Transition to Independence Program

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TRANSITION TO INDEPENDENCE PROGRAM

I. Executive Summary

Through an innovative agreement reached with PostBank Uganda (PBU), the Women’s Microfinance Initiative (WMI) has developed a microfinance program that takes impoverished women from their first loans and business launch, all the way through independent banking and entry into the formal economy.

Though urban markets are saturated, banks in east Africa do not serve poor, rural women, who desperately need financial services, due to the high risk involved. WMI’s unique Transition to Independence Program (TIP) brings these two parties together to their mutual benefit. The TIP harnesses the market force of experienced/trained microborrowers to unlock banking services on attractive terms. Typically, microfinance programs fail to introduce experienced clients to more favorable banking opportunities because experienced clients are a profit-center. Yet, these microfinance programs do not provide important financial products, larger loans or the ongoing training and support that are critical to sustained poverty reduction.

WMI launched its microfinance loan program in Buyobo, Uganda in January 2008. Working through the local Bulmabuli Widow’s Association (BWA), which administers the loan program on the ground, WMI has made 700 loans to extremely impoverished rural women,who used the funds to launch income producing enterprises. WMI provides business training, bookkeeping assistance and support group meetings. The loan repayment rate is100% and the most experienced borrower’s businesses have grown to the point where they can benefit from access to conventional banking opportunities and products such as insurance and savings accounts. Yet, banks were unwilling to offer loans to these women, perceiving them as too high a credit risk. Thus WMI developed the TIP.

After 24 months in the loan program, successful borrowers are promoted to the innovative Transition Fund established with PBU. The bank provides a revolving loan fund from which larger, 1 year term loans are made directly to WMI/BWA borrowers. BWA/WMI will guarantee the Transition Fund loans for the first year term. BWA will continue to service the loans at the village level, receiving a small fee. While in the Transition Fund,borrowers will continue to access BWA training and support services.

Borrowers who make their Transition Fund loan payments on a timely basis for one year and meet minimal, pre-negotiated, business operating criteria, graduate to independent banking with PBU on attractive, pre-negotiated terms, including most favored nation status.

This progression to independent banking is the goal of WMI’s Transition to Independence Program. It's a 36-month self-contained cycle that takes a woman from her first loanto fully independent banking. Theprogram is sustainable once initially funded, and it continues to graduate experienced, trained, successful, rural businesswomen into the formal economy. Once a woman graduates from the WMI’s micro-loan facility, her funds can be reused to offer a new loan to a first-time borrower. It allows WMI to focus on first-time loans and training/support for the poorest women, while the bank acquires a stream of qualified, new customers.Uniquely, program income makes the TIP sustainable after the initial investment.

II.Market Context and Need (the “problem”)

• Evidence of Demand

WMI’s Transition To Independence Program (TIP) utilizes economic development strategies to alleviate poverty. It combats rural poverty in East Africa (KE, RW, TZ, UG), by addressingcritical development problems that prevent women from becoming economically active, most importantly:

Lack of access to credit and savings;

Lack of financial literacy training;

Lack of access to increased capital and diverse financial products to grow microbusinesses;

Failure of banks to serve rural women;

Failure of microfinance (MF) to integrate borrowers into the formal economy; and,

Sustainability of MF initiatives

Lack of access to credit and savings cripples the efforts of the 15 million poor women in rural East Africa to lift their households out of chronic poverty. Fewer than 5% have access to financial services, yet 90% of income generation in this area is through self-employment. They need MF credit and savings tools to start and run businesses, implement household budgets, pay for unexpected calamities and smooth the consumption curve. Through microcredit and savings, women launch small businesses that create financial stability for their households and vest them in their country’s economy.

But, credit alone is not sufficient – without financial literacy, those who obtain a loan can lose the businesses they start because they lack basic management skills. When a rural woman establishes a microbusiness, its growth is often stymied due to lack of ongoing/ larger capital sources and the more sophisticated financial products available from banks. WMI solves the pernicious problem of the banks’ refusal to deal with rural women. It addresses the failure of microfinance programs to: graduate borrowers to independent banking; integrate borrowers into the formal economy; and, operate on a sustainable basis.

Financial success and training through a self-sustaining microfinance program stabilizes poor households and empowers women to advocate for themselves, their families and their country's political and economic stability. This stability, plus entry into the formal economy, leads to long term growth and sustained poverty reduction.

