Costs to Client: Week 23 - 23rd - 27th November 2008

At the beginning of the week we were fortunate to have a visit from Sasi Thumuruli from Habitat for Humanity International. Sasi works with the International Housing Finance department and came for a brief visit after having worked with our colleagues at Habitat for Humanity Uganda, who operate a similar housing microfinance program. One of the key discussions we had during his visit was our loan process and the cost to our clients as they go through the process.

Before implementing the MAKAZI BORA housing microfinance program, we used Microfin software to plan and make projections. Microfin includes a component for determining the cost to the client when obtaining a loan. While planning and developing our processes, we were very conscious of how many trips to the office the client would have to make to obtain a MAKAZI BORA loan and then make payments. As things have evolved in practice, however, it seems as though clients are coming to the office much more frequently than originally intended. This is both as a result of process changes that did not effectively take the cost to the client into account, as well as the way in which credit officers have done their assessments and interacted with their clients in practice.

Each time the client comes to the office, it costs very little to Habitat for Humanity and may often reduce our institutional costs. However, it does represent a cost to the client. This cost is both in terms of the cost of transport to arrive at the office as well as the opportunity cost of being away from their income earning activities. The vast majority of our clients earn their livelihoods through the informal sector, so time spent at the office doing something related to their MAKAZI BORA home improvement loan is often time that they are not actively earning income. To provide good customer service, we wish to reduce the cost to client as much as possible.

We are currently working on streamlining some processes, which should streamline our work for both clients and credit officers and reduce costs to the client. We will review the process changes with credit officers and then likely implement some changes to the MAKAZI BORA loan process in January 2010.

The Top Up Problem - Weeks 21 -22: 10th - 21st November 2009

Visit from Africa / Middle East Office

On the 10th - 14th November we were fortunate to have a visitor from Habitat for Humanity International's Africa / Middle East Area Office. Grace Sebageni, Housing Microfinance Coordinator for Habitat's work in Africa and the Middle East, made her first visit to the MAKAZI BORA program. She reviewed our work and conducted field visits to clients with two of the credit officers from the Mbagala Branch. Her visit was primarily an introductory visit, but we will be working with her closely in the future as we work in any needed revisions to the MAKAZI BORA program and product in view of scaling up our services next year and working towards achieving sustainability.

Low Number of Loan Disbursements:

Loans were disbursed during on 12th November, but two clients who had been approved for disbursement had travelled and have not yet received their loans. On the 21st, the Credit Committee approved an additional 21 loans, which are scheduled to be disbursed on 26th November. For the month of November, it appears that we will disburse less than 40 MAKAZI BORA home improvement loans. This is disappointing, because we had hoped and targeted to be disbursing approximately 50 loans per month by November. One challenge was the loss of a credit officer who resigned back in August, but some of the portfolios of the existing credit officers continue to show slower growth than expected. An additional credit officer will likely be needed to reach our annual target of 510 loans disbursed for the pilot period prior to seeking additional captial to scale up the program. We also continue to undertake promotion in newly added wards such as Makangarawe.

The Top Up Problem

Although we continue to be cautious about giving any glowing reports on portfolio health this early in the MAKAZI BORA pilot, so far repayment has been good. Some clients miss their payment, but then pay within a few days and pay a late penalty. So far, we have not had a client go an entire month without making any payment. The few problems we have so far are primarily due to partial payments, which result in the client still being considered late.

Partial payments can be for a number of reasons. Sometimes the clients rounds off the payment and forgets a few hundred shillings. In other cases the client miscalculates the late penalty (1% of total instalment per day late) when paying late. Clients pay directly to our bank account and bring the deposit slip to the office. This reduces the handling of cash and the risk of fraud, embezzlement or theft. The problem, however, comes when the client brings a deposit slip that is not a complete payment and must "top up" their payment. To date, we have been requiring them to return to the bank and make the additional deposit and return with the slip. Obviously, this is a hassle and cost to the client, especially given that the lines at the bank can be VERY long and it is sometimes to top up an amount of the equivalent of less than one US dollar. Not surprisingly, some clients leave the office to go to the bank and deposit their "top up" but don't return to the office on the same day. This leaves us with a partial payment that requires follow-up and added time and costs.

To mitigate this problem, we are considering accepting cash payments of "top ups" up to a small amount at the office and then banking them daily with registration fees collected. We have been trying to avoid cash payment as much as possible for internal control purposes, so it is still under consideration as we try to determine where the root of the problem is coming from and how to address it effectively.

Small Housing Microfinance Loans: Week 20: 2nd - 6th November 2009

SMALLER LOAN AMOUNTS

This week the credit committee approved 17 new loans on Friday. The number of approved loans is still slightly below what we had hoped by week 20 of operations. We had hoped to reach over 150 loans with next week's disbursements, but we will not reach that many until the end of the month. One contributing factor was that the credit officer for Mbagala Kuu was on leave and therefore was not preparing files for submission and approval. Mbagala Kuu is the ward with the highest damand within our operating area, particularly the area of Mtoni Kijichi. It is an established settlement and tends to have people of slightly higher incomes than the other parts of the operating area. As a result, the loans from Mtoni Kijichi are often for the maximum loan amount and for activities such as connecting electricity or cosmetic activities such as putting in ceilings. Without clients from Mbagala Kuu appearing at this week's credit committee meeting, the average loan amount approved was much lower; an average of $594. Only two of the clients had loans for the maximum amount of 1,500,000 shillings.

