In part 1 and part 2 of a 3-part blog about Social Entrepreneurship 101: 2009, I discussed the program details and micro-finance options. In this final part of the blog, I share with you the 5-year plan for the SE 101 program.
After four years, while we have a comprehensive and well-tested curriculum for teaching how to write a business plan, we realize that SE 101 could not JUST be about UBC students travelling to Kenya or other African country to co-teach business planning. It is important to have a sustainable and scalable program.
In lengthy discussions with our local business partners and associates, we mapped out a 5-year vision to establish an (youth) entrepreneurship center, jointly supported by the Sauder School of Business and a Kenyan educational institution. The center would have the mandate of teaching youth how to write business plans, providing access to loans at reasonable interest rates, incubating and supporting businesses, conducting research, and providing for-fee consulting and executive education services (to sustain the center’s operations). The Sauder School of Business will take part in student and faculty exchanges, but the majority of the operations will lead by local partners.
In the more immediate future, we will be dividing the program into pre-core, core, and post-core segments. The pre-core program will help interested program participants develop their ideas, gain experience running a business, and learn basic business skills. The core program will continue to teach business planning but will focus on those participants who have had some demonstrated entrepreneurial experience. Clearly, not everyone can or should be an entrepreneur and therefore we must focus our efforts on those individuals who have the highest chance of success. By training and supporting these individuals who have shown a passion and talent for entrepreneurship, we aim to launch businesses that can provide jobs to other community members. Finally, the post-core program will teach intermediate and advanced business skills training. Throughout all the programs, SE 101 will bring in mentors and advisors from the local business community to provide guidance to current and past program participants. In fact, the first post-core program is currently running at our sites, run by our local coordinator, Barlet Jaji.
We have big plans for the SE 101 program, with many details to be worked out, tasks to be completed, and people to speak to, but we are truly excited about the opportunity to have a positive, sustainable impact on (youth) unemployment in Kenya. I will continue to provide updates on our progress and welcome any feedback or suggestions for what we can do to make this vision come to fruition.
Part 2 - Micro-Finance
Part 1 - What a Difference a Year Makes
Posted by Kirby Leong
Showing posts with label Microfinance. Show all posts
Showing posts with label Microfinance. Show all posts
Tuesday, November 10, 2009
Monday, November 2, 2009
Part 2 - Micro-Finance
Continuing from Social Entrepreneurship 101 - 2009, Part 1, Professor Nancy Langton and I met with a number of micro-finance institutions and banks in Nairobi, Kenya over the summer.
Group Lending Model
I learned more about the group-lending circle model in which up to 20 members guarantees the loans to individuals in the group. Each member takes turns borrowing money and once he/she pays back the money, another member is able to borrow money. If one member defaults on the loan, no other loans are disbursed until the outstanding loan is repaid. In the end, this model helps to build a credit history for each participant and reduces the need for collateral in that some MFIs perform spot checks of small business assets. For the first loan, the group must pool their savings to cover 100% of the loan, which can be a maximum of 20,000 KSH or about $260 US. Furthermore, all loan recipients must take a 3-day training program on leadership, loan management, recordkeeping, group dynamics, marketing, and business fundamentals. Even more important than basic business training to demonstrate credit-worthiness is actual experience running a business. For those without demonstrated entrepreneurial experience, they must start up and run a micro-business for up to six months before they can qualify for loans. If they eventually qualify for a business loan and their business fails, at least they will have the micro-business to fall back on. Once all the pre-requisites have been met, loan proceeds are typically distributed in 4 weeks. Thereafter, MFI representatives try to meet with loan groups on a weekly or bi-weekly basis but the sheer number of groups makes regular monitoring difficult.