III. Strategy and Theory of Change (the “solution”)

• Organization Mission and Theory of Change
• Organization History
• Organization Logic Model

Mission: WMI's mission is to work with village-level organizations to provide working capital to women in the lowest income brackets, in developing nations, so that they can engage in income producing activities. In this manner it is engaged in combating world poverty.

Goal: WMI's Goal is to help women build assets so that they can stabilize their income, raise their standard of living and reorient themselves and their families. WMI's small loans bring big changes to impoverished women, who use the money to build small businesses. As of October 2009, WMI has issued nearly 700 loans to women in 50 villages. Focusing its efforts in rural Uganda, the WMI loan program is run entirely by local village women. As an end-goal, it seeks to transition experienced borrowers into independent banking so that they can take their rightful place in their country's formal economy.

Theory of Change: Women represent the overwhelming majority of the world’s poor. Women have a higher unemployment rate than men and receive lower wages when employed. Typically, they are excluded from access to financial services due to systemic reasons, such as: lack of collateral, demands for a male guaranty, unavailability of documents, unavailability of transportation and illiteracy. They are socially disenfranchised, geographically isolated and vastly undereducated compared to men. All of these factors have contributed to the feminization of poverty. Yet, women are the focus of the family’s social and economic well-being. In order to fight global poverty, women need to be provided with financial resources and tools.

Women’s economic empowerment raises the living standard of the entire household because women are less likely to spend income in a non-productive, short term manner. Women’s priorities for spending income are: children, medical services, nutrition, school fees and household needs. Their primary interest is the well-being of their families. Lending to women produces a positive ripple effect of improved health, education and welfare for all household members.

From the lender’s standpoint, women have demonstrated attributes that make them attractive customers. On the whole, they are: co-operative and willingly attend weekly meetings; averse to taking undue business risks; cautious about extending credit to business customers; and, committed to the mutual guaranty of loans. Woman have a very positive attitude about validating the trust which a lender places in them by offering loans and providing the opportunity to engage in business ventures previously reserved to men.

Regular and reliable income improves access to food, health services and educational opportunities for impoverished families. It allows for household planning, saving for emergencies and access to resources to deal with unforeseen crises, thereby reducing the family’s vulnerability and stabilizing its consumption curve.

In addition to improving the prospects of the household in general, access to microcredit empowers women. Women who are able to operate successful microbusinesses gain self-confidence, independence and a sense of pride in their accomplishments. They enjoy increased respect in the community. Operating their businesses requires the women to become skilled in dealing with suppliers, marketers and customers. Learning to negotiate business hurdles improves their decision-making ability. As they become more confident, they are likely to become more involved as catalysts for development in their communities and local institutions. Rather than building roads or bridges, the WMI TIP builds human capacity.

After the expenditure of tens of billions of dollars, theinstitutional approach to development and poverty alleviation has been largely unsuccessful, particularly in sub-Saharan Africa. Institutional programs focused on specific infrastructure development projects were often ill-suited to host countries. In many cases, they were so large and complicated that the beneficiary country could not absorb the amount of aid nor sustain the projects, which were susceptible to corruption, nepotism and the siphoning of aid dollars. Very little assistance ever managed to trickle down into the hands of the poor. Governments dedicated large portions of their budgets, which were frequently subsidized, to simply running the government and paying salaries, leaving few resources to deliver services to the poor. Citizens were frequently left out of any dialogue about their countries’ precarious financial situation. This lack of communication led many to lose faith in the ability of their governments to govern.

International aid failed to alleviate poverty for other reasons as well. Although donors perceived themselves as offering a helping hand, third-party dictation of the requirements for accepting aid meant that governments abdicated their decision-making responsibility and failed to develop prudent governing skills. Free services were not valued by recipients and recipients were not vested in the success of many aid programs. With the price tag for failed programs mounting, alternative approaches to poverty reduction - ones that empower people, are being explored. Financial empowerment motivates women to become advocates for their country's political and economic stability. This stability can lead to long term growth and sustained poverty reduction.

History: Founded by professional women in the Washington, D.C. area, WMI is a hands-on international outreach effort. Since January 2008, WMIhas issued nearly 700 loans to impoverished women in 50 rural villages in Uganda. WMI maintains a 100% repayment rate and has established a $60,000 revolving credit facility.

Since January 2008, WMI has funded loans for 40 borrowers every three months, through a loan program administered by the local Bulambuli Widow’s Association (BWA). The members of each 20 person loan group cross-guaranty each other’s loans; no collateral or down payment is required. Loans are for 6 month terms and carry 10% interest. Borrowers attend support group meetings and receive bookkeeping and business training. All borrowers contribute regularly to a joint savings program.

