Financial services are a crucial tool in the fight against poverty. The good news is that in Africa, banks and microfinance organizations have grown significantly over the past decade, reaching more and more people. The bad news is that this growth is mainly confined to urban areas.
Centenary Bank branch in urban Uganda
Offering and collecting small loans in remote rural areas can be expensive. In an urban area, high population density means that borrowers can walk to a branch to repay. They have ID cards, which makes it easier to get a credit history from them, and many of them have bank accounts, allowing for wire transfer repayments. Most importantly: they have larger financing needs. It is simply cheaper to collect repayments on one $100,000 loan than it is on a thousand $100 loans.
The women in our project are typically unregistered (do not have ID cards), do not have bank accounts, take out loans as small as $100, and live in over 30 villages, spread across a large region. They cannot all travel to the same place once a week for their repayments. That means that we have to go to them, for repayments as small as $2 a week. For most financial institutions, this is prohibitively expensive. SYPO's mission to reach women who previously did not have access to formal financial services meant that we had to find a way to work with very low operating costs.
Since the start, SYPO has achieved operating costs over 50% lower than those of peer organizations in East Africa (see figure). We are able to provide microcredits to women in remote areas of Uganda, and still cover all the costs with interest paid on the microcredits - interest that is significantly lower than that of other organizations. This operational self-sufficiency is important: it ensures our long term viability, and also avoids unfair competition with other financial institutions.
The Zone Manager
The core of the model is that each of our loan officers (called Zone Managers in our organization) have end-to-end responsibility over their own 'zone': a village with a simple field office, and several nearby repayment centers. A Zone Manager trains her own new clients, processes applications, disburses microcredits, collects repayments, manages her licenses, helps with recruitment and does the (financial) reporting for the zone. This serves multiple purposes. It's more efficient, because it takes out layers of management and does not duplicate work (such as tellers and loan officers in peer organizations). It is motivating for the Zone Manager, because each of our team members can feel responsible and proud for her part of the company that she built herself. And it avoids fraud in the organization, because end-to-end accountability takes away the risk of finger pointing. To make this possible, we hire great talent (see an overview of our full team here), invest in education, and use online systems to ensure that there is a (in many cases automated) four eye principle in place for all transactions. Internal and external audits form an additional saveguard against fraud.
SYPO mobile center where women come to repay their microcredits
The other way in which we keep costs low is through the use of (mobile) technology. Many of the women make repayments using 'mobile money', allowing them to not travel to the repayment centers every week. We use automated text messaging to keep women informed of their repayment status, and simple behavioral economics to encourage better repayment behavior. SYPO is experimenting with 'psychometric credit scoring': short questionnaires designed to predict someone's risk of default. All transactions in the project are processed through cloud-based platforms, which makes reporting simpler and can quickly identify any problems emerging in the portfolio.
We are starting to experiment with text messaging that can help the women with their businesses, such as weather forecasts, commodity price information, tips about irrigation or fertilizers, etc. Another pilot we're rolling out is text messaging with health information, primarily aimed at risks around pregnancy and prevention of diabetes - a growing problem in sub-Saharan Africa.