We are extremely happy with some of the types of loans approved this week. There are several loans for people who are extending their homes to add extra rooms. These are cases in which people built a larger house, but were only abel to roof and occupy part of it.

A MAKAZI BORA loan will make the entire house habitable

There were also several cases of people replacing old roofing sheets with new ones. In order to move into a house, it is not uncommon for people to utilize used roofing sheets to make the work more affordable. These are naturally more prone to leakage and several clients approved this are replacing old roofs with new ones.

A loan for re-roofing will stop leaks

One client who is re-roofing and adding and extra room to his house raises chickens. He originally roofed with a flat roof made with used corrugatd metal sheets, but has since built up gables to make a new and better roof. He has a chicken business about 320 chickens at the moment and he raises them in one room of his small house. This poses both a health threat to the family and he also says that the room is too small for that number of chickens, so he can't expand his business. He says that when he re-roofs we will use the old roof to build a chicken coop outside of the house. He will simultaneously gain extra living space, have a healthier living enviornment and be able to increase his business. This is the kind of housing microfinance that we are proud to offer, as it is clearly making a tangible different in the household's living conditions.

Last month another client applied to extend her house. We now have a policy that we don't give loans for constructing walls. We expect walls to be built before applying for the loan. This shows the commitment of the client to the home improvement project and prevents delays in completing the work after receiving a loan. (Block making and wall construction are some of the slowest aspects of construction.) The client had a foundation and some blocks, but was denied a loan because we required the walls to be built. She said she would come back to us  later and on Friday we reviewed her renewed application and approved it. She had built up the walls and is taking the loan for the roof, doors, windows and floor.

1st Loan Application - Rejected

2nd Loan Application - Approved

(The far left end of the extension was there previously and is an occupied part of the house.)

MAKANGARAWE EXPANSION

During the week promotional activities took place in the ward of Makangarawe. We have just expanded into Makangarawe, which is adjacent to Mbagala Ward. We hope that this will allow us to increase the number of loans approved per month by adding new potential clients. Because our MAKAZI BORA home improvement  loans a relatively small and the costs of assessing construction projects informally earned incomes is costly, a high volume of loans is needed to be sustainable.

HMF Working Group - Week 19: 26th - 30th October 2009

ACTIVITIES DURING THE WEEK

The week opened with promotional activity on Monday. Boaz, Hamida Mwanga (Credit Officer) and I put up MAKAZI BORA posters at shops in Mzinga and Makwata in the Tuangoma Ward. Tuangoma is one of the wards in Hamida's portfolio and demand has been relatively low compared to other parts of the MAKAZI BORA operating area. Unlike previous promotional activities at Kongowe, we did not attempt to collect information on hardware dealers where we placed posters. We simply put up the posters, distributed brochures and spoke to the dealers and potential customers. This made the work go much smoother. The very act of putting up posters and talking to people as we did so seemed to generate some "buzz" in the area about MAKAZI BORA.

Only a few loans were disbursed this week (less than 10). We had hoped to make 50 loan disbursements during the month of October, but will fall slightly short of that target. We had also hoped to recruit an additional credit officer from two credit officer candidates who were trained in early June. The additional credit officer would be assigned to expansion into the Yombo Vituka and Makangarawe Wards. Unfortunately, neither of the trained credit officer candidates accepted the assignment. Boaz is considering expanding into Makangarawe (population +/- 50,000) with an existing credit officer.


HOUSING MICROFINANCE WORKING GROUP
On Thursday evening, Boaz and I met with representatives from the Community Centre for Initiatives (CCI), WAT Human Settlements and the Tanzania Gatsby Trust (TGT). It was an informal meeting to discuss what each organization is doing in terms of housing microfinance. We all have slightly different approaches to housing and housing microfinance, but we have similar objectives and there is potential for collaboration, sharing and learning. We hope to develop into a housing microfinance working group in the future to promote and housing microfinance in Tanzania.

All of the organizations at our informal meeting had attended a housing microfinance conference in Dar es Salaam in May of 2008 and are in the process of implementing or preparing to implement housing microfinance programs. Again, it is always a pleasure to be able to informally discuss housing and housing microfinance with people and organizations that share a similar passion.

A Look at the Scenary - Week 18: 19th - 23rd October 2009

ACTIVITIES DURING THE WEEK:

The head office in Sinza was robbed this week. Thieves broke in on Monday night and took two safes, a bicycle and an old laptop computer. Fortunately, it appears that they were only after cash and did not touch the other computers and equipment. Although they carried the safes off with them, they apparently forced them open while still on the property, because they left us all of the documents and cheque books that had been inside. We are thankful for that!

We had several visitors during the week. A representative from the Bank of Tanzania (BOT) visited our offices to learn about our housing microfinance program. A World Bank funded program is being planned to offer support to the housing finance sector. We also had a visitor on behalf of FinMark Trust, doing research for a study on housing support services within housing microfinance. It is always a pleasure to talk to people who share similar interests in developing the affordable housing finance sector.

On Friday the credit committee met to review applications. Several applications were rejected or returned to the credit officers for further work due to what appeared to be inflated budgets for the proposed work or inconsistencies in the proposed home improvement project. 10 clients had their applications approved for disbursement next week.

