Day 8 Tamale Microfinance, Microinsurance, Susu

Day 8- Tamale Rural Banks, Microfinance, Savings, and Susus
Today was another great fact-finding day but it was also the most inspiring. I was very emotional at the end of the day when we met with the Baobab Thrift and Susu. I have seen a number of great activities that are going on to help alleviate poverty, but this one seemed to be the most sustainable and have the greatest impact. It was hard to keep our eyes dry. I met two great organizations, but the second organization,Baobab Savings and Susu which provides a savings and microcredit facility for women who have table-top market operations was one of the most inspiringof all the many activities I have observed, and I think has the greatest impact and most sustainable concept. If I had money, I would use it to help these kind of operations.I think that a lot of governments and NGO's are realizing this and supporting those activities.

I got some great video footage of the actual operation. (You can see this on You Tube at:

http://www.youtube.com/watch?v=ZCckKV_djb0

They made disbursements to the women today by chance (one of only three times each year) and we got to witness it. The photos on this blog show the women receiving their money. Instead of signatures they use thumb prints. You can see them placing their thumb prints on the papers to accept their money. I found the best Internet Cafe in Ghana, the Kalong Cafe just around the corner from the hotel. Very fast. I uploaded a video of market scene to Day 6. Added a bunch of photos and did two posts. Did some Internet surfing to find out what organizations are here in Tamale in case we have some time on Friday.

Day 8

First Meeting:Bonzali Rural Bank Ltd. Kumbungu
We met with Paul Atsu Fiawoo Deputry Director and Head of Credit and Mike Tizaaee managing director .
They provide loans to rural groups both agricultural and commercial. Mostly commercial (only 15 percent agricultural) because the risk is too high with that agric. sector. Their typical loan is 18 months. They charge a little over the prime rate. They can loan money at a lower rate if they get grants for specific sectors, like farmers. For example they got a grant from Community Bank Rural Development and the used this to offer loans to farmers at a lower percentage than market rate. The current project related to farmers and loans is resulting from a US AID Millenium Challenge grant. The Millennium Challenge development grant goes to the main bank overseeing the rural banks. They in turn make loans to the rural banks to provide loans to registered groups of farmers (small farmers who have an average of 5 acres). The Ag Extension officers identify the groups to give loans to. They are typically in areas where poverty is endemic. The grant also provides for development of business plans for those groups.

The Bonzali Bank also assesses the group. They give loans to existing customers who have savings accounts for at least six month. Another role of the extension officer is to train farmers to move from traditional subsistence farming to commercial farming. If they have a 100 percent repayment then they get the grant from the Millenium Challenge.This could eventually lower rates charged to farmers in the future.

What do they do with bad loans?. They usualy reschedule. Usually A 4 month extension. They work through the chiefs whenever they are organizing groups. The chief becomes the de facto "underwriter" in identifying the best risks.

Microinsurance Initiative
Bonzali is just now getting into microinsurance following some training by GTZ, a German Technical Organization , with ILO as partner (the organization that funded us for this trip) , introduced training for microinsurance for people who have loans with the banks. Paul has gone to Accra and went through training on microinsurance at Ghana Insurance College. His instructor was Michael McCord, President of Microinsurance Centre (in Wisconsin). Michael must have done a good job as Paul was very enthuiastic about the potential to do this. The two products they offered by rural bank, through State Insurance Company (SIC), was credit life insurance and invalidity (disability) insurance if person is hospitalized for more than one month.


They affirmed that people NEED to be educated about insurance. They also endorsed the idea of starting with Best Farmers, and then getting smaller farmers to buy in later. Thinks it would be a good idea to have a training facility up north. Consider University for Development Studies here in Tamale. Potential partner for student for student involvement.

Baobab Thrift and Susu
Called and then met with Managing Director Manisu Sulemona. He arranged an entire impromtu meeting with all of this team. He was really proud of what they had accomplished, and with good reason wanted to share. He introduced us to his team of nine workers (up from three a year ago) and head of Director of Microfinance Zakaria Abukasi Sadiq. Not only did they accommodate us with a meeting of all their employees, they opened up their books(quite literally) and showed us the progress the women have made over the year. They have photos of each of the women next to their accounts. They use thumb prints in lieu of signatures. They work with 85 Community Credit Associations. Each of these has 25 women.

