First Full Month's Status - Week 6: 27th - 31st July

July was our first full month of operations. As at the close of the month we have nearly 90 clients registered and disbursed 21 MAKAZI BORA home improvement loans. We also tested "a manage your own construction" workshop on the 31st. The credit committee sat on the 31st and approved 9 loans for disbursement during the first week in August.

At at the close of July:

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  11 of the active clients are men and 10 are women.
  
  
  
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  The average loan amount is 930,952 shillings (+ / - $690)
  
  
  
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  The most common loan use is "finishing" (new work done on a house that is occupied). This corresponds to a type of incremental building in which the dweller completes a house to the bare minimum they require for occupation and then slowly finish it as the live inside. 9 out of 21 loans were for this purpose.
  
  
  
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  6 loans for were "completions" (work on a new house that is not yet occuied), 3 loans were repairs, 2 were auxiliary structures and 1 was an extension.
  
  
  
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  7 loans were disbursed to clients living in Mbagala Kuu Ward, 6 in Charambe, 3 each in Mbagala and Chamazi and 2 in Tuangoma.
  
  
  

Although there is still some question on the accuracy of some of the income assessments (clients appear to be overstating their income and understating expense), 2 clients have a per capita household income of the equivalent of $1.01 - $2.00 per month, 5 fall in the $2.01 - $3.00 per capita range, 5 at $3.01 - $5.00 per capita and 9 over $5.00. Although some of the last category of over $5.00 per capita per day household income certainly have lower incomes, the first month's disbursements had nearly 50% of clients with incomes our target group. We will continue to monitor this and continue to try to improve the accuracy of our income assessments.

Irene Assey and Osnery Chankumpa review a file during a credit committee meeting.


Dorica Fungo, Construction Techncial Assistance intern, presents a workshop and booklet on managing your own construction process.

Rejected Loan Applications - Week 5: 20th - 24th July 2009

Minor adjustments continued to be made to various forms, such as the introduction of the client number into the loan agreement. Credit officers began using feedback forms with their clients. No official complaints have been lodged by clients yet, but these will certainly come eventually. A suggestion box was put on the veranda of the office as per one means for feedback that was communicated to clients in their welcome packets.

Mbagala Branch Office with the new suggestion box next to the door on the right.

Several loans were rejected by the credit committee. One was because of lack of a visible project. The client wanted to extend his house and build a wall, but the proposed project started with the purchase of blocks and there was no visible work done at all. He might have used the loan as intended, but we believed that it was at high risk of diversion and recommended that he advance his project first. We are sticking by a decision not to have the purchase of blocks as part of the loan for completions, extensions and auxiliary structures. These are commonly collected as in-kind savings and it is reasonable to expect the clients to advance their project to wall plate level prior to the introduction of a home improvement loan.

Another loan was rejected due to over-indebtedness. The client could afford the MAKAZI BORA loan according to our calculations, but he had an outstanding loan with a bank. The two loans together would have required monthly payments exceeding 60% of his gross income. This was too risky for Habitat and also too much strain on the household and was rejected. We advised him to apply again after paying off his bank loan if he still desires the MAKAZI BORA loan.

The only handheld GPS unit had been used by interns mapping construction support services in the operational area. With their work finished, the GPS unit was used to record the position of clients' houses for the first time. These will be entered into a Google Earth satelite photo of the area to allow us to identify the location of our clients and study any patterns in loan distribution.

The portfolio for Mbagala Ward is not resultng in many clients, despite its high density. It is a fairly well-established settlement with minimal construction activity. We decided to add Azimio Ward to the Mbagala Credit Officer's portfolio starting the following week.

Magdelena was the first credit officer to use the GPS unit to record the position of a house in Chamazi during a loan assessment.

First Disbursements Made - Week 4: 13th - 17th July 2009

Glory at her desk with her MAKAZI BORA work tools: calculator, credit officer's guide to loan cost, brochures, phone and client files.

The first three MAKAZI BORA loans were disbursed, giving a portfolio of 3 million shillings. The average loan amount for the first set of disbursements was 1,000,000 shillings (+/- $740). All three loans were in the loan use category of “completion,” being for completion of an unoccupied structure. Information was obtained that the loan that was rejected outright the previous week because it lacked a visibly active home improvement project was the husband of a defaulter from the previous Habitat program. Rejecting the application appears to have been the right thing to do, as it was likely to have been a bad loan.