A LOOK AT THE SCENARY:
A credit officer making an assessment visit in the area called Kibonde Maji (Charambe Ward) looked out from the plot of the client she was visiting and took a few photos. The photos give a sense of what an expanding informal settlement looks like, with a variety of types of houses at different levels of construction and completedness.

In the photo below, you can see several houses built to roofing level, but not yet roofed. This type of house would be categorized as a completion if it were to receive a MAKAZI BORA home improvement loan for roofing, doors and windows. On the left-hand side slightly up from the bottom of the photograph, there is a house being extended. The extension has not yet reached roofing level. Another house appears in the process of being roofed, with one sheet missing. To the left of and slightly below the almost-roofed house is a is a small house with "teeth" extending from it that has obviously been built in view of extending it later. One house (behind the one with the red roof) looks as though it might have been constructed with previously used roofing sheets. To the right of that house is a two-roomed house that has one room roofed and occupied and the other built to roofing level but not yet roofed.

The photo below is taken from the same location, but looking in a slightly different direction. The first thing of note is apparent income disparity of the dwellers. The house in the foreground has a satelite dish, is painted, has facia board and shuttered windows, which seems to denote a higher income than that of the neighbours. Informal settlements are not homogenous in terms of the income levels of the people who live there.

A small house in the center left appears to be build for extension forward. In front of the house is a plastic structure that is a latrine or bath. Latrines are also visible slightly up the hill, one made of blocks and unroofed with a cloth door and the other made of plastic covering on a stick frame.  In the middle of the photo is a fairly large structure that only has one small room roofed. It may be occupied by the owner, but it might also be someone hired or allowed to stay there to guard the property against encroachment. Next to that on the right is a small, but fairly well completed house, with some blocks saved next to it. The windows, however, appear as though they may be of temporary materials.  In-kind saving of materials can be seen above that house on a plot in the upper right-hand corner. There is some sand in a pile surrounded by blocks to proteck against run-off and some blocks stacked nearby. In fact, there appear to be blocks saved on at least three plots across that level of the hill.

Below are other houses in various states of construction. The houses at the top of the hill on the upper right seem to be older and more established. They may have been the first to settle in the area, while others who came later accessed plots further down the slop of the hill.

The photo used as the banner for this posting is from the same area. The cropped version below shows two small one-roomed houses that appear to be designed for expansion by building another room in between. This is an unusual method of extending, as extension is usually off the side of the house or extending forward or backward. (Verticle extension is not common among low income households in Dar es Salaam.)

None of the houses in the photographs belong to MAKAZI BORA clients. They are the view from the house of one of our clients and clearly show the environment in which we work.

Updated Stats: Week 17: 12th - 16th October 2009

The owner of this house received a loan this week that includes a door.

ACTIVITIES DURING THE WEEK

It is a disbursement week, so the early part of the week was used in preparing loan agreements and calling in clients approved last week to pay their insurance and security deposits and then sign their agreements. Because Wednesday was a national holiday (in remembrance of Julius Nyerere, the first president of Tanzania), cheque processing took place on Thursday and loans were disbursed on Friday morning. Verification and client assessments were also taking place throughout the week.

After our first quarter of operating the MAKAZI BORA pilot, reports were prepared for Habitat for Humanity International. Much work went into reconciliation of manual loan tracking records at Mbagala Branch and the computerized accounting program at the head office. The reconciliations were successful, but we look forward to having a computerized loan tracking system in the near future to facilitate the work of reconciliation as well as prompt follow-up of clients.

UPDATED STATISTICS:

As of 16th October 2009, we have 116 active clients at the Mbagala Branch. Here are some summary statistics:

1. Average Loan Amount: 1,101,987 shillings (+/- $830)

2. Average Loan Period: 16 months

3. Portfolio at Risk: 0%*

4. Repayment Rate (Current) at at 30th September: 98.8%*

5. Percentage of Women Clients: 55%*

6. Average Household Per Capita Income in US Dollar Equivalent: $2.24*

7. Break Down of Loan Uses:

• 
  
  Auxiliary Structures: 9%
  
  
  
• 
  
  Completions: 24%
  
  
  
• 
  
  Fininishing: 53%
  
  
  
• 
  
  Repairs: 12%
  
  
  
• 
  
  Extensions: 2%
  
  
  

COMMENTS ON STATISTICS:

• 
  
  Loan Period: Loan periods can be for 6 months, 12 months, 18 months or 24 months as per the clients choice after viewing the various pricing options. The most common loan period selected is 12 months.
  
  
  
• 
  
  Portfolio at Risk: The current portfolio at risk (30 days) is truly 0%, but it is still too much early to be taken as an indicator that can reliably predict future performance.
  
  
  
• 
  
  Repayment Rate Current: Some clients have missed their payments, but paid promptly when followed up, (sometimes through their guarantors or spouses). Only one client was behind in payment at the close of September. This was due to a conflict over his verification status. We considered his loan as diverted and he considered it as verified and paid at the verified rate. This resulted in an incomplete payment against his repayment schedule that uses the diverted rate. It is a problem in which we are partially (or maybe even largely) to blame and we are taking steps to avoid it in the future.
  
