12) Are the board members paid?
1) What is a “Grameen-style” micro-finance organisation?
- This is a pro-poor, development micro-finance organisation with operating principles inspired by Grameen Bank in Bangladesh, developed by Nobel Laureate Muhammed Yunus. Grameen Bank reversed conventional banking practice and addressed the needs of the poor by creating a system based on trust, accountability, participation, and creativity. Grameen provides credit to the poorest of the poor, without any collateral, and with strong client support. Today, there are many renowned institutions and organisations doing similar work around the world.
- While Phakamani is not a bank and we do not take deposits, our programme is adapted from Grameen’s pro-poor approach to micro-enterprise development. This includes the use of group loans and the assessment of someone’s potential as the basis of our system.
- Phakamani measures impact in terms of self-employment jobs and opportunities created, the progress and growth of the micro-enterprises in our programme, the savings generated in the entrepreneurs’ group bank accounts, and the improvement in living conditions of our programme members’ homes over time.
- We use the internationally recognised Progress out of Poverty (PPI) Index as well as other measures. We also have a constant stream of stories from our members and field workers to let us know how much the Phakamani programme is appreciated.
- Phakamani provides basic micro-enterprise and life skills training to clients. We do this before any loans are disbursed (including a verbal test to ensure people understand the system) and on an on-going basis at the group level and at monthly Centre meetings.
- No loans are disbursed without the training and mentoring – it is an integrated programme.
- We offer micro-enterprise loans ranging from R700 ($70) to R15 000 ($1500) per person in a group, depending on the experience and business of the client, and how long they have been with Phakamani. Initial loans range from R700 ($70) to R1 700 ($170).
- Phakamani loans are graduated, meaning clients become eligible for gradually higher loans when they have successful repayment discipline and when the value of their micro-enterprises is growing.
- Loans are paid back at a rate of 97% or higher. This is typical for a Grameen-style organisation.
- Yes we do charge interest, for the reasons outlined further below.
- Interest rates, loan initiation fees and administration fees are in line with (or, when possible, below) the amounts allowed for development finance institutions by the National Credit Act, which was written to protect consumers. Our goal is to keep the loans as affordable as possible.
- Charging for loans helps cover the costs of our not-for-profit operation. Operational self-sustainability for Phakamani’s programme is an important goal, as it is for all development micro-finance organisations. As the number of active clients in our programme grows into the tens of thousands, Phakamani will reach a stage of sustainability where donor funding will no longer be needed to cover expenses and a certain level of growth.
- Charging for loans helps ensure that our clients learn how to deal with standard loan processes, for the day when they are ready and able to step into the formal economy.
- We believe that anything free is usually devalued and long-term results are compromised. Phakamani’s integrated, market-oriented method of enterprise development creates a sense of ownership and empowerment for the people in the programme.
- Phakamani entrepreneurs are motivated to pay back their loans through peer pressure and through the trust that has been placed in them. They know that if they do not pay, then their group members will have to pay on their behalf.
- If a group does not repay a loan because of someone’s default, then the entire group is disqualified from further loans. This is the only sanction other than peer disapproval. It is a system that works.
- Yes, Phakamani is different. We are one of several pro-poor, not-for-profit organisations registered with the National Credit Regulator as “development finance institutions” under the National Credit Act. Phakamani is also a member of AMFISA, the Association of (Pro-Poor) Microfinance Institutions of South Africa.
- Phakamani has a dual bottom line: our aim is to cost-effectively provide micro-loans and micro-enterprise support to poor people AND at the same time (through this service) create positive social impact for clients. We work carefully to ensure that all micro-entrepreneurs receiving loans can not only afford to pay them back but that additional disposable income can be generated to help the entrepreneur’s family — from the very first loan cycle.
- No. South Africa’s National Credit Act does not allow development micro-finance institutions to take deposits from clients. This means that we are not able to mobilise capital for on-lending to the entrepreneurs using such deposits, which is a typical practice in other countries.
- We do require all client groups to open a group savings account at a local bank (Nedbank or Postbank), as regular savings is part of our programme. These accounts are also used for direct loan disbursement and repayment.
- Phakamani is on a steady path to covering all (or most) operational costs with client revenue – and this is our goal. This takes time, however, and we expect it to happen as our number of active clients continues to grow. In the meantime, we continue to appreciate all of the donor support that has helped us get this far. We look forward to continuing and growing these relationships, especially as we open new service areas, which implies upfront costs.
- Phakamani is committed to hiring staff who can effectively communicate in the dominant language of the areas in which we work. This is especially important given that approximately 70% of our clients are semi-literate or illiterate. All training is carried out in the local language.
- Flyers about our programme are available in siSwati, Tsonga, and isiZulu, and we are working towards having all forms available in these languages. When groups of entrepreneurs are recruited, our system is explained in detail.
- Please see below for copies of Phakamani’s correspondence with the National Credit Regulator regarding language requirements.
- No, board members are not paid. Phakamani is organised as a not-for-profit Section 21 registered company and a registered public benefit organisation under South African law. By definition, none of the proceeds can be used to enrich the members of the board or the directors of Phakamani.
- All employees are paid a salary that is representative of what they would earn if employed elsewhere in the non-profit sector. Apart from necessary overheads, every rand/dollar that Phakamani accumulates is re-invested in the organisation to serve the clients. The CEO and his wife, who are both directors on the board, are co-founders of Phakamani and all of their day-to-day time spent on Phakamani is on a volunteer basis.
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