Affordable micro-leasing solution to the poor

Globally:

Over 1.8 billion adults are still unbanked or poorly served by existing financial products and services, leaving them unable to pursue economic opportunities, vulnerable to shocks, and at risk of permanent debt or even modern slavery. While the number of people with formal accounts has increased, with mobile phones as a key enabler, innovation is still needed to give underserved or excluded populations the ability to safely transfer and save funds, borrow money, and manage risks with insurance, both for individuals and for their micro, small, and medium enterprises (MSMEs). 

The drivers of financial exclusion include lack of access to the internet and financial service agents, unclear explanations of product offerings, lack of formal ID, and discrimination, particularly against women, ethnic minorities, people of color, persons with disabilities, displaced communities, and low-income populations.

Tanzania:

Out of 27.3million Tanzanians aged 16-49,7.6million (27.85%) are entirely financially excluded. 18.8million (69%) borrow from family & friends due to quick access to money and 1.9million (7%) use informal services.

Providing affordable micro leasing solution to the financially underprivileged Tanzanians through micro franchising model

a) Micro-leasing of income generating assets to the financial excluded entrepreneurs & SMEs characterized by:
• Training and educating our clients on how to manage their businesses and finances so that maximize their net income as opposed to other MFIs.
• Providing large sum of money of up to TZS 10million with up to 2 years’ repayment period as opposed to Family and Friends.
• Offering very low interest rate of 3.5% per month compared to Informal money lenders (loan sharks) who charge up to 30% per month. 
• There is no need for an account or deposit and very short turn-around time (48 hrs) as opposed to commercial banks who can take up 3months to process the loan.
• There is no membership required, no contribution needed and no waiting queue as opposed to SACCOS & VICOBA.

b) Micro-franchise model with Informal Financial Groups (IFGs), which are estimated to be over 200,000 in Tanzania. This will accelerate the business to reach millions in a short period of time because each IFG comprise of 15 to 30 members and more than 80% of the members are women.

In 2021, Tracell Finance Limited (TFL) received 600 micro-leasing requests from just word of mouth, resulting from the CEO having enabled one micro-entrepreneur to acquire a compressor via an informal lease purchase agreement in 2019. Management learnt from follow through that, in spite of having the right character, experience and expertise, 

65% of the applicants declared that they had no other place to go for financial assistance, like banks or other MFIs, due to lack of: • formal establishments; • consistent income;  • collateral; and • necessary training and skills development to effectively plan, organize and manage a successful micro-enterprise. 35% of the applicants indicated that they could get assistance from family and friends but at a maximum of TZS 1m and for 30-60 days only OR could source money from the informal money lenders at an 30% interest rate per month with high value collateral. 

This background is what inspire the formation and existence of Tracell Finance Limited (TFL).

TFL is well positioned to take advantage of the opportunity in the market by:

• Very competent, committed and qualified management and staff with relevant experience and knowledge through practice and routine training. The recruitment and performance management systems are in place to ensure staff perform and deliver results are as per the vision and mission of the company
• Great micro-leasing solution (with newly added micro-franchising model) which are desired by our customers e.g. very low interest rate, fastest credit processing time, wide range of tools and machinery available  
• More than 2 years of successful experience with in-depth knowledge in micro-lending and asset financing especially to the financially excluded. 
• Brand strength and customer base with greater market penetration strategies and expertise. From word of mouth alone, we receive an average of 5 request calls per day. i.e. TFL has failed to save most of them due to the limited fund available in the organization.
• Great in-house and outsourced capabilities in core functions of the business like lending and debt collection i.e. We have an in-house dedicate team of debt collectors and 3 different professional debt collection partners
• Good and reliable debt and financial management systems with plans to deploy more advanced systems in the next 6-12months.
• Well established relationships and network with key partners like TAMFI, suppliers, government institutions and banks which enable the business to obtain necessary goods and services in a most efficient manner.
• Good business management and governance systems are in place to ensure results are obtained in a good manner. Well designed and implemented standard procedures & controls e.g. credit & procurement policies, routine internal & external auditing. The business performance is monitored and supervised by the board of directors through quarterly meetings

With just TZS 116Million (approximately US$ 50,000), TFL has successful offered 126 income generating assets through micro-leasing solution to financial excluded individuals & MSMEs. The assets have created 630 jobs to the poor jobless youths and women and provided an average net income of US$2 per day. 

Receive access to funding in the form of grants and investments, including through prizes and Solve Innovation Future. At least $100,000 

Join a class of impressive peers that act as a trusted support group, offering inspiration and guidance.