  
  
• 
  
  Percentage of Women Clients: This has remained remarkably consistent within a few percentage points. We have not specifically targeted women with the product, but women who hear about it seem to come back bringing their friends. This indicator is for women clients, which is not necessaily women headed households. Some are married, but presented themselves as the clients.
  
  
  
• 
  
  Per Capita Household Income in Dollar Equivalent: These figures are still experimental and should be considered very rough estimates rather than accurate calculations. The degree of reliabiilty is still very uncertain.
  
  
  
• 
  
  Loan Uses: Finishing (new work done on an occupied house) continues to be the most common loan use. Extension is the least common, but there have been problems in classifying extensions. At times extensions have been classified as finishing or completion based on the level of work already done to the extension at the time of assessment. Given our loan use criteria as they have developed,  extension may no longer be a relevant loan use category. If we find the extension walls there and the extension is not occupied, it is often being counted as completion. If the extension is an unfinished part of the house that is somehow occupied, it is counted as finishing.
  
  
  

Promotion: Week 16: 5th - 9th October 2009

Activities During the Week:

The credit committee met on Friday and reviewed 15 applications. 13 of the applications were approved for disbursement the following week. The average loan amount appoved during the week was TSH 1,070,000 or approximately $790. Four of the clients were approved for the maximum loan amount of 1,500,000, but the other had loan amounts of 1,000,000 or less.

The approved clients had a wide variety of income sources, including selling cloth, raising livestock, small business, catering, decorating for special events and others. Several of the clients were widows or represented women-headed households. The next credit committee meeting will be on 23rd October. We expect that October may be our first month to disburse 50 or more home improvement loans.

MAKAZI BORA posters were received from our printers and several were displayed at hardware stores in Kongowe, in Tuangoma Ward. The posters will be used for a coming promotional campaign.

PROMOTION CAMPAIGN:

The Need for Promotion:
Because MAKAZI BORA loans are relatively small, a large volume of loans are needed on a consistent basis to achieve operational self sustainability and cover all operating costs. In these early stages of the MAKAZI BORA pilot, one of our fears was that demand might overwhelm our capacity to meet it, which could result in dissatisfied customers, poor lending and overall weak performance. In these first few months, we have relied primarily on word of mouth and distributing some brochures as a means of promoting the MAKAZI BORA product. This was successful in getting started and still bring an ever-increasing numer of clients. A good product and good service seems to sell itself to a large extent and we continue to see "volunteer promoters" who bring their friends to hear about MAKAZI BORA.

Although the number of new clients per month continues to grow, we are beginning to look into the future when we will need a larger volume. Various means of promotion could assist in attracting more clients who have not yet heard of the MAKAZI BORA home improvement loan. With that in mind, we have decided to begin a promotional campaign with the objective of increasing the number of new clients within our current operating area, especially towards the end of this year and into the beginning of next year.

The Poster:

Although calling it a campaign might be an exaggeration, we have started a promotional exercise of distributing MAKAZI BORA posters. The poster prominently displays the MAKAZI BORA logo, which we are in the process of registering as a trademark of Habitat for Humanity Tanzania with the slogan: "The loan for improving your house."  It lists the general loan uses along the side: Completion, Finishing, Extension, Repairs, Auxiliary Structures and has photos of people working on houses and some smiling faces. The loan amounts are included, which is designed to let people know that they can get loans for  small home improvement activities, but also to let people know that the maximum loan amount is relatively small and is not targeted to very large construction projects. The poster includes the Mbagala Office contact information and the physical location of the office, with the assumption that many people will simply come to the office for a visit. The poster is colorful and attractive and hopefully will generate some interest.

The Target Locations:

The promotion exercise targest hardware and construction supply dealers in the MAKAZI BORA operating area. An attempt will be made to work with construction supply dealers as potential promoters of the MAKAZI BORA home improvement loan. Construction Supply dealers potentially could be good partners in promotion, because:

• The MAKAZI BORA loan is for pre-existing home improvement projects. Our target is people who are already in building process and therefore purchasing, have purchased or thought about purchasing materials. They are likely to already be frequenting their local dealers of building supplies.
• Independent dealers of building supplies tend to follow the market and are located close to where people are building. Small construction supply shops are in a sense a proxy indicator for the home improvement market.
• The MAKAZI BORA loan is disbursed in cash for the purchase of construction supplies and services. Dealers of construction supplies have a mutual interest with Habitat for Humanity in that people with home improvement projects in their area who obtain MAKAZI BORA loans are likely to buy supplies from them and increase sales.
• Shops are not only places for the purchase of goods, but serve as areas for discussions, exchange of ideas and social interaction. An informed shop keeper has multiple opportunities to explain and promote the MAKAZI BORA loan in his/her area.
• Attractive posters at construction supply shops may attract potential customers for the shop keeper.

Promotion Methodolgy:
MAKAZI BORA staff will visit construction supply shops in the MAKAZI BORA operating area and do the following:

• Provide the shop owner / manager with a letter introducing MAKAZI BORA.
• Explain the MAKAZI BORA loan product and initiative to the shop owner / manager.
• Ask the shop owner / manager if he or she would like some promotional items and be willing to inform customers about the availability of MAKAZI BORA loans.
• Provide the shop owner / manager with a MAKAZI BORA poster for display
• Provide the shop owner / manager with at least 20 MAKAZI BORA brochures.
• Provide a MAKAZI BORA t-shirt to shop keepers / manager with large stores that include cement and iron sheets among the products sold.
• Take down information about the shop using the PROMOTIONAL ACTIVITIES WITH CONSTRUCTION SERVICE SUPPLIERS form.
• Take the GPS coordinates of the shop.
• Take a photo of the shop if permitted
• Enter GPS coordinates and shop name into Google Earth for Reference.
• Create a booklet of participating shops in the operating area.

The idea is that the promotional activities could also lead to having a list of construction supply dealers in the area; something like a construction supply and support service directory. This could be used to direct clients who are looking for materials and also to verify the current prices of materials in the various parts of our operating area when reviewing client budgets. We could even promote a Construction Supply Dealer of the Month in the Mbagala Branch Office, with a photo of the shop and list of items sold. Working with construction supply dealers could be a win-win-win situation for Habitat, the dealers and clients.

A Dose of Reality:

We had set Tuesday 6th October as a full day for trying out the promotional exercise. Unfortunately, the printers failed to deliver the posters as promised and we did not get them until the morning of 8th October.  Boaz and I decided to go out in the field in the afternoon to try out our promotion methodology. Boaz thought that Kongowe (within Tuangoma Ward) would be a good place to start, because we have had very few clients from that area, despite apparent construction activity taking place. We boarded a bus at Rangi 3 (near the Mbagala Branch Office) and took a short ride to Kongowe to start off our promotion exercise.

At most of the shops we visited, we did not find the owners. After explaining why we were there and telling them about the MAKAZI BORA product and our potential mutual interests, the people working at the shops were more than willing to let us put up a poster or two. At one shop, we were even told to put our poster over top of a faded poster for a popular cell phone network. Putting up posters at shops was apparently not going to be a problem.

When it came to recording information about the shop or taking a photo, however, it was a completely different story. We had some simple forms to record some very basic information such as the name of the shop, where it is located, the name of the owner, a contact number, the types of materials sold and they types and quantities of promotional materials we left there. Most of the employees became immediately suspicious of providing any information or even allowing us to write down what we could visibly see with our eyes. They also would not let us take a photo of the shop showing the poster. "Unless the boss is here..." was the standard answer. Some shops did not even think they could take brochures in the absence of the boss. Posters are going to work fine, but the wider initiative may take a lot more work and time than originally expected, if it will even work at all.

Going Forward:
To get the promotional materials out in the targeted areas, it may be necessary to separate the distribution of posters from a wider partnership and creation of something like a construction support directory. It might just take too much time to get the information in cases where "the boss" is not available at the shop when visited. We have also thought of providing posters to our clients who have shops in the operating area, whether construction supply shops or not. Many are small business owners and would likely be willing to display the poster. As clients, they are also able to explain the product to others. The key will be ensuring that our clients have a positive experience to relate.

Loan Disbursement - Week 15: 28th September - 2nd October 2009

The week was a normal work week for MAKAZI BORA. It was a loan disbursement week (disbursements now take place every two weeks).  There was a lot of work involved in getting out the loans that were approved at the previous week’s credit committee meeting. Thursday was disbursement day, which meant heavy activity for Boaz and Irene at the MAKAZI BORA office. Credit officers were out in the field verifying loan use for home improvement loans that had been disbursed the previous month.

Boaz at the Mbagala Office

 

Loan disbursement is quite a process with an inherent challenge between trying to deliver reasonably quick service to the client after approval and having adequate internal controls. We are dealing with money, which can lead to all kinds of problems from fraud to mistakes that can erode the trust that is a foundation in a credit relationship. MAKAZI BORA loans are disbursed as cash checks written in the name of the client. MAKAZI BORA staff does not handle cash in disbursement or collection of loans. This is how the process works as soon as the loans are approved:

Friday: The credit committee meets and approves loans. Clients are contacted almost immediately to inform them of the status of their loan application and when to come to the office. Before the credit committee meeting takes place, clients have already negotiated loan terms, learned procedures and been advised of what they will need to do in the event that their loans are approved.

Theresia, Irene and Osnery during a Credit Committee Meeting

Monday: Loan agreements and repayment schedules are prepared and a letter of offer is prepared for the client that includes the terms of the loans and the specific amounts needed for an insurance payment (1% of the principal per annum) and a security deposit (8%) of the principal prior to disbursement. This is a formality, but keeps a clear and transparent record of the agreed upon terms. Clients make their payments into the bank and bring deposit slips as proof of payment on the day of signing loan agreements.

Tuesday: Clients arrive at the office to present their deposit slips for insurance and security deposit payments and review and sign their agreements. There is often a client or two who is not yet ready with the deposit or has travelled or is otherwise not available. Requisition forms are prepared by Irene (the Administrative Assistant) for each loan disbursement and approved by Boaz (Program Manager) and then sent from the Mbagala Branch Office to the National Office in Sinza (slightly over 30 kilometers away by road in another part of Dar es Salaam).