Credit Officers were verbally reporting some comments made by clients, but there were not complaint or feedback forms documenting them. The system is not yet functional and credit officers were encouraged to use the complaint forms as per procedure when any registered client has something to say. The credit officer can fill it out and have the client sign it.

There were a number of guarantors from the first loans that now want to apply themselves. This is against policy and the guarantor form (in Kiswahili) clearly states that guarantors of an active loan cannot apply for a loan themselves until the loan they are guaranteeing is paid off. We almost had a circle of clients guaranteeing each other, but stood firm on the policy. If a guarantor wants a loan, the client for whom he or she is guaranteeing should get a suitable replacement and remove the guarantor – or the guarantor can wait.

During the first credit committee meeting, it became apparent the income assessment was not rigorous. It looked as if the credit officers were just writing down whatever the clients said. We had asked them to provide notes on how they calculated income and expense, but these were still not sufficient. We will begin to make worksheets for calculating income for different types of businesses based on the nature of the business. If the client is a charcoal seller, the credit officer will use the charcoal seller worksheet, etc.

I (Scott) appear to have been the first person to violate the Client Principles. In our Habitat for Humanity Tanzania newsletter, I put a few very brief profiles of homeowners to demonstrate the types of home improvements we will be supporting and the types of clients. I included a photo of clients and the approximate loan amount. It seemed to me afterwards, however, that this is a violation of our client principles of dignity and protection of client information. Maybe the client doesn’t want people knowing the size of his or her loan! This was a mistake. As a result, we decided to make some changes to our application form, which is the only form that had been in English. We translated it into Kiswahili and put in a section in which the clients could indicate whether we have permission to use their photos for promotional or reporting purposes. We will just have to remember to check on the files before using clients photos, including in MAKAZI BORA DIARY!

First Clients Approved - Week 3: 6th - 10th July 2009

The number of information sessions decreased significantly this week, down to 57. Only 9 new clients were registered. After peer review by the credit officers, 5 applications were passed on to a credit committee for approval. The committee currently consists of the National Director, Program Manager, Administrative Assistance and Accountant. The composition will change as the organization develops and there are more layers of staff.

Only 3 of the applications were approved. One was sent back to the credit officer because it did not have sufficient collateral and guarantees. The client’s proposed loan amount was close to our upper level of affordability, but was still within the limits. We returned the application to the credit officer to have the client find a guarantor to guarantee the difference between her chattel and the exposed loan amount and then resubmit because it was otherwise acceptable.

The rejected application was for repairing cracks in a wall, putting in a ceiling and building a kitchen. This application was the subject of much discussion. First, the cracks were a symptom of a larger problem. We would have like to have a report on how the builder assessed and proposed to fix the root cause of the cracks rather than just fill them. Secondly, we didn’t see any evidence of a viable project in terms of a kitchen or ceiling project. We looked at pre-loan photos and there were no blocks saved, no foundation or walls built and no other evidence of a home improvement in progress. It gave every indication of someone who heard about a loan and came to apply even though he was not actually engaging in an active home improvement plan. This seemed like a high risk for loan diversion and was rejected outright.

Now having approved clients, we wished we had some kind of form or invoice to inform the clients that they had been approved, should come and sign loan agreements and make specific payments into our bank account for the loan insurance and security deposit. This was an oversight when we were developing forms. An offer letter was developed. It once again explains the terms of the loan and gives instructions to the client for depositing the security deposit and insurance payment. As we get ready for our first disbursements next week, we met with the bank manager where our checks to clients will be cashed to ensure that we are on the same page about the procedure so that the clients do not have any problems. Clients will present their ID cards when they cash their checks and the client numbers will be written on the checks.

"Our Neighbourhood:" The view from the Mbagala Branch Office's front porch. To the far left is a restaurant, followed by a donought seller, fruit stand, a video parlor (cinema), general shop and phone dealer.