Join a powerful network of impact-minded leaders across industries and sectors, with dedicated spaces to meet year-round and during Solve’s flagship events such as Solve at MIT.  

Access leadership coaching and strategic advice from experts in the Solve and MIT networks. 

Receive monitoring and evaluation support to build an impact measurement practice. 

Gain exposure in the media and at conferences.

Access relevant in-kind resources such as software licenses and legal services from Solve supporters. 

Micro-leasing:

•Large sum of money up to TZS 20million with up to 2 years repayment period as opposed to Family and Friends whose amounts are below TZS 1m with less than 60days repayment period.

•Regulated with low interest rate and good customer service as opposed to Informal Lenders who are unregulated, charge highest Interest rates (up to 30%pm) and have poorest customer care.

•No account or deposit is required, customizable product and very short turnaround time as opposed to commercial banks who demands an account (at least 3months), offer generalized products and take the longest
processing time (up to 3months).

•Low interest rate with minimal fees (no fees for lease finance) and very short processing time as opposed to Other MFIs whose interest rates are high up to 10% pm with significant upfront fees & charges (up to 5%) and
long processing time (up to 10 days).

•No membership required, no contribution needed and waiting queue as opposed to SACCOS who service registered
members with deposits and there is a waiting queue.

Microfranchise:

The micro-leasing solution will be enhanced and scaled up through micro-franchise. The micro-franchise model involves the following:
• Identifying high potential entrepreneurs and IFGs. i.e. About 200,000 IFGs exists with more than 50% are in Dar es salaam & Coastal region

• Bulk procurement of wide range of tools & machineries which are highly demanded by entrepreneurs. 

• Develop and implement a cloud based tailored lending & leasing software for IFGs to facilitate the micro-franchising model while improving efficiency

• Training, mentoring & coaching of customers

• Create at least 120,000 and 652,000 jobs for the poor jobless youth and women in the next year and five years respectively

• Enable the new jobs to earn an additional net income of US$ 900 per annum
• Increase government tax contribution from US$ 21,000 next year to US$ 67,000 in five years
• Double the expenditure in CSR in five years i.e.  focusing on vocational education scholarships for under-privileged youth.
• In all MSMEs supported, promote the use of the most environmentally responsible (“green”), Appropriate Financial & Technical Solutions (ATFSs). 

i)GOAL 1: No Poverty

SDG1.1: By 2030, eradicate extreme poverty for all people everywhere, currently measured as people living on less than $1.25 a day.

SDG 1.4: by 2030 ensure that all men and women, particularly the poor and the vulnerable, have equal rights to economic resources, as well as access to basic services, ownership, and control over land and other forms of property, inheritance, natural resources, appropriate new technology, and financial services including MICROFINANCE

According to WorldBank "In 2021, the national poverty rate is estimated to have declined marginally from 27.1 percent in 2020 to 27.0 percent in 2021, driven by the recovery of employment and nonfarm business revenue. Tanzania needs to invest in increasing the job generation by key sectors that drive growth coupled with a better enabling environment that fosters small firm’s growth and survival chances"

TFL contributes to poverty reduction by offering easy access to affordable micro-leasing solution to the financially underprivileged population while focusing on income generation activities. This will create more than 1.6million job opportunities in 10 years (both internally and externally) while increasing beneficiary individual net income generated from the financed activities by US$ 2 per day.

ii)GOAL 5: Gender Equality

SDG 5.5: Ensure women’s full and effective participation and equal opportunities for leadership at all levels of decision making in political, economic and public life.

SDG 5.9: Adopt and strengthen sound policies and enforceable legislation for the promotion of gender equality and the empowerment of all women and girls at all levels

TFL has introduced a special privilege consideration to women borrowers and suppliers which will enable the business to grow the number of women beneficiaries to 50% in 10 years e.g. A loan application from a woman will be prioritized over a man’s application if all factors are the same.

