The SEF (The Small Enterprise Foundation) aims at alleviation of poverty by working with the very poor in a sustainable manner. Until recently SEF was unique amongst SA MFIs in its consistent pursuit of eradicating poverty. This is not to say that other MFIs do not share this goal, but for SEF it is the only goal, and everything else is subordinated to it. ‘Success” in terms of sustainability, good-looking ratios, or the successful implementation of a ‘model’ would not be enough for SEF’s current management, if it were not reaching the very poorest members of society. Most other MFIs are also committed to reaching the very poor, but accept a balance between poverty outreach and sustainability that leaves out the very poorest, and work towards methods and institutional arrangements that secure this equilibrium. By 1996, SEF had achieved a well-functioning program that was almost discarded because it did not reach the very poor, and then retained it only because it would help pay for the effort to do so. For this reason, SEF serves as a kind of ongoing test case for what is possible in respect of pro-poor microfinance in South Africa. Since inception SEF has disbursed 94,603 loans to the value of R91.5 million (US$9.2) million, in June 2002. SEF currently serves 13,387 poor clients. While SEF may not collect savings, it facilitates regular savings through the existing Post Office network. Total client savings held in group accounts at the Post Office amounts to R2.2 million (US$220,000) in June 2002.
Within SEF there are two programs. The original one, MCP, the Micro-Credit Program, serves existing micro-enterprises and currently has 8,163 active clients and TCP, the Tšhomisano(Northern Sotho word meaning “Working together”) Credit Program which was started in 1996. TCP focuses exclusively on those households with an income approximately equivalent to that of the poorest 30% in the province in which SEF works. TCP uses a targeting methodology to identify the poorest households and has developed a range of strategies to ensure positive impact when working with the poorest. At year-end TCP had 5,224 active clients.
The principal methodology used is group-based microcredit, modeled very much after the approach of Grameen Bank. In group-based lending personal guarantees amongst a small, five person group, replaces the conventional lending requirement for collateral. Loans are for enterprise only, with a series of checks being in place to ensure that loans are not diverted for other purposes. Similar to that of the Grameen credit system, the group goes through Group Recognition Test, training sessions and discussions about the loan size and the type of enterprise the members are interested in. This is later followed by loan utilization checks and then further loans if necessary. At fortnightly center meetings, members are encouraged to save into their account, the average amount ranging from R2 to R10 per member per meeting. This account is entirely controlled by the group.
Currently 98% of SEF clients are female. Typical enterprises include hawking of fruit and vegetables, new or used clothing, small convenience shops, and dressmaking. 18% of clients are involved in a manufacturing enterprise. On average, each business employs 2.3 individuals, including the owner, on a full-time or part-time basis.
Evolution of SEF shows how the process of developing a microlending operation reaching the very poor, requires subsidization, and where and when that subsidization should be targeted. It shows the intrinsic difficulties of ‘doing microfinance’ in post-apartheid South Africa, where operational costs are comparable to an upper middle-income country (such as Brazil) but very poor clients only earn (and can repay) similar amounts to a very low-income country (such as Bangladesh). It shows how the MFI itself must absorb the costs and risks of training staff, since the educational system does not provide suitable candidates. Finally, SEF’s experience clearly shows that the central political/policy problem for pro-poor microfinance institutions in South Africa today is the unresolved relationship between economic growth and employment creation on one hand and poverty alleviation and social development on the other.
A 1994 evaluation concluded that only 30-40% of people reached by SEF was very poor i.e. living below half the poverty line. This experience taught the organization that in order to reach the very poor it is necessary to establish a program, which exclusively targets the very poor. TCP is a program that is exclusively for the very poor. A poverty targeting approach, Participatory Wealth Ranking used to identify the poorest households and only the women of these households are eligible to join TCP. SEF’s Participatory Wealth Ranking approach has received considerable international attention.
By June 2001 the organization had made good progress towards self-sufficiency. The past financial year, however, saw operational self-sufficiency falling from 66% to 51%. While costs had continued to increase at the same rate as in previous years, loan interest income declined by 9%. This is directly attributable to the fall in average loan size, a result of loan sizes returning to more sustainable levels. As the organization punched through the 12,500 active client level the loans outstanding increased by 7% for the six months to June 2002 and a further 7% in the quarter following the end of the financial year. Management is fully confident that this trend will continue and principal outstanding will increase by 38% to R 11,2 million by June 2003. The result of increasing income and contained expenses will see operational sustainability improving from 51% to 65%. SEF is regularly cited in local conferences, articles, as ‘the’ example of “who’s doing low-income microfinance” in South Africa. Surprisingly few South Africans outside the small circle of microfinance practitioners know much about the organization and its impacts. By contrast, SEF is well known in the international microfinance community as a world leader in pro-poor microfinance practice, and is closely involved in both the Microcredit Summit and the Consultative Group to Assist the Poorest, arguably the two most significant groupings of microfinance practitioners and analysts in the world.
John De Wit, Executive Director, Small Enterprise Foundation attended the 17th International Grameen Dialogue Program in November-December 1993.
This report is based on website of SEF and a monograph on SEF by Community Microfinance Network South Africa, 2003.