Volunteer Promoters - Week 2: 25th June - 3rd July 2009

93 people came in during the week and 16 new clients were registered. There seem to be a lot of clients coming from Charambe, which is an expanding informal settlement in which the office is located. Mbagala and Tuangoma have had the fewest registered clients. Mbagala is an established informal settlement that our interns working on a construction technical assistance survey indicate has limited construction activity taking place. If there is insufficient demand in Mbagala, we may expand the portfolio of the Mbagala credit officer’s to include a second, adjoining ward. Tuangoma has also had few registrations. It is a predominantly rural ward.

We have noticed that continued prevalence of “volunteer promoters” coming back with friends. Client relations should continue to be a focus. We have client principles and if we can implement them well we hope that the number of clients giving positive promotion about MAKAZI BORA will outnumber those who have complaints or bad things to say to their neighbours. Our client principles in summary are:

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  Quality of Service
  
  
  
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  Dignified Treatment
  
  
  
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  Truthful and Transparent Information
  
  
  
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  Appropriate Pricing
  
  
  
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  Protection from Unethical and Illegal Practices
  
  
  
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  Privacy of Client Information.
  
  
  

5 clients had their applications assessed during the week; their applications to go through peer review the following Monday. We ran out of our 2,000 MAKAZI BORA brochures and need to order more.

Scott next to our Client Principles at the Mbagala Branch Office. The principles and a promise to our clients are translated into Kiswahili and part of the clients' welcome packet.

Opening the Doors - Week 1: 22nd - 26th June 2009

On the morning of 22nd June, we had a prayer to ask God’s blessings on our work. We then took a group photo of the MAKAZI BORA staff before opening the office to the public. We guessed that we might register around 15 people on the opening day. Before long, the people started coming in large numbers. We left credit officers out on the front porch wearing MAKAZI BORA t-shirts. As they started talking with people, more would come to join to see what was going on. From time to time we sent out a few credit officers with brochures to distribute them and do promotion out on the main road and near the bus station. There were many visitors on day one and lots of interest and excitement, but no one actually registered.

On day two, our Regional Director Ezekiel Esipisu was visiting from our Area Office in South Africa. Ezekiel is a Kenyan, so we had him arrive on his own on foot as a potential customer. He did his best to hide his Kenyan Kiswahili and met with a credit officer who explained the product and processes to him. The credit officers were quite surprised when we introduced the “mystery customer” as the director of all of the Habitat programs in the Middle East and East Africa! Shortly thereafter, our first client registered, receiving client number 01-000001. Unfortunately, our technology failed us and we were unable to print his ID card.

People were definitely interested in the product and we saw a number of people coming multiple times, first on their own and then bringing their friends. People were hesitant to commit, however. What appeared to be pyramid scheme had recently been shut down by the government and then collapsed with many people’s money. They were justifiably suspicious of any new financial service, particularly since it is necessary to pay loan insurance and a security deposit of 8% of the loan amount prior to having one’s loan disbursed. What guarantee would people have that we would not keep their money without ever disbursing their loan? We could re-assure them with our history in Tanzania since 1986, but ultimately we don’t expect the skepticism to truly subside until a few confident people have received loans.

As the first people registered and began completing their loan proposals and application process, we found that many did not have sufficient collateral. We use chattel as collateral, such as TVs, radios, and similar items, but it is not always sufficient to cover the exposed loan amount. Many clients will have to use a combination of chattel and guarantors, with an emphasis on our part in ensuring ability to pay so that as much as possible the chattel and guarantors do not have to been used.

Another clarification that was made during the week was the use of residential licenses. We had discussed using the license as collateral. At this point, we decided just to use it as evidence of land security and not attempt to convert the residential license into a firm collateral.

Midway through the week we decided that we should be keeping track of how many people had come for explanations of the MAKAZI BORA loan. By that time, credit officers were meeting with potential clients in their offices, rather than out on the front porch. Each credit officer now maintains a contact sheet of all people who came for information. On the 25th and 26th of June, 97 people were recorded. By the end of the week, a total of 21 people had registered and received their ID cards and welcome packets. 4 of them had completed loan proposals for assessment the following week.

Set Up Week: (15th - 21st June 2009)

“Set-up Week” was a flurry of activity all around. Contracts of employment were signed for the new staff and they began working on revising and then printing all of the necessary forms to start operations. Booklets were assembled for credit officers to have quick access to loan terms and features and for collecting contact information for visitors from outside the operating area. Client IDs were designed and tested so that they could be created and issued when clients register at the branch office. Client welcome packets were assembled and desks and furniture was moved to the Mbagala Office.