The BWA-operated loan program currently serves 320borrowers. Loan amounts are $50 - $250 and borrowers are guaranteed follow-up loans if they make all of their loan payments on time.

WMI and BWA have recently completed construction of a building in Buyobo, whichserves as a headquarters and as a community meeting center. With this resource, WMI is expanding services to borrowers in 4 key areas that are critical to increasing household productivity: financing for electricity; clean water and cooking options; education; and, health services. All services, like the loan program itself, are offered on a sustainable basis.

WMI supports a dynamic outreach program with services that have evolved with the needs and interests of the BWA borrowers. Recently, BWA became a distributor of fuel efficient stoves and that initiative has proven very successful. In May, WMI’s 2 college interns from McGillUniversity introduced a pilot tutoring program for borrowers’ children and it was extremely well received. It was continued by the 2 WMI graduate student interns who arrived in Bulambuli in November 2009. The loan program’s Local Director, Olive Wolimbwa, anticipates continuing the tutoring program as it has proven popular and generates revenue for the loan program.

The loan program has a waiting list of prospective borrowers and will expand to villages in Kenya in 2010.

Logic Model:As the WMIloan program expands, we are seeking to develop a seamless platform to transition experienced borrowers with thriving businesses into conventional banking relationships over approximately a 2 year time period. Experienced borrowers will benefit from access to a wide range of banking services and products that meet their business and personal financial needs. We think this goal is best achieved by partnering with a single bank in Uganda to launch a unique Transition Fund program. This will give experienced borrowers access to larger loans in a supervised environment for a period of up to 1 year. Borrowers who repay their loans timely and meet the guidelines for individual borrowing established in advance by the bank, will then graduate to become independent banking customers.

With this approach, BWA can focus on issuing first loans, providing support and training, and educating women at the bottom of the financial pyramid. The Transition Fund proposal will establish an innovative partnership that will provide a comprehensive approach to providing the poorest women access to financial services. It will utilize the resources of the existing banking community, instead of needlessly duplicating them. It will also provide a pipeline for banks to penetrate the vastly underserved rural customer market through BWA’s existing client network and other village-level resources.

IV. Current Operating Model

• Description of the Program, Platform, Product/Service, Practice or Initiative
• Core Elements and Success Factors
• Evidence of Results

In January, 2008, WMI introduced its prototype TIP program in Buyobo,UG with the Bulambuli Widow’s Association (BWA) featuring:

- Loan amounts of $50 - $250

- 6 month term

- 20% annual interest

- Follow up loans

- Borrower groups cross guarantee loans

- No collateral/deposit/identity docs required

- Group savings

- Administered at the village-level

- Weekly Support Group meetings

- Financial literacy training

- Local Coordinators visit borrowers on a regular basis and prepare weekly reports

- Semi-annual assessment/impact surveys

- Construction of building for office/village meetings

- Book donation for library

After 24 months in the BWA loan program, successful borrowers are promoted to the Transition Fund established through the partnership withPBU. PBU provides a revolving loan fund from which larger, 1 year term loans are made directly to the BWA borrowers. BWA/WMI guarantee the loans for the1st year term and make a security deposit with PBU of 50% of the cumulative loan amount at 6% interest. BWA continues to service the loans at the village level, receiving a small fee. The combined total of the PBU interest and BWA service fee is less than the amount the women paid in interest on their BWA loans; when they step up to borrowing larger amounts for longer terms through the Transition Fund, their monthly out of pocket rate declines. This savings encourages the women to enter theTransition Fund. While in the Transition Fund, borrowers continue with BWA training/support.

Borrowers who make their Transition Fund loan payments timely for 1 year, and who meet minimal, pre-negotiated, business operating criteria, graduate to independent banking with PBU on attractive, pre-negotiated terms, including most favored nation status. PBU sends a weekly mobile banking van to collect payments in the village, thereby reducing client costs and travel. Women who graduate to independent banking make the transition into their country’s formal economy. Their loan funds are recycled and lent to new borrowers. The loan interest covers program administration. With 320 loans outstanding and nearly 700 loans issued over 2 years, the TIP in Buyobo has a 100% repayment rate.

The borrowers’ businesses are expanding, are supported by the entire family, employ locals, draw traders from Kenya/Sudan, and support larger concerns like BWA’s new fuel efficient stove dealership. For loan program results see the WMI Fact Book: