Research performed by Sophie Besnard indicated several problems youth face in entrepreneurial activities. My research focused on the notion that youth have difficulties acquiring loans from Micro Financial Institutions (MFI’s). Mistrust between MFI’s and youth lie according to hear research on the basis of these challenges youth face when applying for a loan. My goal of coming to Youth Initiatives Tanzania (YITA) in Dar Es Salaam was to reduce this mistrust between Youth and MFI’s. For this I did research at four different MFI’s, first finding out how their products are constructed and to interview them on the mistrust issue at hand. Next to this I did research with all 7 YITA groups on the reasons why they mistrust MFI’s. This was all in preparation for a discussion between an MFI and delegates of all YITA groups with the goal to sensitize the youth for the possibilities an MFI offers and to reduce the mutual mistrust.
Discussion with MFI’s
In my first weeks in Dar Es Salaam I visited four different MFI’s. Discussion were held with BRAC, Tujijenge, FINCA and Opportunity. All these meetings resulted in an overview of their financial products. This information was critical in order to find an MFI whose requirements and possibilities were closest to the possibilities and needs of the youth groups. Furthermore it is in YITA’s future plans to create a partnership with an MFI to make loans more accessible for the youth groups. Therefore more information of how MFI’s work and what their financial products are was needed.
Considering the mistrust issue I found the MFI’s rather reluctant in sharing their opinion. Perhaps the possible market YITA offers was a reason for them to approach this matter in a polite manner. The main result I received was that they do experience troubles in people repaying their money. This critic was however not specifically addressed at the youth. They find that Tanzanian people in general are more prone to fail repayment requirements. An explanation for this issue can perhaps partly be found in the socialistic history of the country. Up till 1989 when the socialization process started the people of Tanzania could rely in a big manner on the government. This meant they were provided with the basic needs like food, housing and jobs by the government. The change towards the capitalistic society that exists today requires the Tanzanian people to have a more pro-active mentality. Now they do have to look for a job or create an own business to meet their basic needs. The mentality which was created by the socialistic system however still remains in the mind of many people. This can lead to people experiencing a loan as a governmental gift. Another problem concerning the repayment issue is that people often use the money that was mend for their business on private or family issues. These difficulties MFI’s face do at least influence the activities of the MFI’s. They make a thorough background check before an agreement is made and strict measures are used when people fail to repay in time. Also the requirements set by the MFI’s to ensure their security are often high. This is translated into high collateral requirements (often 130% of the applied loan) and a savings deposit can be required.
Discussion with YITA groups
These high requirements was the biggest problem addressed in the discussions held with the youth. They are on such a high level that they are impossible to meet for many YITA members. These high requirements has led to an image of an MFI where it is mainly seen as a profit orientated organization instead of an organization which goal is to help people out of poverty. The specific topics that are seen as problematic are the high collateral requirements, the high interest rates and repayment time is considered to be too short. First repayments often have to be done after four to two weeks and sometimes even one week. This time span is often too short to acquire profits before the first repayment deadline. A last issue that was addressed by the youth is that corruption issues are seen as problematic when applying for a loan. There have been experiences where they had to bribe field officers to get a positive recommendation which is needed to receive a loan.
Knowing all the issues youth face with MFI’s it was easier to choose an MFI which would fit the possibilities of the youth best. From the different MFI’s I chose Opportunity to join us in the discussion for several reasons. First of all they don’t have collateral requirements which are as mentioned difficult to fulfill for many YITA members. Second, they have a reasonable interest rate and lastly the communication with this MFI went fluently.(http://www.opportunity.co.tz)
Before the discussion we held a pre-meeting with all the groups. The goal of this meeting was to prepare them for the coming discussion with the MFI on several issues. Because the concept of an MFI was not clear to everybody we gave them a small training on what an MFI is and especially what the difference is with a bank. Next to this we gave them advice on how to communicate effectively and went through the topics that were going to be addressed.
The topics at hand were all the issues raised by the youth and MFI’s. Thus, the image of an MFI (are they truly here to help people out of poverty or are the mainly profit orientated), requirements of the MFI’s (collateral, interest rates, repayment time), corruption and the mentality of the youth (is the mentality of the youth a problem and what can we do to change this?). Next to discussing these issues which were felt by both parties I also applied an intervention method which is designed to reduce stereotypic thoughts about out group members. This intergroup contact theory designed by Allport (1954) states that opposing groups can become closer through contact under four circumstances. First, both groups need a common goal. Second, they should be dependant from each other to reach that goal. Third, there should be a sense of equality and lastly support from surroundings is needed. To integrate the first two requirements I asked both parties what the common advantages are of working together and how should they work together into making it a success? Sense of equality is quite difficult to achieve since the youth do have a tendency to look up to people who can provide them with money. To ensure as much equality as possible we placed the MFI members among the group members as opposed to a more formal setting like behind a desk or on the opposite side of the youth. The mere contact alone is also known to increase feelings of equality. The fourth criteria of having support from surroundings is med since all the groups seemed very enthusiastic about having this discussion.
The discussion itself went very well. All the topics at hand were discussed and both the MFI as the youth did there say. In short, the MFI explained that indeed there are MFI’s who misuse the name of MFI’s to make profit. Their MFI however does aim to help the people out of poverty which they tried to show by explaining their products and requirements. The groups were critical in the sense that they asked many questions to prove that their requirements are indeed low. The YITA groups and the MFI both agreed that people when applying for a loan should first have a good plan in how to use that money to expand their business. People who have other goals of using their money should not apply for a loan. The common advantages they found is that both the entrepreneurs as the MFI’s can make money and expand their business if they would work together. They also feel they are dependant from each other, this because the youth needs an MFI to receive a loan and because an MFI need the big market of the youth to grow as an organization. Furthermore, because the youth feel the MFI needs to assist them by information and trainings on how to deal with this money in a good way.
Results of a pre/post discussion test that was conducted showed that the youth after the discussion:
– Had a more positive view of MFI’s in general
– Thought to a bigger extent that MFI’s are here to help people out of poverty
– Thought to a smaller extent that MFI’s are here only to make profit
– Felt they were more worthy of being able to apply for a loan
The more positive view of youth towards MFI’s indicates that the trust towards MFI’s improved after the discussion. The increasing feeling of worthiness indicates that a bigger sense of equality between the YITA groups and MFI’s has been established. These results are very promising and indeed from the discussions I had with the youth afterwards it was noticeable that they are more open to approach an MFI in a positive manner.
After the discussion we had a meeting with the MFI to talk about the possibilities in working together in the future. One of the main goals of YITA is to make capital more accessible for the youth groups. Since YITA at the moment misses the knowledge, experience and resources to supply this themselves, a partnership with an MFI would be a welcome solution into achieving the capital goal set by YITA. At the moment we are still in the discussion with Opportunity to analyze these possibilities.
What to do next?
The discussion led to an improvement of trust from the youth towards MFI’s and a possible partnership with an MFI is in the making. There is however a critical note I would like to address. After the discussion the groups were very enthusiastic and also indicated that they would like to apply for a loan at opportunity. My feeling is however that they need more knowledge about loans and how to use them responsibly before they should apply for one. For example they do not realize they need a plan in how to use the money to expand their business. If they would receive a loan now the risk of spending it wrongly and losing the business becomes apparent. Therefore I would like to advice YITA to find out what kind of knowledge is missing within the groups about lending money and to train them on these topics. This would provide the YITA groups with the proper knowledge of loans which could help them to expand their business by using a loan in a responsible way.