MICROCAPITAL STORY: South African Women’s Group Accessed $1m Loan from Commercial Banks with Guarantee from Shared Interest and Thembani International Guarantee Fund

United Nations publication, African Renewal reported that a group of three hundred women in South Africa, called the Pankop Women Farmer’s Forum, has received a loan of approximately USD 1 million from local commercial banks to invest in a fruit and vegetable dehydration plant called Diretsogetse Pankop Fruit Processing (Pty) Ltd. The loan was extended with the understanding that if the women are unable to repay the loan, that the South African based Thembani International Guarantee Fund would assume USD 800 thousand of the losses.

This is the third such loan that the Pankop Group has received. They received their first loan in 2003, which amounted to USD 100 thousand, with a USD 70 thousand dollar guarantee from Thembani. They used it to convert a former girls’ dorm into the dehydration plant, hired 65 employees to run it, helped neighboring famers increase production for the plant, and set up a hydroponic community growing area. With the second loan of USD 120 thousand, also guaranteed by Thembani, they expanded the plant to employ 200 low-income people. With their most recent loan they plan to meet European Union health and safety standards and begin exporting.

Loan guarantees from organizations such as Thembani unlock credit from commercial banks for what would otherwise be perceived as risky borrowers. They also encourage commercial banks to extend larger loan amounts to microfinance institutions, small business, and other community-based organizations like the Pankop Group. Thembani’s largest guarantee benefactor is the Small Enterprise Foundation (SEF) who has received five guarantees between 2004 and 2007 ranging from USD 209 thousand to USD 373 thousand. Other beneficiaries of Thembani’s guarantees include Prepaid Wizard (USD 278 thousand dollars), a network of small businesses supplying rural South Africa with prepaid cell phone airtime; NURCHA (USD 1 million), a company that finances low-cost housing projects; and the Bee Foundation (USD 300 thousand), a program to train low-income individuals in beekeeping. Thembani’s website does indicate the size of the loans that these guarantees secured.

Since its inception Thembani has worked with a variety of South African Banks including the Amalgamated Banks of South Africa (ABSA), First National Bank, Land Bank, Nedbank, Standard Bank and Teba Bank. In December 2005, Thembani and its US based parent organization, signed a memorandum of understanding with South Africa’s largest bank, ABSA, in agreement that Thembani would guarantee loans that meet their performance and impact requirements. With this scheme, approved loans receive partial guarantees from Thembani ranging form USD 50 thousand to USD 1 million for one to three years. The agreement allowed Thembani to rapidly scale up its activities. In the first decade of operation, Shared Interests guaranteed loans to a cumulative of 450 thousand Africans. By 2006 this number had doubled to 975 thousand, more than 82 percent of which were woman. Thembani’s webpage reports that discussions are underway with the Development Bank of South Africa (DBSA) to develop another partnership.

In issuing guarantees, Thembani uses capital that is put up as securities by overseas partners, primarily New York headquartered non-profit, Shared Interest. In turn, Shared Interest raises capital by accepting investments from US individuals and organizations. Investors commit a minimum of USD 3000 for at least three years. The capital is put into a US bank account, and as such, earns the investor interest. Shared interest, as a non-profit, has low returns of approximately 2 percent in interest, but private investors generally earn more. The money is used to secure stand-by-letters of credit that the US bank issues to South African Banks guaranteeing their loans to benefactors identified by Thembani. In other words, it is put up as a guarantee that if the borrowers default, Thembani and Shared Interest will assume a predetermined amount of the losses.

Thembani was founded in 1996 by Shared Interest, and the Swiss-based private foundation Recherches et Applications de Financements Alternatifs au Developpement (RAFAD). RAFAD has been guaranteeing loans of commercial banks to microfinance institutions since the 1980s. It has given USD 53 million in guarantees, and unlocked approximately USD 212 million in credit. Shared Interest was created in 1994 and since then has provided guarantees amounting to over USD 13 million. In the process it has unlocked over USD 100 million in loans from South African banks, municipal unions, and private companies. About USD 11.4 million of Shared Interests guarantees have been through Thembani.

Neither Shared Interest or RAFAD report to the Mix Market, the microfinance information clearinghouse. The most recent financial data provided in Shared Interest 2006 Annual Review indicate that it had USD 10.8 million in total assets, 10.1 million of which were investments, and USD 10 million in total liabilities. Major investors in Shared Interest include the JP Morgan (USD 500 thousand), Johnson and Johnson, Daimler Chrysler, the Calvert Foundation, the Clinton Global Initiative, Missionary Oblates of Mary Immaculate (USD 500 thousand), as well as numerous private individuals.

Donna Katzin, the Founding Executive Director of Shared Interest, explained that Thembani does more than guarantee loans: “Thembani identifies projects and partners, helps them develop business proposals and plans for bankable projects and hooks them up with banks that are able to provide the credit.” She said it also provides assistance to the banks issuing the loans: “Most lack experience or training or have difficulty with this kind of lending. We are helping to change the way the banks operate. We are introducing them to a new set of people who need their capital.”

This involvement in the borrower´s business is important because it allows Thembani and Shared Interest to assess and manage their risks. Shared Interest has a reserve fund of at least 5 percent of its outstanding guarantees to cover any losses. Ms Katzin writes, “For every USD 1 that Shared Interest has placed in guarantees, more than USD 10 has been lent to low-income South Africans. To date, no investor has lost interest or principal.”

By Ryan Hogarth, Research Assistant

Additional Resources:

AllAfrica.com: Kenya: Small Loans Widen Horizons for the Poor, by Mary Kimani

Diretsogetse Pankop Fruit Processing: Home

“A Shared Interest in a New South Africa,” by Donna Katzin, Green Money Journal: December 2008

Recherches et Applications de Financements Alternatifs au Developpement: Home

Shared Interest: Annual Review 2006

Shared Interest: Home

Thembani International Guarantee Fund: Home

“Banking on AfricanWomen“, by Mary Kimani, United Nations Africa Renewal: January 2009