Shared Interest News

As the United Nations prepared to launch its International Year of Microcredit, Shared Interest issued a guarantee for a dynamic new microfinance program initiated by Beehive Financial Services (BFS). Despite its name, this organization has nothing to do with bees. (A “hive” in South Africa also refers to what is known in the U.S. as a business “incubator” program to nurture very small new enterprises.) In fact, BFS was created by Beehive Economic Development Corporation, a not-for-profit organization that has been providing technical assistance to small and microentrepreneurs in Mpumalanga Province since 1995. In 2003, Shared Interest extended a guarantee to BFS’s sister organization, INDLU, for housing loans to borrowers like Justice Mkhabela. (see below)

The Shared Interest guarantee to BFS, issued on behalf of its South African partner Thembani, which structured the agreement, complements housing loans by focusing on micro-finance. It is designed to enable the organization to lend, for the first time, to low-income borrowers (primarily unemployed and self-employed rural women) seeking to start or expand their own micro- enterprises or to improve their living conditions in Mpumalanga and Limpopo Provinces. The guarantee provides partial security for TEBA Bank’s R2 million loan to BFS, which is issued at “prime” - the rate the bank charges its most credit-worthy clients.

The women will borrow between R500 to R10,000 to boost their enterprises by purchasing inventory or covering other capital expenses. They must make payments on a weekly-to-monthly basis, and repay their loans in full within four to 12 months, depending on the size of their loans. BFS is also encouraging a culture of savings and risk-sharing. All borrowers are required to save a minimum of R20 a month, which is deposited into BFS accounts in their individual names, and to pay an initial deposit of 10 percent of the loan amount to BFS, which BFS holds and reimburses once the loan is repaid. At that time, borrowers will deposit five percent of their repayments into their respective savings accounts, as an additional protection from future risk.

Although the BFS loan program includes provisions for individual borrowers whose businesses have outgrown amounts provided by group loans, the organization’s primary focus is group lending. In the tradition of the Grameen Bank in Bangladesh, and the Small Enterprise Foundation (to which Shared Interest issued a guarantee earlier in the year), BFS extends credit to groups of three-to-five borrowers, whose members provide mutual support and assume responsibility for each others’ payments. Between four and 10 groups in each participating community will elect their own oversight committees. These committees will convene fortnightly meetings, at which BFS staff will provide technical assistance for the groups’ savings and lending activities.

As it rolls out its loan program, BFS intends to provide borrowers with incentives, such as interest refunds to clients who maintain significant savings, and interest rate reductions on subsequent loans for borrowers with perfect payment histories. BFS will also provide supplemental financial products, such as life insurance. This is a significant innovation in the face of the HIV/AIDS pandemic sweeping the nation.

Justice (”Jacob”) Mkhabela

Justice Mkhabla was happy to receive a 32-square meter house from South Africa’s new government during the early days after apartheid in the Mpumalanga township of Mashishing. It enabled him to move out of his father’s home, where the family had stayed after living in a nearby shack. The house was “a good kick-start,” he recalls. But when he and his wife had their daughter Lucy (now two years old), and his sister joined them, they needed more space.

Justice, like his neighbors, had never taken out a loan, since banks would not consider extending credit to them. He approached INDLU, the beneficiary of a Shared Interest guarantee, which lends both to emerging contractors and to individuals to build or expand their homes. With the first INDLU loan, he constructed two additional rooms and a small convenience store (Jacob’s Tuck Shop), from which his wife now earns R1,500 per month. Justice used his second loan to build two additional rooms, tripling the original size of the house. “When my daughter grows up,” Justice says proudly, “she can have her own room.”