It takes a village: Reaching one woman at a time through microloans

Post date: Feb 26, 2010 1:43:34 AM

Cynthia Boakye juggles not one but two successful businesses in the small village of Fise, located in the Greater Accra region of Ghana. Cynthia is among the thousands of women who own and operate small businesses throughout rural Ghana. For over eight years Cynthia has sold maize, which she purchases in bulk from farmers in Northern Ghana. In order to diversity her income and weather fluctuations in maize production and cost, Cynthia opened a small shop in 2008 that sells canned goods, agricultural products and toiletries to the local community. Although maize provides the bulk of her revenue given its role as a staple in many Ghanian dishes, the store allows her to supplement her income and continue generating profits once the maize is sold.

When Cynthia opened her shop, the goal was to provide a diverse assortment of products that would attract customers from the village. The store sells sugar, bread, candy, cookies, canned goods, toiletries and other commodities. Products that sell the most include sugar, canned tomatoes, canned fish, toilet paper and canned milk. Cynthia purchases the shop’s goods from the Markola market in Accra, buying in bulk and selling in smaller quantities to her customers. In order to serve the local community, all products can be purchased either in their entirety or in smaller amounts. Customers can buy rice, olive oil and cassava in half cup or one cup increments; bread is divided into half or quarter loaves and it is possible to buy a single diaper, a cup of olive oil, two eggs or tea bag in a pack. Cynthia points out that the bulk of her customers can not afford the entire package and therefore it is necessary to sell items individually. Sure enough, throughout the day most of her customers purchase individual or small quantities of goods.

Word of mouth is how Cynthia, and the majority of small business owners in Ghana, reach customers and grow their base. She runs the store herself, from 8:00am-10:00pm each night, every day of the week. Her daughter, niece and a neighborhood boy help out as well. Her family house is located on the plot of land directly behind the store. The shop serves as a social locus for the small community, with neighbors, friends and customers stopping in to purchase goods or to sit for a spell. Children buy candy and cookies on their way home from school. Each transaction feels like a meeting among friends. Cynthia allows her customers to purchase on credit, paying what they can afford and keeping track of those who owe her money. She has a head for numbers and often remembers the balance owed on sight.

As a recipient of the Volunteer Partnership for West Africa (VPWA) microloan of 100GHC, Cynthia has invested more money in expanding the range of goods that she offers in the shop. She sees the real growth potential in the maize business but needs more capital to really feel an impact. Cynthia has more maize customers than she can handle, and considers her main impediment to increasing revenue the lack of funds to purchase more maize. Although she is grateful for the loan, she acknowledges that the return has been small because her sales are in such low quantities. One perhaps unintended benefit of the loans is reflected in the credit that she extends to her customers, thereby filtering the money she earns into building purchasing power in the local community. Because her businesses are profitable, more people are able to benefit on a very real level – the old man who bought sugar, bread and eggs while already owing for previous purchases, for example.

VPWA loans stipulate that recipients keep daily logs to track which goods are sold and the profit, minus expenditures. Book-keeping is new to Cynthia, as it is for many of the microloan recipients. These logs not only enable the business owners to quantify and measure their results, but also make it possible to examine which products are selling the best and how much money is invested on a regular basis into the shop. Since December 2009, when Cynthia first received the loan and started keeping records, the highest daily profit was 80GHC, and the lowest was -114GHC. The average daily profit since December has been 58 GHC from shop sales alone. This is likely on average or slightly higher than some of her competitors in the area.

The books highlight the costs, both financial and personal, that go into purchasing maize in bulk from northern Ghana. The trip from Fise to Tamale takes 6-8 hours, and in order to arrive when the market opens Cynthia starts her trip late at night. Farmers and vendors come to Tamale from all parts of Ghana to sell their goods, and this is where many small businesses source their products from. Cynthia makes this trip about once a month, depending on the demand for maize among her customers. In February 2010 Cynthia purchased 15 bags of maize at .45GHC each, for a total of 675 GHC. Transportation of the maize cost 105GHC, and the cost of refilling the bags was 34.50GHC. Cynthia’s transportation both ways cost 40GHC, bringing the grand total of 854.50GHC. Although she typically sells all of the maize in one month’s time, she still operates at a loss. Of the ten customers who bought the maize, only three have paid in full. Seven customers still owe some or all of the balance.

Cynthia has demonstrated a strong history of paying either the required 7.20GHC or more every week, and intends to pay off the loan within the allotted four month time frame. Cynthia also expects to take advantage of a second loan from VPWA once the first one is paid off, this one for 200GHC. However, in order for her to purchase at the level that she expects would return a large profit, she needs a loan of 1000 - 5000GHC. Ideally she would use additional capital to invest in diversifying her business beyond maize to sell beans and groundnuts. Cynthia sees this type of expansion as the only way to dramatically increase her profits.

The challenges to operating the business are myriad. Because sales from the store are so small, it is difficult to make a profit. Many of Cynthia’s customers can not afford to buy the goods at cost, purchasing either on credit or in small quantities. Although Cynthia’s shop is laid out attractively and carries a large variety of products, it is not differentiated from other stores in the area. Stores in the near vicinity serve as competitors and sell similar types of goods. Although maize is in the highest demand, Cynthia currently purchases as much she is able, and without additional capital can not expand this area. Because of her business savvy and success in maize sales over the past eight years, Cynthia is likely more financially stable than her neighbors. Living in a community that largely lacks the money to buy basic goods makes it nearly impossible to make a profit. To put this into perspective, the majority of people living in Fise likely live on less than $1 or $2 a day.

Given the lack of credibility or availability of banks in rural villages, microloans and alternative financing are often the only reliable options. Communities like Fise set up a collective savings account system called susu that operates outside of the banks. Villagers give 1GHC each day to a collector, who keeps the money for one month and then returns it, minus a small fee. This ensures that people do not unwisely spend their money. At times susus are run by the banks themselves, who employ local boys to collect the money on a daily basis. However, many Fise residents recently lost their savings when the bank-employed collectors stole the money. The bank refused to accept responsibility for this loss, demonstrating the lack of credibility among typical financial channels. Villagers have found that working outside of the banking system is often the only realistic option.

As a business owner for over eight years, Cynthia knows how to run a profitable store. However, unless the purchasing power of the community is raised, she can only sell in small quantities, resulting in lower profit margins. The VPWA microloan program serves small groups of women within the community, with the aim of enabling people to empower themselves. Seven other women in Fise have received VPWA loans as a means to building their business, contributing to increasing capacity. Cynthia plans to continue to make use of VPWA loans and hopes to find additional methods of finance to grow her business. The more women VPWA is able to reach through its microloans program, the greater the possibility for economic growth – one woman at a time.

Credit: Dawn Bruno , VPWA Microfinance / Women Empowerment Volunteer (Feb 2010)