By Hassan Ibrahim Conteh
Pa Morray Kargbo traded in bananas at the Guard Street for over two decades. In 2010 he decided to take a microcredit loan to grow his business. The agreement was such that he was to repay the creditor on a daily basis.
But by 2012 the elderly businessman realized he couldn’t repay on time and so he and his family relocated to the provinces to avoid legal action.
In Sierra Leone, access to finance is a major hindrance to business, especially for startups. But over the last few years micro finance institutions have helped many small businesses through loans.
But for many such businesses, the result hasn’t been as expected. The burden of repayment has led to many, like Pa Kargbo, going underground for failure to repay their loans.
Some have gone to jail. Others have had to forfeit businesses they have grown throughout their lives to repay their debts.
The thought of this has discouraged many other budding businessmen and women from venturing into borrowing.
While the loan providers blame the defaulting business people, businessmen and women decry stringent conditions attached to the loans which they say the unfavourable business environment makes it hard for them to meet.
Bank lending rates in Sierra Leone are about the highest in Africa. As at the moment, based on assessment of some of the commercial banks in the country, the rate is between 23 and 36 percent. The Pan-African bank Ecobank has the highest rate.
With this picture very few small businesses want to go near the banks, in addition to the stringent conditions like the requirement for collateral, which is often in the form of landed property.
The only alternative therefore is micro credit.
“Not every trader selling at Abacha, Guard street, has a house to show as collateral. So, if micro finance is not giving loans to them where will they get it from,” said Fatmata Kandeh Kamara, head of Human Resource Management, Lift Above Poverty Organization (LAPO), one of the leading non-bank microfinance institutions in the country.
Rigid conditions
Kamara told Politico that a major difference between the banks and non-bank microfinance institutions is that the latter do not give loans based on “rigid conditions”. They only ask for a guarantor who should be a religious leader or any person of high regard in society, she said.
But besides these non-rigid conditions, microfinance also comes with its own downsides, in the view of some business people.
Isatu Kargbo, who sells at Guard Street, said repaying microfinance loan is exceptionally difficult because you are constantly under pressure from the lender.
“You must have to squeeze all out to pay the money you borrow. You feel embarrassed among your colleagues when you are invited to the police station,” she said.
This way, said Ms Kargbo, when somebody borrows micro finance they are always worried because they would be thinking of how to get money to repay. She said sometimes micro finance officials do not ask whether a business is selling or not, they are only interested in collecting their money.
“And if you have many children the micro credit people will not grant you loan thinking that the burden will be too much for you,” she said.
Because the banking institutions demand collateral, reclaiming bad debts is easier for them. But for the non-banking microfinance institutions, it has more to do with trust. But it can be edgy for the debtor if the trust is broken. Some people, especially women, have gone to jail for failing to service their debts.
An estimated 10 percent of all charges issued by the Sierra Leonean police involve the failure to repay small debts, according to an IRIN news report in 2012. IRIN is a UN affiliated humanitarian news organization.
Campaigners say while such matters fall under civil suit, they end up being criminal cases, and that many women who take microcredit were ending up in jail for want of legal representation.
The criminalization of debt upsets the livelihoods of the accused who are mostly petty traders, the civil Advocaid told the news agency.
It lamented that children at times were forced to live with their parents in detention and their incarceration often breaks up families and deepens poverty.
Some successes
While the operations of microfinance institutions is universal, individual institutions have adopted various strategies to minimize risk and avoid having to resort to legal means to get debtors pay back.
The Local Food Sellers Development Co-operative Union (LFSDCU) has been providing micro finance to petty traders at Guard Street for over two decades.
Founded in 1996 by some business individuals, the union was established to encourage sellers to borrow and develop their businesses.
LFSDCU operates like an ‘OSUSU’. If somebody borrows Le60, 000, it collects Le 7,000 from the person on a daily basis for a period of 120 days (Four months). The Le 1,000 goes into the person’s saving account.
The Union deducts an interest of 2% if a borrower is not registered with it.
Abdul KarimSesay, Education Director at the LFSDCU, said however that they sometimes face challenges with some customers who borrow money from them and fail to pay on time while others sometimes disappear or hide from their collectors.
“When we trust them our money there are some others that you will never get to see except sometimes we report them to the nearest police stations,” Sesay told Politico.
“We will not detain them but we will only make sure that they become afraid to ensure that we get our money back.”
Most microcredit providers have two forms of lending: individual and group borrowing. The creditor institutions find it easier to deal with group debtors than individual debtors.
YaKabia, a trader at Guard Street, has been borrowing from the LFSDCU for many years. She is part of a group of traders who collectively borrow from the Union. And because she encouraged her colleagues to join the scheme, she has often had to pay when the others default.
“My money was diverted into their own account because some members of my group owned the union and I should take responsibility for that…’’ she lamented.
LAPO has two types of loans: the regular and individual loans. The former composed of ten members with a minimum of Le 420, 000. Loans are given based on the cooperation of all members in a group. Each person signs on behalf of another, in case anyone of them fails to honor the agreement. Kamara, the Human Resource Management, said the group can be entitled to a larger sum if they prove reliable in repaying their previous loan.
In the case of the individual loan, the institution assesses the business based on its registration status, and value.
At LAPO, located at John Street, off Pandemba Road in Freetown, they have what they call Client Support Officers (CSO) who go around collecting loan repayments on a daily basis. These CSOs take responsibilities in case a debtor defaults.
So they are well trained to know and make good judgment in recommending people for loans, said Kamara.
LAPO also knows when to give out loans.
“We will not give loans in December because of the festivities some will use those loans to enjoy instead of investing into their business,” she said.
(C) Politico 28/01/16