Another Funding Model
Even with these methods to reduce credit risks, loan interest rates can climb close to a crippling 30% and likely contributes to the near 30% default rate (the economic downturn has also played a large role). We spent hours ruminating the possibilities between ourselves and with our Kenyan business associates about other ways to reduce risk, and therefore, provide loans @ lower interest rates to SE 101 participants with viable business plans. One model is a shared ¼, ¼, ¼ model where a local partner (such as a church or school), MFI, and the Sauder School of Business could each deposit a fixed sum of money (for example, $1,000) as security deposits for the loans. The remaining ¼ of the loan would need to be covered by the qualified borrower. We pitched this option to a few MFIs and while in principle they support the idea, we are still awaiting word from the respective decision-makers.
A potential drawback of this model is that those entrepreneurs who are not affiliated with one of our partners could be tasked with raising 1/2 or more of the loan as collateral. A key part of the risk reduction is a community group vouching for the character of the applicant. In rural areas there are a strong community bonds, but in the urban areas we need to find a surrogate community support system for a changing population.
Another way to help reduce loan risk is to help MFIs and banks train their staff in business planning, in order to help them properly evaluate the plans submitted by their clients. Furthermore, we could help them learn how to properly monitor and evaluate a business, to deal with issues early on before they threaten the viability of the business. Currently, many financial institutions simply lack the in-house knowledge and training. Many small business clients are evaluated based on "presence of simple assets", with monitoring sporadic at best. We could collaborate with the financial institutions to identify effective ways to monitor businesses effectively, given the limited resources. In return, not only could SE 101 clients be given lower interest rate loans, but also non-SE 101 clients.
A question to our readers: What other ways are there to reduce loan risk in urban areas of developing countries?
5-year Plan
We spent considerable time in Kenya developing the major parts of the 5-year plan. I’ll describe the plan in my next blog.
Posted by Kirby Leong
Group Lending Model
I learned more about the group-lending circle model in which up to 20 members guarantees the loans to individuals in the group. Each member takes turns borrowing money and once he/she pays back the money, another member is able to borrow money. If one member defaults on the loan, no other loans are disbursed until the outstanding loan is repaid. In the end, this model helps to build a credit history for each participant and reduces the need for collateral in that some MFIs perform spot checks of small business assets. For the first loan, the group must pool their savings to cover 100% of the loan, which can be a maximum of 20,000 KSH or about $260 US. Furthermore, all loan recipients must take a 3-day training program on leadership, loan management, recordkeeping, group dynamics, marketing, and business fundamentals. Even more important than basic business training to demonstrate credit-worthiness is actual experience running a business. For those without demonstrated entrepreneurial experience, they must start up and run a micro-business for up to six months before they can qualify for loans. If they eventually qualify for a business loan and their business fails, at least they will have the micro-business to fall back on. Once all the pre-requisites have been met, loan proceeds are typically distributed in 4 weeks. Thereafter, MFI representatives try to meet with loan groups on a weekly or bi-weekly basis but the sheer number of groups makes regular monitoring difficult.
Another Funding Model
Even with these methods to reduce credit risks, loan interest rates can climb close to a crippling 30% and likely contributes to the near 30% default rate (the economic downturn has also played a large role). We spent hours ruminating the possibilities between ourselves and with our Kenyan business associates about other ways to reduce risk, and therefore, provide loans @ lower interest rates to SE 101 participants with viable business plans. One model is a shared ¼, ¼, ¼ model where a local partner (such as a church or school), MFI, and the Sauder School of Business could each deposit a fixed sum of money (for example, $1,000) as security deposits for the loans. The remaining ¼ of the loan would need to be covered by the qualified borrower. We pitched this option to a few MFIs and while in principle they support the idea, we are still awaiting word from the respective decision-makers.
A potential drawback of this model is that those entrepreneurs who are not affiliated with one of our partners could be tasked with raising 1/2 or more of the loan as collateral. A key part of the risk reduction is a community group vouching for the character of the applicant. In rural areas there are a strong community bonds, but in the urban areas we need to find a surrogate community support system for a changing population.
