. "It's a massive transfer of wealth from the state to the people," she says.

This "gift", combined with the entrenched culture of group savings among the poor, offers a clear opportunity for financiers. It is only when asked why the banks are still standing timidly on the sidelines that Van Rooyen gives an inkling of the difficult journey that she has been on.

"This market is risky. It's not a dark, racist conspiracy that the banks don’t work in this market. It's risky," she says. "Part of the problem with banks is they don't know about poor people. It's just this amorphous mass that they don't understand. There are no payroll deductions, debit orders, that kind of thing."

They'll pay for market surveys and embark on pilot schemes, but “they don’t see those efforts through, and when the problems come, they don't iron out those problems. They drop it for a year or two, and then they go back and start from scratch. So they end up losing their institutional memory."

In other words, the banks lack an entrepreneurial approach: the ability to spot the gap and with a mixture of evangelical belief, experimentation and doggedness climb the steep learning curve towards a sustainable model. This is the path that Van Rooyen took with Kuyasa. Her background gave her a solid foundation for understanding the poor.

Political activism made her give up her legal studies at the University of the Western Cape in the late 1980s for a job at a retail workers union, which took her to the Cosatu-affiliated unemployed workers movement. There, she "learned to understand the smell of hunger on people's breath".

It was then a short step to savings cooperatives and various non-profit experiments to uplift the poor by leveraging their savings through credit.
Her experience in the early 1990s as a junior officer at the failed Community Bank gave her some ideas of how not to do it. There was too much of the established banker's mind-set, she says, not so much in the plushness of the offices as in the overreach into a market that required a novel approach.

At the Development Action Group the idea developed to offer the banks a guarantee for home improvement loans to the poor. They did not bite, and Van Rooyen was delegated to set up Kuyasa and start lending herself. Instead of aiming to achieve a set of targets, her project started with a list of questions: "What does the product need to look like? What are the repayment patterns? What are the required systems? How much is it going to cost? Can it be scaled?"

Like most small start-ups, the market research mostly took the form of learning on the job and she didn't hesitate to copy from others. Realising that the most common form of formal credit among the poor is a loan for a lounge suite, Van Rooyen made a careful study of the furniture industry. Under Van Rooyen's lead, the organisation evolved a system that is both human and machine-like.

"You absolutely have to [run a tight ship]. It is almost militaristic. Your systems have to be rigorous and disciplined and your organisational culture needs to remain humane. You need to find the balance. I don’t think there is a contradiction between humanity and rigour," she says.

On the human side of the business, Kuyasa lends on the basis of the relationship between the client and the loans officer who is incentivised to be cautious but entrepreneurial. Kuyasa does not do repossessions or blacklisting. If a client defaults, she is talked back into the fold. A significant portion of Kuyasa's bad loans recorded in one financial year is eventually paid the next year.

On the machine side of the organisation, Kuyasa has developed an SMS reporting system that requires field officers to report to branch managers at certain times of the day on exactly how many clients they have seen, instalments they have collected and new loans signed.

Branch managers in turn report to the head office in Cape Town and at 8.30pm Van Rooyen receives a report on her cellphone which flags every significant glitch in the day’s operations. The "drama" caused by a series of telephone calls down the management ranks on the very same evening helps to keep the machine oiled, she says.

Despite working under extremely standardised procedures, where daily routines are mapped out by the minute, branch managers and loans officers know they can bring loan applications outside of the standard procedures. Van Rooyen says this is how innovation is driven in Kuyasa.

When requests for exceptional loans from the field become regular, it is turned into a new product. Late last year, Kuyasa formalised small business loans for its self-employed clients to boost their businesses.

If institutional financiers are scared of home improvement loans to the poor, they are petrified of informal businesses and for good reason: not one micro-business loan project has survived more than a few years in South Africa and there have been many. But if anybody has a chance of making a small business loan system work, it is Van Rooyen, who knows more about how entrepreneurs think than she cares to admit.

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