THE CREDIT OFFICER'S GUIDE TO LOAN COSTS give the Credit Officer and Client every possible combination of loan amount and loan period so that clients can make informed decisions when negotiating their loan terms.

The CLIENT WELCOME PACKET gives the client the necessary forms to apply for a loan, explains loan terms, complaint procedures and the client's rights under Habitat for Humanity Tanzania's CLIENT PRINCIPLES.

We realized that even as late as a few days before opening our doors, we still had different interpretations concerning how to implement the grace period for MAKAZI BORA and the terms of our loan insurance. After some quick consultation with our colleagues at Habitat Uganda, we clarified our position on the grace period to a one-month grace period on principle (1st principle payment due 60 days after disbursement) and no grace period on interest (1st interest payment 30 days after disbursement). The primary factor involved was the use of the loan for home improvement purposes. The household’s income will be stressed while engaging in a home improvement in the 1st 30 days of the loan. (The verification of the loan use within 30 days determines the ultimate interest rate applied). Yet, going without any payment for 30 days was deemed to be a risky way to begin a credit relationship. Our insurance brokers clarified our insurance question and we were technically ready.

On Saturday the 20th, Boaz and I were at the Mbagala Office with Irene and Innocent as the computers were set up. We made some shocking discoveries. The water was not running, a carpenter who had been engaged to make some benches did not come through with the work and the office was generally dirty. We quickly worked on getting a painter to paint the window frames in “MAKAZI BORA blue,” put pressure on the carpenter, tried to sort out the water problem and spent a lot of time scrubbing the walls so that they would be somewhat presentable on Monday for opening day. Ready or not, doors would open on Monday morning.

MAKAZI BORA PROMOTION (11th June 2009)

One the second to last day of training, the credit officer candidates went to the field again. When they went during the first week of training, it was solely for the purpose of understanding incremental building as it is taking place in the operating area and they were not to talk to people about MAKAZI BORA. One the 11th of June, it was all about MAKAZI BORA as the team went out in their MAKAZI BORA t-shirts, handed out brochures and spoke to people and small groups about the home improvement loan. It was a good exercise of the credit officer candidates to test their knowledge about the product and also to find out what people ask questions about. It also served as our first official introduction of MAKAZI BORA to the operating area.

MAKAZI BORA TRAINING (1st - 12th June 2009)

A two-week MAKAZI BORA training included a newly hired IT specialist, Mbagala Branch Administrative Assistant and 9 credit officer candidates from which 5 would be selected and given appointments. The head office secretary and an intern from the USA attended the first 3 days of training, which focused on housing, microfinance and a field visit. Out of the 9 credit officer candidates invited, one never showed up and another absconded after the 3rd day, leaving 7 to complete the training.

The first day of training was challenging. The material on housing was a little too advanced for some of the participants. The training was entirely conducted in English. Although the participants were all competent in English, it was clear that using Kiswahili for at least part of the training and for participant responses would help discussion and learning. On the second day (on microfinance and housing microfinance), participants could respond in Kiswahili and some of the more difficult concepts were explained in Kiswahili. When the intern from the USA left the training to begin her assignment on day 4, Kiswahili became the primary language of instruction and interaction.

Boaz leads a session

Days one and two had been highly theoretical, looking a housing, incremental building, livelihood assets and strategies and how basic financial intermediation works. The highlight was probably an example of a rotating savings and credit association (ROSCA) in which the participants received wages (in MAKAZI BORA shillings) from Boaz and organized themselves into two ROSCAs so they could buy MAKAZI BORA t-shirts from me over a period of time. Wearing their new MAKAZI BORA T-shirts, they went to the field in the operating area the next day to look at incremental building and informal systems for self-financing as it appears on the ground. The field trip was supposed to include the use of digital cameras and GPS units, but because of a logistical glitch we weren’t able to get them in time and would have to simple take notes.

The participants went out in teams to identify various types of incremental building and interview some people about their housing process. It brought the training to life. Our intern said, “When we were going out there, I was wondering if it would be hard to find examples of incremental building. When we got there, it was like every house.” The next day the teams reported on what they had seen and learned and we discussed where there was evidence of various types of household assets and self-financing strategies in people’s housing process.