Another way to help reduce loan risk is to help MFIs and banks train their staff in business planning, in order to help them properly evaluate the plans submitted by their clients. Furthermore, we could help them learn how to properly monitor and evaluate a business, to deal with issues early on before they threaten the viability of the business. Currently, many financial institutions simply lack the in-house knowledge and training. Many small business clients are evaluated based on "presence of simple assets", with monitoring sporadic at best. We could collaborate with the financial institutions to identify effective ways to monitor businesses effectively, given the limited resources. In return, not only could SE 101 clients be given lower interest rate loans, but also non-SE 101 clients.
A question to our readers: What other ways are there to reduce loan risk in urban areas of developing countries?
5-year Plan
We spent considerable time in Kenya developing the major parts of the 5-year plan. I’ll describe the plan in my next blog.
Posted by Kirby Leong
Sunday, October 25, 2009
Part 1 - What a Difference a Year Makes
Youth unemployment is a significant problem in Kenya, where almost 60% of the population is under the age of 35. The country’s GDP per capita is US $375. Kenya’s economy is currently dependent on agriculture, but youth are moving to urban areas in large numbers. Therefore most new entrants to the labor force must choose between working in small-scale enterprises and being self-employed. These factors have led to high levels of youth unemployment. It is estimated that 64% of unemployed people in Kenya are youth.
An effective way of addressing the challenge of unemployed youth is to help them develop their skills in entrepreneurship and small business development. Business literacy helps young people to envision ways of getting out of poverty and doing something to help themselves and their communities, and eventually ensuring sustainable economic self-reliance. Furthermore, the language of business is universal and a tool for communicating and exchanging both products and ideas. It opens people to the world of markets, and promotes exchange and interaction.
Social Entrepreneurship 101: Africa
The Sauder School of Business, through a student initiative, designed the Social Entrepreneurship 101: Africa (SE 101: Africa) program to help Kenyan youth develop small businesses. Based on a program designed by Sauder faculty, and piloted with residents in the downtown eastside of Vancouver (the poorest neighborhood in Canada), SE 101: Africa was first delivered in August 2006 to Kenyan youth. The project helped Sauder faculty and students understand how to effectively exchange knowledge and ideas across cultural borders. Through extensive research and support from the Sauder community, the students involved in SE: 101 Africa designed the course to be practical, applicable, and sustainable in the local context.
How I Became Involved
It was in 2008, while I was in my MBA program at the Sauder School of Business at the University of British Columbia (UBC), that I became involved in the Social Entrepreneurship 101 (SE 101): Africa program in Kenya. I wrote a series of blogs about my experiences teaching a three-week business planning class to a group of 35 aspiring youth entrepreneurs in Nairobi, Kenya. In re-reading the blogs, I more fully appreciate how far the program has come along. Indeed, what a difference a year makes.
What a Difference a Year Makes
Upon returning to Vancouver, Canada last year, Professor Nancy Langton and I met with the Dean to discuss the program achievements. While he was pleased with the progress, he wanted to see an expanded three to five year business plan for the program (now that the program had been running for three years) before giving the go-ahead for the 2009 program. We then spent the next few months developing the SE 101 business plan, and presented it to the Dean in December. He liked what he saw in the business plan and consequently allowed us to proceed with the 2009 program.
Professor Langton and I started recruiting the 2009 Sauder team in January and eventually selected a team of 5 undergraduate and 5 MBA students. Starting in February and continuing to July, the team developed and executed fundraising business plans, reviewed, refined, and taught the curriculum, and presented topics about Kenya. Fundraising is always a challenge, and more so this year given the economic downturn but with some creativity and perseverance, the team managed to meet its goal. In late July, we arrived in Nairobi en masse with a mixture of giddish anticipation, trepidation, and clarity of purpose. The first weekend was spent finalizing arrangements and meeting the Strathmore University students who were co-teaching the program at three locations: Kibera (the largest slum in East Africa), Friend’s Church (just outside Kibera), and International Christian Center (also in Nairobi).
