The Weekly Observer (Kampala)
Camilla Victoria Marcinkowski
2 July 2008
In Denmark, anyone wanting to start up a business can walk into a bank and take out a loan. All it takes is a good idea. Collateral? Not an issue.
However, few Danes want to bother starting up a business because salaried jobs are available and pay well.
In Uganda, the opposite is true. According to official figures by the Uganda National Bureau of Statistics, unemployment is at 3.5% and as high is 22% among the youth.
This does not mean that most Ugandans have jobs, but because more than 70% of the workforce, by official estimates, are engaged in informal businesses. That is a remarkable pool of entrepreneurs by European standards. Remarkably few, however, have access to knowledge and capital necessary to professionalise and grow their operations.
A new type of micro finance institution is trying to change that.
Last year, Danish entrepreneurs Tim Vang and Mads Kjaer, whose company Kjaer Group runs Motorcare Uganda, started an Internet-based micro-finance business called MyC4. In the spirit of the 2006 Nobel-laureate Mohammed Yunus, founder of Grameen Bank, MyC4 connects small-scale lenders in Denmark (and elsewhere) with micro-borrowers in Uganda, Kenya and Cote D' Ivoire.
In Uganda, MyC4 works through its partner Capital Micro Credit (CMC) and the Federation for Entrepreneurship Development (FED).
The partnership works as follows: A business owner, such as Sarah Mwanje, asks CMC for a loan. Mwanje, a 60-year-old midwife, runs Nyamayalwo Maternity Clinic in Kawempe, a Kampala suburb. Since its establishment in 1986, the centre has experienced a stable growth in terms of annual admission of patients and revenue. Last year, Mwanje had eight employees and made a profit of about Shs 12 million.
But her facilities were poor and needed renovation. She didn't have enough beds, laboratory equipment and employees to take care of the many patients, and all the washing was still done by hand. So at the end of last year, Mwanje approached CMC for a loan of 10.000 euros (Shs 25 million).
"I needed to improve the facilities to expand my business to be able to offer better services to patients and treat more patients," she explains while showing me around the newly renovated clinic.
Not capital
CMC didn't just dole out the Shs 25 million, though. The company made an assessment of Mwanje's ideas and business potential.
"People tend to think that running a successful business is all about capital, we don't agree. We think there's more to it than that," says Ronald Isabirye, the business development director of FED/CMC.
After being assessed, he explains, all credit buyers are offered business training, mentoring and coaching. In addition, book and record-keeping will now become mandatory if businesses apply for a second loan.
If a business is assessed as being creditworthy, CMC/FED writes up a business presentation that is sent to MyC4.
MyC4 then presents the credit buyer on its website (www.myc4.com) for potential investors to see. The loan is established via an auction, where investors from all over the world can bid as little as $20. The credit buyer sets a maximum interest rate, typically 12-13 percent, but the lender is free to offer a lower rate (the total cost of the loan ends up being about twice as high, when MyC4 and CMC have taken their share. This is still considerably lower than what banks and other micro finance institutions ask for). When the entire loan has been established, the internet-auction is closed and the money paid out.
The very open process continues throughout the duration of the loan. Through the MyC4-website, lenders can track the repayment of his or her loan daily.
Repayment
The strategy seems to work. Despite the fact that 80 percent of Uganda's businesses don't make it past their second anniversary, repayment to MyC4 investors is close to 100 percent.
"I think our success has to do with the fact that we look at the vision and market situation of the businesses we screen: Why do they want the loan? What are they going to gain from it? These things are important," says Isabirye.
In one year, CMC/FED has trained 2,500 and given loans of about $ 2 million to 1,100 businesses. A small number, compared with the big national and international players on the microfinance market. But contrary to other players, only one of MyC4s credit buyers has failed to repay the loan.
"We're not saying there is no risk to Danish investors investing in Ugandan businesses. But through our extensive screening and training, we try to minimize that risk," says Isabirye.
So far, the Danish-Ugandan micro-business is a success story.
Ugandan entrepreneurs get access to capital and knowledge, while Danish (and other) investors make money as well as a difference.
"By investing through MyC4, I show the Ugandan business that I believe in his or her idea and skills as an entrepreneur.
I also expect him or her to succeed and repay the loan, which I believe is a dignified way of supporting growth and development in Africa," says one of MyC4's Danish investors, Hans Erik Brønserud
Women popular
The ability of Ugandan entrepreneurs to sustain and grow their business has long been stifled by limited knowledge and the absence of cheap credit. The average interest rate stands at 26% for banks and 35% for microfinance institutions. On top of that, many banks demand solid security in the form of 200% collateral. CMC asks for little, if any, collateral.
There is so much potential for growth that hasn't been allowed to take place in this country, says Isabirye.
Although CMC hasn't spent a shilling on advertising, the company gets around 200 inquiries a week. About half are accepted for loans and more than 70 % are women.
It's interesting that most of our credit buyers are women. We don't favour women per se, but they just tend to present better businesses plans. Studies have shown that they also perform better in repaying their loans, he said.
Mwanje is a case in point. Although her loan is supposed to run for two years, she is already on track to repay it in half the time. "I am so thankful for being able to take out this loan and improve my facilities. This will help not only me, but the entire community," she says.
In March, MyC4 founder Mads Kjaer came to Kampala to help open a second CMC/FED branch office. Before the end of this year, the partners plan to expand into the rest of the country.
And investors are hungry. Judging from the hundreds of online statements, MyC4-investors (from a total of 60 different countries) enjoy making money on supporting a good idea - even if it plays out in a country as far away as Uganda. That way, Danes can access a Ugandan business adventure without having to give up their comfortable jobs.
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