Internally, the business will maintain a 50:50 gender balance with 1:1 gender wage equity ratio

iii)GOAL 10: Reduced Inequality

10.5: By 2030, achieve full and productive employment and decent work for all women and men, including for young people and persons with disabilities, and equal pay for work of equal value

10.6: By 2020, substantially reduce the proportion of youth not in employment, education or training

10.10: Strengthen the capacity of domestic financial institutions to encourage and expand access to banking, insurance and FINANCIAL SERVICES FOR ALL

TFL reduce inequality by creating job opportunities, ensuring decent work environment and equal wage equity ratio for all employees by implementing sound human resources policies with at least 5 employee benefits already in place including medical insurance, annual leave, maternity leave, social security contribution and disability coverage

As one of the unique Microfinance institute, TFL focuses on financial excluded population which is is highly ignored by majority of other financial institutions

Financial Inclusion through Micro-leasing solution

• Input: Offer a convinient and affordable micro-leasing solution to the financially excluded youth and women, between 16-49, through a micro-franchise model 
• Output: Create income from employment for millions of poor financial excluded youth and women
• Short Term Outcome: Create jobs which will generate income for the unemployed and financial excluded youth and women
• Long term Outcome: Reduce poverty significantly by creating employment to millions of financial excluded youth and women

New cloud software with leasing & lending management tools which will be tailored to the common needs of Informal Financial Groups (IFGs).

It includes online & offline accessibility, cloud server hosting, mobile application, email and SMS notification, auto back-up, quarterly maintenance, etc. 

The software will be used to automatically generate bills to users and help managing micro-franchise income while standardizing and simplifying work of IFGs admins & leaders in managing their micro-leases.

Start With Leadership: Starting with a top-down approach. Leadership to get buy-in from the top, then move throughout the organization to get everyone proactively involved. 

Be aware of unconscious bias: Understanding bias and building awareness is a first step towards real change.

Incorporate unconscious bias training for managers & employees: This type of training works by alerting people to their inherent biases and helping them avoid decision-making based on those biases. 

Create affinity groups in your organization: The groups regularly collaborates to discuss issues they encounter in the workplace and share their experiences with other team members. 

Facilitate ongoing feedback: Routine meetings designed to encourage team members to share their thoughts and viewpoints

Incorporate diversity & inclusion in accountability metrics: Various accountability metrics, including customer support surveys and employee feedback. 

Company policies: Assess areas of the business in which discrimination can exist

Routine progress tracking over extended periods of time

Key Beneficiaries:

a) Final :

i) Micro, Small & Medium-scale Entrepreneurs (MSMEs) in Tanzania; 
ii) Informal Financial Groups (IFG) especially the Accumulating Savings and Credit Association (ASCA) that, amongst other things, also serve as Saving and Investment Groups (SIGs).

b) Intermediary:
i) Individuals & MSMEs and their SHGs; enabled to serve Clusters of MSMEs and SHGs country-wide in Tanzania by working with & through
ii) Formal & non-formal Education & Training Institutions (ETIs) and Faith-Based Organizations (FBOs).

Social And Customer Value Proposition

• Bring  unbanked  into financial  mainstream
• Quick access to loans
• Provide affordable loans
• Accessibility and reliability of services
• Online access i.e. real time account updates and reports
• Social impact of investment e.g. new jobs

Impact Measures

• Creating more than 650,000 jobs in 5yrs (more than 2million in 10 yrs) i.e. More than 50% will be women and More than 80% will be aged below 35 years.
• Grow net income of beneficiaries by 68% above national GDP per capita
• Generate favorable financial returns for sustainable growth i.e. payback period of 4yrs, IRR of 22% & NPV of $627,000

Surplus

• Horizon expansion to reach more people in Tanzania and East Africa
• Pay taxes 
• Corporate Social Investment in vocational education scholarships for under-privileged youth.

Business revenue streams and pricing mechanism

-TFL main stream of revenue is the interest income which is derived from interest levied to its customers who are provided with income generating assets. The interest rate is charged on reducing balance method from weekly/monthly installments.
-The second revenue stream involves variable fees which are levied to customers to facilitate a specific purpose/transaction outside the normal routine such as trainings, machine installation, machine repair and maintenance.
-The new revenue model will involve micro-franchise fees which will be levied to IFGs at a fixed percentage (say 1.5%) on processing member’s loans through the micro-leasing (microcredit) loan management system.

So far, the business has raised funds to the tune of TZS 116.7m (approximately USD 50,000). Ninety percent came from the CEO’s own savings while the remaining balance was contributed by Family & Friends. 

Out of all the funds raised so far, 95% have been deployed in Loans and working capital and the remaining balance (5%) has been used to buy furniture & equipment's for office and administration.

The main sustainable source of finance for the company is revenue generated from the business operations and it's growth is driven by the increase in the number of beneficiaries .

Revenue and profitability in the next 3-5 years will attract debt/equity investment and grants from institutions like USAID, NOVASTAR, ACCION and African Development Bank (AfDB) for expanding the footprint and cover many other regions within Tanzania and outside Tanzania.