Social Entrepreneurship 101: Africa, 2009 Program
I spent the first few days at different sites to help ensure the program got off to a good start, and while there were some issues with the resource materials and logistics, the UBC and Strathmore University student instructors ramped up remarkably well and quickly. I was impressed by their enthusiasm, breadth and depth of knowledge, and creativity in delivering the curriculum to over 80 student participants. Judging from the participant feedback we received at the end of the program, I was not alone in my assessment.
While the team was teaching the business-planning program, Professor Langton and I met with a number of micro-finance institutions and banks, during which we received a crash course about micro-finance. More about what we learned in my next blog.
Posted by Kirby Leong
An effective way of addressing the challenge of unemployed youth is to help them develop their skills in entrepreneurship and small business development. Business literacy helps young people to envision ways of getting out of poverty and doing something to help themselves and their communities, and eventually ensuring sustainable economic self-reliance. Furthermore, the language of business is universal and a tool for communicating and exchanging both products and ideas. It opens people to the world of markets, and promotes exchange and interaction.
Social Entrepreneurship 101: Africa
The Sauder School of Business, through a student initiative, designed the Social Entrepreneurship 101: Africa (SE 101: Africa) program to help Kenyan youth develop small businesses. Based on a program designed by Sauder faculty, and piloted with residents in the downtown eastside of Vancouver (the poorest neighborhood in Canada), SE 101: Africa was first delivered in August 2006 to Kenyan youth. The project helped Sauder faculty and students understand how to effectively exchange knowledge and ideas across cultural borders. Through extensive research and support from the Sauder community, the students involved in SE: 101 Africa designed the course to be practical, applicable, and sustainable in the local context.
How I Became Involved
It was in 2008, while I was in my MBA program at the Sauder School of Business at the University of British Columbia (UBC), that I became involved in the Social Entrepreneurship 101 (SE 101): Africa program in Kenya. I wrote a series of blogs about my experiences teaching a three-week business planning class to a group of 35 aspiring youth entrepreneurs in Nairobi, Kenya. In re-reading the blogs, I more fully appreciate how far the program has come along. Indeed, what a difference a year makes.
What a Difference a Year Makes
Upon returning to Vancouver, Canada last year, Professor Nancy Langton and I met with the Dean to discuss the program achievements. While he was pleased with the progress, he wanted to see an expanded three to five year business plan for the program (now that the program had been running for three years) before giving the go-ahead for the 2009 program. We then spent the next few months developing the SE 101 business plan, and presented it to the Dean in December. He liked what he saw in the business plan and consequently allowed us to proceed with the 2009 program.
Professor Langton and I started recruiting the 2009 Sauder team in January and eventually selected a team of 5 undergraduate and 5 MBA students. Starting in February and continuing to July, the team developed and executed fundraising business plans, reviewed, refined, and taught the curriculum, and presented topics about Kenya. Fundraising is always a challenge, and more so this year given the economic downturn but with some creativity and perseverance, the team managed to meet its goal. In late July, we arrived in Nairobi en masse with a mixture of giddish anticipation, trepidation, and clarity of purpose. The first weekend was spent finalizing arrangements and meeting the Strathmore University students who were co-teaching the program at three locations: Kibera (the largest slum in East Africa), Friend’s Church (just outside Kibera), and International Christian Center (also in Nairobi).
Social Entrepreneurship 101: Africa, 2009 Program
I spent the first few days at different sites to help ensure the program got off to a good start, and while there were some issues with the resource materials and logistics, the UBC and Strathmore University student instructors ramped up remarkably well and quickly. I was impressed by their enthusiasm, breadth and depth of knowledge, and creativity in delivering the curriculum to over 80 student participants. Judging from the participant feedback we received at the end of the program, I was not alone in my assessment.
While the team was teaching the business-planning program, Professor Langton and I met with a number of micro-finance institutions and banks, during which we received a crash course about micro-finance. More about what we learned in my next blog.
Posted by Kirby Leong
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