Wednesday: The check requisitions are reviewed by Osnery (accountant) and then signed and passed to me (Scott). I review the agreements and payment schedules against the approved applications and requisitions and then start signing. Two copies of each loan agreement are signed and initialed on each page and the requisition forms are signed. These are then passed on to Pamella (National Office Secretary) who is the custodian and writer of checks. She writes out all of the checks based on the requisitions and puts the check numbers into the requisition forms as a reference. The checks then come to me for signing. A check confirmation list is also prepared for the bank, indicating each check, the amount the client name and client identification number. The signed checks, check listing and files are then sent back to Mbagala.

Writing the Loan Disbursement Checks

Thursday: Boaz signs his portion of the checks first thing in the morning, Irene takes the check listing to the bank and then clients begin to arrive to receive their loan disbursements. As checks are handed over to the clients, they sign a check disbursement voucher that is returned to the head office as proof that the check was actually disbursed. Clients take their checks to the bank, present their MAKAZI BORA identity card that matches the client number indicated on the check and the check listing and they receive their loan in cash from the bank teller and then proceed to get started with their home improvement project.

That’s how everything is supposed to work. Aside from common delays from a client or two in coming in to sign their contracts, we also are still prone to make mistakes. Sometimes the wrong client number has been written on a cheque, creating a problem for the client at the bank. Other times a requisition has not arrived at the head office with the associated client file. This week, I signed everything for one client but somehow missed the actual check and sent an unsigned check back to Mbagala. This meant that the client arrived at the branch office, but could not receive the loan disbursement. We tried to rush over to the Mbagala branch office to solve the problem, but the first rain in many months rained locally exactly in between Sinza and Mbagala, creating a huge traffic jam and the inability to respond in a timely manner as soon as the problem was discovered. The client ended up coming back to receive the check on Friday, which was poor customer service our part.

Prevention is better than cure.

An unexpected rain caused traffic jams that prevented

 a quick reponse to a glitch in the loan disbursement process

 for one client on Thursday.

Small mistakes like a missed signature happen, but they represent an aggravation and cost to the client who has to spend additional time away from their income generating activities as well as bear the cost of coming to the office one more time than necessary. As gracious and understanding as the clients can be, we owe it to them to give them the best possible service and put in an extra review of the final documents to ensure that everything will be ready when they arrive for their loan disbursement. That loan disbursement represents a critical part of our core business processes as well as the next stage in client’s housing process. Despite hiccups like my missed signature on a check this week, our professionalism continues to improve in handling these critical transactions as we head into our second quarter of MAKAZI BORA operations. We are seeing progress and improvement, but must remain focused on service to our clients.

100th Loan Approved - Week 14: 21st - 25th September 2009

MAKAZI BORA crossed two milestones in week 14. The 200th client was registered and the week was finished with 216 MAKAZI BORA clients. Registration gives the client a number, identity card, welcome packet and all the forms necessary to apply for a MAKAZI BORA loan. Clients are not considered active clients, however, unless they have received a loan and have an outstanding loan balance.

Also during week 14, the 100th loan was approved within a group of 22 loans that were approved by the credit committee on Friday 25th September. A total of 102 loans have been approved since the doors opened on 22nd June. Not all of these loans have been disbursed yet. The proposed disbursement date for the 22 loans approved on 25th September is on the 1st of October. Clients have been notified to come and sign loan agreements and will have to make an insurance payment and security deposit prior to having their loans processed and disbursed. One client who had a loan approved at a previous credit committee meeting travelled and has yet to have the loan disbursed. Approval does not necessarily mean immediate disbursement.

Within the loans approved in week 14 was a new loan use under the loan use category of finishing. One client is using the loan to have a water connection from a private water supplier. We have had several electricity connections and quite a few loans for septic tanks and latrines, but this was our first water connection. Water, sanitation and utility upgrades are important improvements in a household's living conditions.

Habitat Forum Tanzania - Week 13: 14th - 18th September 2009

24 new loans were disbursed during week 13, for a total of 29,400,000 shillings. (One approved client travelled out of Dar es Salaam and could not have the loan disbursed during the week.) The loans ranged from the lowest possible loan amount (TSH 200,000) to the maximum loan amount of 1,500,000. A large majority of the loans, 16 loans, were for the maximum amount. This continues to be a somewhat disturbing trend, as our hope is to disburse more loans of lower amounts that are affordable to households of lower incomes. We will continue to study and try to influence this trend, first through promotional efforts, but later through possible product or process design changes following evaluation of the MAKAZI BORA program early next year.

Habitat for Humanity Tanzania participated in a meeting of the Habitat Forum Tanzania (HAFOTA) on 17th and 18th September. HAFOTA is a forum of organizations and individuals who seek to promote an enabling environment for affordable housing. Other HAFOTA members include WAT Human Settlements Trust, Housing Development Society of Tanzania, Centre for Community Initiative, Mwanza Rural Housing Program, various housing cooperative groups and others.

The meeting included presentations by the Ministry of Land, Housing and Human Settlements Development on the Unit Titles Act (16) of 2008 and the Mortgage Financing Act (17) of 2008. The mortgage financing act is the first mortgage financing law in Tanzania, which is an indication of the level of development of housing finance in the country. It is a positive step forward in providing an enabling environment for housing finance. Other presentations included papers on mainstreaming gender in housing and a rights based approach to housing.

HAFOTA's Objectives are:

1. To engage and lobby the government at all levels to make shelter issues a priority on the national development agenda and to create an enabling environment for the housing sector.

