Marang - Christina Govender by xiuliliaofz

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									Microfinance Conference
    November 2010
The Case for Commercialization:
Why 5 loaves and 2 fish won’t do it
        this time around
                            WHO WE ARE WE

•MARANG Financial Services is a micro finance institution offering credit to
micro entrepreneurs.
•Established in the year 2000 to take over micro credit operations of Get Ahead
Financial Services (GAFS) and the Rural Finance Facility (RFF).
• Initially incorporated and registered under Section 32 Company (Limited by
Guarantee)
•July 2001 converted to a Section 21 Company (Not for Profit)
•April 2008 registered subsidiary Marang Financial Services (Pty ) Ltd – began
operations in April 2010.




                       The Case for Commercialization: Why 5 loaves and 2 fish won’t do it this time around
 WHERE WE OPERATE




The Case for Commercialization: Why 5 loaves and 2 fish won’t do it this time around
                      WHAT WE DO
                PEOPLE, PRODUCT, PROCESS
•Market served: largely survivalist, majority women –

•Unserved, Unbanked, Uncollaterallised, Unsophisticated.

• Clients are broadly involved in the following business sectors:
                             Farming                      4%
                          Manufacturing                         2%
                               Retail                           79%
                              Service                           14%
                              Tourism                           2%

• Single product – credit: Marang provides micro enterprise loans using the group
loan solidarity lending model.
•Individual microenterprise loan product also available to group loan graduates
and carefully selected new clients.

                     The Case for Commercialization: Why 5 loaves and 2 fish won’t do it this time around
                     WHERE WE FIT

• Since inception Marang has received total funding to date
  of R102M for onlending and R24m in grants.
• 10yrs      R700m in disbursements        R35m loan book
• 12 million unemployed in South Africa
• 3 major MFIs
• Group loan model
• Total of 45 years in operation
• Total number of borrowers currently – 145 000 clients




              The Case for Commercialization: Why 5 loaves and 2 fish won’t do it this time around
              OUR MOUNTAINS & VALLEYS

A fundamental challenge has been poor performance characterised by:
    •Low sales volumes (60 % target in 2009/10)
    •Increased costs (11 % budget in 2009/10)
Caused by:
    •Lack of sales focus and performance management
    •Poor loan economics and inefficient loan process
    •Operational inefficiency and management control
    •Legacy product with inflexible policies
    •Poor implementation of IT solution
    •NGO culture
    •Limited Access to Capital going forward

                    The Case for Commercialization: Why 5 loaves and 2 fish won’t do it this time around
                    FINANCIAL INDICATORS
                            as at FY 10 (31 Mar ‘10)

Indicator                                                                            Value

Average income per client                                                          R1, 104

Average cost per client                                                            R1, 503

Average loan size                                                                  R1, 900

Average portfolio per loan officer                                                    343

Cost to Income Ratio                                                                 136%

Financial Self Sufficiency                                                           73%

Operational Self Sufficiency                                                         77%

                    The Case for Commercialization: Why 5 loaves and 2 fish won’t do it this time around
                        OPERATING MODEL
                 MFI                                Financial Services Provider

Operates in the micro informal space.         Operates in the small to medium
                                              formalized business space.
Focused on underserved,
undereducated, unsophisticated market.

Pre loan education+Non financial              Financial support services only - often
support+Financial support+Post loan           with the compensation of client savings
management.                                   equating to low cost capital.

Classic incubator environment: cost
intensive with few graduates even in the
long term.

Credit is unscored – high risk                Credit scored – mitigated risk through
                                              scoring and guarantees

                      The Case for Commercialization: Why 5 loaves and 2 fish won’t do it this time around
                      DISTRIBUTION MODEL
                                  SMALL LOANS
MFI (+20yrs)                                    Financial          Services         Institution
                                                (+100yrs)
Limited infrastructure & resources              Massive branch & electronic footprint

Limited skills base                             Extensive skills base
Standardized manual processes                   Standardized        processes      driven     by
                                                technology.
Proactive – search for clients                  Reactive – walk in client
Off site – logistically challenged              On site – metropolis based
Credit unscored       –   solidarity     risk Credit scored             –    mitigated       risk
management                                    management
To Upscale - Need massive capital To Downscale - Leverage existing
injection                         infrastructure and resources.