This was without a doubt the most inspiring or all of visits. We actually got to see the women get their money. We lucked out and came on payment distribution day. This was not a bank. It was a credit and susu (small savings and loan) that was established by two individuals. They work almost exclusively with women. They provide three things.
1. Facility (mechanism) for microsavings and susu accounts
2. Facility for microcredit
3. Education to women on financial literacy and health education

(Note: A susu account is a very interesting concept. But is prevalent throughout Ghana. I have not seen it in other countries. The way it works is that a group all throw money together at periodic time. They then choose one person to get all the proceeds. They then rotate to the next person until everyone gets a chance to get the payoff. I am not sure how the rotation is chosen, maybe randomly, but it seems to provide an incentive to pool funds. The person, usually a woman, can then do what she wants with the proceeds. Maybe start a bank account or buy goods to start her own tabletop operation.

Baobab brings everything to the village. Women set up their susu and thrift accounts in the village near their homes. Baobab sends out people to make the collections and make the disbursements in the village/neighborhood.

They make small loans to women ranging from Ghc300 to Ghc600 to women ($225 to $400). They charge . One percent of the loan goes back to the group that they can use for any purpose. However, they will often use the fund to pay for a member that is struggling and in risk of default. The way it works is that five women form a solidarity group. They then merge with four other solidarity groups to from a Community Credit Assoc. Loans are made to the group and are the responsibility of the group, and individuals members can receive up to Ghc600 ($400) each. If a member defaults then the other four in the group must make up the difference. (So this affects who you pick and who you keep in your group).

Currently they do not see a need for credit life insurance to protect them against risk of default. They don’t have defaults, so they don’t see a need for the product.

An observation made is the unintentional consequences. In fact, they are quite skeptical of the value because it could create a moral hazard. Women would get the impression that if they don’t repay their loan, some insurance fund will take care of it. They are concerned about this creating a counterproductive mindset.

They are currently seeking a Ghc90,000 investment to expand their operation.

We went out to the village to see how the money was distributed. Got some great photos and video of interview with Mr. Sadiq of the operation. I posted to YOU TUBE my interview with him. http://www.youtube.com/watch?v=FOcIdw61j1Q

At the weekly meetings of the group they have education on health issues. For example how to prevent diarrhea so that they don’t have to spend their money on drugs resulting from drinking bad water.

According to the director of the microfinance, although this is a women’s group enterprise the men also benefit and are accepting of the concept because at the end of the day, it provides more food, certainly more nutritious food to their family. The money also pays for school fees and other items like that. The men appreciate this revenue, eventhough it does make the women more equal in terms in family decisions.

Mr. Sadiq expressed his gratitude for us stopping by. He said it was very meaningful to recieve the affirmation that they were on the right path. He quoted an African proverb to me to explain:
The one who makes the road can not tell if it is crooked or straight. But only someone watching from afar can tell. They certainly appear to be making a straight road.

In short, it was a great day.
Faithfully submitted,
Jim Jones
Director-Katie School of Insurance
Illinois State University

Day 7 Techiman, Forikrom, Sunyani

Day 7- Understanding the Farmers
Today was another incredibly enlightening view. We met with small farmers who are the ones who are really suffering from some of the climate changes. We learned their concerns and what might work in terms of improving their risk management of crops. (And what they told us was something that foreign organizations working with farmers here really need to hear because some of them are doing great and others are actually counterproductive.) We also met with two NGO’s (one local and one from the U.K) who are working with the farmers at this level, and got their perspective too. Finally we met with a young Ghana college grad who is doing just some amazing work in small business development. His organization seems to have it right. We then drove to Tamale. Stopped at the Kimtaba Falls. See photo. As we got farther north we saw more thatched roof structures and mosques.

Meeting at Forikum.
Around 7:30 a.m. we met in a small village where Peace Corps volunteer Greg Yeich lives and works as a an environment worker helping farmers with their crops. We learned that they are dealing with some changes in the when the rainy seasons. I now understand that at this point the issue seems to be, less the change in the amount of rainfall, but the timing of the rain. This is vexing the farmers because if they plant too soon, on their traditional time tables, and the rains come late, their crops fail. (That is an incredibly important variable in designing a rainfall-indexed insurance product). The crops they grow in this area are maize (corn), cassava, yams, and some onions and tomatoes. Most of what these farmers (who own 2-10 acres) grow is eaten by them. Some surplus (when they have a surplus) goes to market. There is a push by government to try to get subsistence farmers to grow crops for sale as well. Greg showed us some recently introduced new alternative agricultural income that had proven to successful. Examples include bee-keeping (wildly successful), cashews, mushrooms, and dry season vegetable gardens, plus some livestock farming (cows, goats,chickens).The gardens where Greg had his crops was one of the few that was fenced in.(To keep the goats out). He used bamboo materials to construct it and you can see that in the photos. This enables him to farm close to his house. Many of the local farmers plant a ways out of town because if they plant close to town the goats eat their crops. The local farmers may actually not be able to afford the nails needed to construct the fences. We found out that the cost for farmers to get loans to buy their inputs (seeds, fertilizers, etc) has around a 30 percent interest rate. That is prime rate here for all loans.