2. To promote adequate and affordable shelter for all, especially low income groups, by joining and coordinating efforts of members and other stakeholders involved in the development of human settlements.

3. To coordinate, lobby and advocate stakeholders' burning issues on affordable and secure shelter.

4. To disseminate and share information among members on credit facilities, security of tenure, policies and laws, and technological  issues related to shelter delivery.

5. To create awareness to the general public on secure tenure, acccess to credit facilities, policies and laws, cooperative building societies, appropriate materials and technology, empowerment and mainstreaming gender and environment in relation to shelter delivery and human settlement.

6. To document best practices on housing access and land and make these documents available for reference and information sharing.

7. To network and collaborate with organizations with similar objectives and aspirations for adequate housing and land development.

8. To advocate for realistic standards and regulations for adequate housing and land development.

9. To encourage the formation of cooperative building societies as a tool for mass mobilization in realizing the Forum's mission.

10. To encourage policies that foster self-reliance, sense of ownership, citizenship and national empowerment through increasing community participation in good governance, decision-making and implementation.

Early Statistics - Week 12: 7th - 11th September 2009

Verification of some of the loans disbursed that were in August took place during the week. One client who is had taken a loan of 370,000 shillings (+/- $275) to do work on a toilet and put doors and windows on a house that is not yet occupied. He completed the work, having bought used doors and windows that he could afford. The client worked within his means to achieve his objective of closing the structure with a MAKAZI BORA loan. During the same verification exercises, another client had put in doors and windows valued up to 250,000 shillings each. The same loan product serves people of different income levels in their housing processes.

The credit committee met on Friday and 25 loans were approved for disbursement in week 13. It was decided that due to the intensity of the process of approving and disbursing loans, they would be disbursed twice per month instead of on a weekly basis.

Also during the week, we worked on some analysis of the first 55 loans disbursed (not inclusive of the 25 approved on Friday 11th September). It is still very early in the program, so we do not expect the data to necessarily be conclusive. Furthermore, we are still working on improving the accuracy of income assessments and are under the belief that many of the early assessments had overstated business income. Here are some of our first findings, to be upgraded in the future as we continue to disburse home improvement loans and collect data on our clients, the loans and our performance.

(click on graph for enlarged version)

The majority of the first 55 clients (57%) were women. Some, but not all, were women-headed households. The households of our female clients had slightly higher incomes than the households of our male clients. This is not necessarily representative of anything, but it is simply a surprising observation within the set of our first clients.

Household income is tracked as per capita household income per day in dollar equivalent using 5 categories that range from $1.00 and less to over $5.00. Our target is to have less than 20% of clients in the Over $5.00 per day category. Within the first 55 loans, we had 40% of clients in this category, with diminshing amounts with each category as income levels decreased. Part of the problem may be overstated incomes, but a significant number of clients appear to be relatively more wealthy and established than our general target. Many of these are coming for loans to connect to electricity. We will continue to monitor these trends. Next year we will be revising the product and may need to make adjustments to ensure that we are serving a low income target group.

So far the majority of loans have been finishing. Finishing is new work undertaken on a house that is already occupied. The second most common loan use has been completion: New work on a house that is not yet occupied. Completion loans tend to be for roofing, doors and windows, while finishing takes on a variety of uses such as ceilings, floors, plastering walls, connecting to electricity, etc.

Clients are able to choose their own loan periods as loan as the proposed loan amount falls within affordability limits. Because the interest rate is flat, a longer loan period means that the client pays more interest over the cost of the loan. Shorter loans result in less total interest paid, but because the principal is divided among fewer months, the monthly installments are usually higher. Clients study tables to see the costs of various loan amounts at different loan periods. Each of the four possible loan periods (6 months, 12 months, 18 months or 24 months) was chosen by various clients, with 12 months being the most common.

It is too early to tell if these trends will be representative of MAKAZI BORA's future. We hope to present more analysis on a regular basis in the future.

Chairperson Visit and Diverted Loans - Weeks 8 - 11: 10th August - 4th September 2009

The BOARD CHAIRPERSON discusses MAKAZI BORA with Boaz in the Mbagala Office.

It has been some time since we posted an update. During the period from 8th August, we were fortunate to have a visit from Dorothy Massawe, the board chairperson of Habitat for Humanity Tanzania. She visited the Mbagalal Office to meet with the staff, some clients and to see first hand how the program was going. Afterwards, she reported to the rest of the board.

On the not so positive side, one of the credit officers resigned. Her portfolio was divided among two other credit officers and we have not yet engaged a new one. While staff turnover is a fact of life and part of business, this was unexpected so early after start-up.

As of the close of week 11, the total number of registered clients are over 175. Out of these registered clients, 55 have received MAKAZI BORA home improvement loans and others have applications in process. It appears that most clients are ready to begin the process of obtaining a loan soon after registration. Although we are happy with the 55 loans disbursed so far, our short-term target is to increase loan disbursement to 50 loans per month. To achieve this, we may have to expand into several additional wards in Temeke Municipality. We are currently working in Azimio, Chamazi, Charambe, Kibada, Mbagala, Mbagala Kuu, Mtoni and Tuangoma.