                      The Case for Commercialization: Why 5 loaves and 2 fish won’t do it this time around
     DYNAMICS OF COMMERCIAL MICROFINANCE
                                                         ref Dissertation by J M Kiweu


•Why do some MFIs access funding, while others do not?
•What are the requirements for success?
•What financing patterns are followed by MFIs?

Key Determinants
•Information transparency
•Repayment capacity
•ROA
•Fast growth




              The Case for Commercialization: Why 5 loaves and 2 fish won’t do it this time around
 MARANG’S BASIS FOR COMMERCIALISATION

1.Access to capital
   •for onlending to achieve scale
   •for infrastructural development to improve efficiencies
   •for distribution footprint to increase reach
   •for product diversification to ensure relevance to the client

2.Broaden skills and resource base
   •To move away from the NGO centered approach
   •To attract the correct strategic and operational skills sets.
   • To contribute to the development of the sector through sharing of
    experiential, measured and pragmatic learning

                   The Case for Commercialization: Why 5 loaves and 2 fish won’t do it this time around
 CSF FOR ATTRACTING COMMERCIAL FINANCE
                                                                ref Dissertation by J M Kiweu


•Transparency in financial reporting;
•Sound financial management including good governance;
•Quality portfolio
•ROA;
•Lending rate;
•Information transparency;
•ROE;
•Inflation;
•Portfolio at risk measure; and
•Gearing.

                     The Case for Commercialization: Why 5 loaves and 2 fish won’t do it this time around
PLAN FOR TURNAROUND




 The Case for Commercialization: Why 5 loaves and 2 fish won’t do it this time around
   FINANCIAL INDICATORS POST PTY RESULTS
               AS AT JULY 2010
                                                                    Value –         Value –
Indicator
                                                                     Jul10          Mar10
Average income per client                                           R1, 202        R1, 104

Average cost per client                                             R1, 255        R1, 503

Average loan size                                                   R2, 200        R1, 900

Average portfolio per loan officer                                     415            343

Cost to Income Ratio                                                  95%            136%

Financial Self Sufficiency                                           108%             73%

Operational Self Sufficiency                                         117%             77%
                    The Case for Commercialization: Why 5 loaves and 2 fish won’t do it this time around
      ENOUGH SAID: WHERE TO FROM HERE?
     Comparison Of                             Old                                  New
Business Focus                   Poverty Alleviation                Sustainability  and     asset
                                                                    generation over lifecycle of
                                                                    loans
Markets                          Rural                              Rural and Peri-Urban
Products                         Microenterprise finance            MEF, MSEF, Productive
                                                                    Housing, Microinsurance,
                                                                    Savings
Risk Management                  Group lending                      Risk based individual and
                                                                    business borrowing
Financial Benchmarks             Efficiency                         Profitability
Corporate Identity               NGO                                Commercial
Non Financial Services           None                               Through the Foundation –
                                                                    initially         sponsored,
                                                                    eventually   self    funded
                                                                    through Pty.
Funding                          Donor led                          Commercial funders

                         The Case for Commercialization: Why 5 loaves and 2 fish won’t do it this time around
        THE GREAT BALANCING ACT:
          Success without Harm

There is nothing intrinsically sinful
about pawnbroking or intrinsically
holy about microloans. What matters,
is the effect on clients.


              Tim Harford: The battle for the soul of microfinance, 2008




         The Case for Commercialization: Why 5 loaves and 2 fish won’t do it this time around
    STRATEGIC PARTNERS: WHO TO WOO?

What is Marang looking for in a strategic partner?
•Funding
•Non financial resources – skills, infrastructure, network
•Critical prerequisite for Marang:
•Alignment with vision and mandate of the organization.
•What do we propose to offer in exchange?
•Demonstrable value that attracts investment.
•The opportunity to participate in economic upliftment of
marginalized communities.
               The Case for Commercialization: Why 5 loaves and 2 fish won’t do it this time around
   Microfinance, 5 loaves & 2 fish…

Why won’t it work this time
      around….?

Thank you for permitting us
 to share the Marang story.

        The Case for Commercialization: Why 5 loaves and 2 fish won’t do it this time around

								
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