The training continued on to cover the MAKAZI BORA product and features. The credit officer candidates had a lot of good questions and ideas and some minor adjustments were made as a result and some others noted for future consideration. The last session consisted of the trainees forming groups and coming up with ideas for improving the MAKAZI BORA implementation, including a comprehensive review of all forms to be used. The difficult part came in choosing the 5 credit officer candidates who would receive appointments and telling 2 that they were not chosen. They all did an excellent job, but in the end the choices and appointments were made. With the staff trained and in place, we were ready to prepare for the start of MAKAZI BORA.

- scott

Developing MAKAZI BORA (October 2008 - May 2009)

Following the board’s decision to adopt a housing microfinance program, we began looking for local consultants to undertake a market research study. The market research was conducted in the districts of Bagamoyo, Kibaha and Morogoro and the three municipalities of Dar es Salaam (Kinondoni, Ilala and Temeke). We wanted to stay close to our head office (located in Dar es Salaam) to improve our ability to monitor and support the initial pilot while minimizing costs. The study looked at the financial landscape as well as the housing environment and used focus group discussion as well as individual interviews.

The market research helped define the prototype product features of a home improvement loan product. We determined that the product (and ultimately the program) would be called MAKAZI BORA, meaning roughly “better houses” in Kiswahili. We conducted prototype testing of the MAKAZI BORA product with focus groups in various locations. The focus groups discussed the product features and also gave feedback on a number of logo designs. Some minor adjustments were made to the product.

We determined that we would implement MAKAZI BORA within Dar es Salaam and began to look for suitable areas for piloting the loan product. We used Google Earth to look at settlement patterns and studied public transport routes to determine accessibility of various potential sites. We chose Mbagala in Temeke Municipality of Dar es Salaam as our pilot area. Mbagala has some dense and established informal settlements, informal settlements that are rapidly expanding as well as urban fringe that has new construction taking place in an essentially rural environment. The office was chosen at Rangi 3, which allows for close access to public transport from all around the area as well as easy access to banking services. Our operating area was defined as 5 wards in the Mbagala Division: Mbagala, Mbagala Kuu, Charambe, Chamazi and Tuangoma. The office would be called: Mbagala Branch.

We were fortunate to have Fayaz Jaffer to assist us a volunteer. Fayaz works for Ernest and Young in the USA and was visiting his family in Tanzania. He had wanted to volunteer to build houses, which is the activity for which Habitat is known. When we told him that we were no longer constructing and shifting to a housing microfinance program model, he took interest and said he could help us with some process mapping. Mapping out the process through which a client would pass in order to receive and pay back a loan was a critical step in developing or processes, forms, policies and job descriptions. It helped clarify what had been more of a collection of loose ideas.

With the product, process and draft forms, we used Microfin software to create financial projections for a business plan. We soon realized that a business plan was based on a lot of assumptions; how many loans a credit officer can disburse per month, what an optimum case loan of clients would be, average loan size and other assumptions. We used 10 loans disbursed per credit officer per month, an optimal case load of 240 clients and an average loan amount of 750,000 shillings. Boaz (Boaz Ackim, Program Manager) thought that 10 clients per month was conservative and was leaning more towards 15. I thought it was aggressive and thought in reality it might be 7 or 8 on average. We completed the business plan realizing that our assumptions will most likely change once we get started and have experience on the ground. We made it an internal business plan to be approved by the board so that we could get started with funds available, but we will have to revise the business plan with stronger financial projections prior to presenting it to institutions from which we will seek capital.

The board was to meet and approve the business plan on 29th April 2009. Ordinance was accidently detonated as a result of a fire at a military base (in Mbagala) and the city was rocked by explosions that very day. The meeting was cancelled and could not be held again until 22nd May, when the business plan was approved. In the meantime, we had already begun work on designing training for credit officers and started the recruitment process on the assumption that the plan would be approved by the board and we would have the mandate to go forward. The board had some tough questions and debate ensued concerning construction technical assistance as part of the product, but the plan was appoved. MAKAZI BORA could go ahead. The process of registering the MAKAZI BORA name and trademark was started and credit officer candidates were selected and invited to a training that would start on 1st June.