The first group of loans has gone through the loan verification process. 4 loan were considered "diverted" and will continue to attract a higher interest rate instead of being discounted after having loan use verified. Two of these diverted loans were for electricity connections. Our indicator to have loan use verified was that electricity is connected. Unfortunately, TANESCO (Tanzania Electric Supply Company) was unable to install the electricity in the 30 days given for the work to be done. We are considering accepting a receipt from TANESCO for payment for the installation as evidence of loan use and allowing the client to have the discounted interest rate that goes with loan use verification.

Two other clients were also considered to have diverted loans. One failed to roof his house in the given time, saying that he had been waiting for a builder from Tanga Region who disappointed him. Another did only part of the work agreed upon, which appeared to be a deliberate loan diversion. Both of these clients remain with the punitively high interest rates. Our objective, however, is to see the home improvement completed and we will allow a second-chance verification after six months.

The clients who had their loans disbursed in July made their first payments in August. There is a one month grace period on principal, so the August payments were interest-only payments. The first complete installments will be paid in September. As at the close of August, all clients were current on their payments. This is a good start, but there will still be challenges ahead.

The Board Chair visiting the Mbagala Office

Loan Use Verification

Above are some of pictures showing house projects before and after loan.


Last week, we started verifying loans to determine if were used for intended purposes. Four loans were scheduled for verification during the week. The loan verification is done by a different credit officer from one promoted the loan. The verification results were good, though one client didn’t complete his project in the given time, hence his loan was declared diverted. The other three borrowers completed their projects as indicated in their loan proposals. Three loans that passed verification were discounted from paying 5% interest per month to 2.5 % per month

Interestingly one client came to our office to ask her loan to be verified before her due date. This happened because the client wanted to travel outside Dar, she wanted to make payment before she left. However, there were some problems for clients who took loan for electricity connection. Although, all of them paid connection fee but the power company could not install electricity on time.

The Discount Principle at Work: Week 7: 3rd - 7th August 2009

During week 7 of operations, 8 new loans were disbursed, bringing the total active loans to 29. 2 additional loans have been approved and processed, but have not yet been disbursed. One of the clients traveled out of town and the other is still preparing the security deposit and loan insurance payment that must be made prior to disbursement. The credit committee approved 8 loans for disbursement next week.

1 application was not approved by the credit committee due to an issue related to ownership of the plot of land on which the house is located. The plot belonged to the client's late father and has been inherited by the children. There is documentation showing the transfer of title through inheritance, but the title is in the name of the sister of the client, who is married and lives with her family at another location. Property related to inheritance can cause problems and family disputes which could pose a risk to the loan. Had the sister been a guarantor for the loan, we probably would have approved the application. (The application was otherwise acceptable.) In the end, we returned the client's file to the credit officer and asked for a letter from the sister stamped by local government officials and acknowledging that she approves of the work to be done on the house by the client. With that letter, we would feel secure enough to approve the loan at a future credit committee sitting.

The first group of clients who had their loans disbursed in July are in the process of finishing their home improvements. To ensure that MAKAZI BORA loans are used for housing purposes, loans are disbursed at a higher than market interest rate. Prior to disbursement, pre-loan photos are taken of the house and specific parts of the house on which the home improvement is to be done. The client and the credit officer agree on exactly what work is expected with the loan. Within 30 days after disbursement, another credit officer visits the site to see if the work has been completed and takes post-loan photos. If the work was completed according to plan, the interest rate is discounted significantly.

Clients understand the discount principle well. Some of the first group of clients that had their loans disbursed in July have been calling the office to have their loan use verified. They say that they do not want the repayment schedule upon which the loan was disbursed, but want to redeem it to receive a new repayment schedule with the discounted interest rate. That is the whole objective of the mechanism and it should help ensure that Habitat's housing microfinance program results in home improvements.

One client came to the office to ask for leniency on the loan verification process. He received a loan for connecting electricity, but there were some complications from TANESCO (Tanzania Electric Supply Corporation) and the work has not yet been completed. He realizes that his loan may be classified as a diverted loan, because the indicator for verified loan use was that there is electricity in the house. After discussion, we decided not allow leniency in loan use verification, because there are always likely to be various delays, etc., which can quickly give room to excuses for non-completion of work and the collapse of the two-tiered interest rate system that is designed to ensure loans are applied to home improvement purposes. We may give an option of having a second verification after 6 months and adjusting the loan at that time for those who were unable to comply with the initial verification. We want to be fair, while ensuring that the home improvement has been made with the loan.

Promotion started in the wards of Azimio and Mtoni. Because the cost of lending is high and the margin of revenue earned on each loan is very small, the MAKAZI BORA housing microfinance program can only break even and become sustainable by achieving volume. Credit officers who have not had many clients to date are having their operating areas expanded and spending more time in the field on promotion. An additional promotional campaign will start in September, which may include MAKAZI BORA posters at hardware dealers and other strategic locations.

Client businesses have proved interesting. One client provides food for a workers cashew nut processing factory in the area. Several sell kitenge (African cloth worn primarily by women) on credit. Some sell pre-paid cell phone cards, both retail and wholesale. Many have businesses that are located at or near their homes.

HOME BASED BUSINESS: Looking out from a window that one client wishes to repair as part of the work with a MAKAZI BORA loan, one of the client's businesses is visible just outside. The client also sells charcoal from another location. Many clients have multiple small businesses, which increases income and adds security to their household income. (Don't put all your eggs in one basket.)