The farmers are concerned about taking out loans from banks because if they have a loss and don’t pay they can be taken to court, and even end up in prison. Some of the banks have flexible time schedules that would allow a farmer to repay later if they have a loss. But according to the group we talk to, one bank, reported run by a well-known American non-profit organization was very inflexible. They took the farmers to court immediately and so the farmers had to leave the area or face criminal prosecution. (Also, another way that some lenders deal with delinquent loans is through local nanas (chiefs) rather than the court system. I was glad to hear that one American organization, Heifer International, was very well-respected and their efforts seem to do a lot for farmers. (They provide a cow, chicken, goat, bee, etc. with the stipulation that the farmer passes along the offspring to another farmer. This seems to work very well according to the group I spoke with.)

The Forikrom Farmers Group
The Forikrom village is about 5 families of 5000 people (Yes, there are about 1000 in each extended family). The Forkikrom Farmers Group I met with was a group of twenty farmers (men and women) and was formed in 1992 as an effort to replant trees near a river. (The local farmers had planted too close to the stream, and lost the shade provided by the trees. The stream dried up. So they mobilized and replanted trees, and the stream once again returned to its regular flow. Since they had formed together they decided that it was a good idea to continue as a group and looked for other activities to do. About this time a retired South African military officer, who everyone just calls Mr. Rankin, was on a church mission trip for his church. He taught the local people how they could grow different crops in the dry season, with different techniques. They just needed to grow them near the river (or do some rain water irrigation) and so he trained this group and they went out and trained others. This is still occurring to this day and his legacy lives on. The only challenge to this is that it is very capital intensive. It costs about $500 for an acre to grow onions, carrots, tomatoes, cabbages. That will pay off in more than $1000 in income, but coming up with the $500 is a real challenge for most farmers at this level.

One of the things that Greg has been working with the group on is alternative crops like cashews trees (which will produce in a couple of years), mushrooms, and bee keeping (which takes very little capital and is really taking off). The beekeeping ended up leading to a form of insurance. The way it works is that each of the twenty farmers will contribute one jar of honey to the group. They then sell this and but the money in a bank. They expect that the following year one or two of the farmers will have crop losses. When that occurs the group gives the money to these farmers who suffered the loss. That works really well. What is interesting is that because this new alternative income is kind of viewed as “surplus” they are willing to make that contribution. However, the other groups who have not yet adopted the new alternative crops seem less willing to voluntarily set aside part of their traditional crops, like maize, for “insurance” purposes. They see the need to hold on to this. They just don’t seem to view it the same way. However, some of the Nanas (chiefs) have this “insurance” system in place and require each member to contribute some maize to the village at harvest, to be saved in the event that there is a crop loss. This practice seems to vary by village, so I am meeting with some local Nanas to find out how common this “traditional” form of risk retention group is. It actually offers a great educational opportunity if it is not that common. And it might be a good time to introduce the concept as they introduce these new alternative incomes (which are still viewed as surplus) and more likely to be directed to a new form of group “insurance”.

The Nanas are really the ones to start with. They need to approve the idea and in talking with people they are the front line defacto "underwriters" as they will help direct rurual banks to the best farmers groups to give loans to, and quite possible the best groups to insure (as that becomes a possibility).

We then drove about an hour to meet with Nana Adams executive Director of local NGO and Greg’s supervisor and Julliette Lampo Director of Concern International. They both said that there is a huge need for some type of insurance to help farmers. They concurred with some of the suggestions made by the crop experts at our brainstorming session at KNUST about how to roll out such a product and who should be target market.

Understanding Small Business Development in Ghana

After that meeting we met with an amazingly impressive young man Kwaw Adams, (son of Nana Adams) who had just graduated from college and was working with helping small businesses develop. He walked us through an extensive process of how they chose business sectors to concentrate on in a particular location (i.e Poultry-egg production, ceramics, and hospitality) and how they went about selecting those sectors. Very well thought out. Then they advertise for businesses to help get started. They then go through an extensive process of screening, doing a SWOT analysis, doing business development plan, arranging capital with local banks (and they have a way of even choosing the banks to work with), and then providing educational training to make sure the entrepreneurs thrive. In their first pilot group of 2007 they chose 28 businesses. 25 are still operating, and because they do working capital analysis, he knows that those are doing well. This is supported by the foundation for an American company doing mining in Ghana, and they focus on communities where there are mines, but this model could work anywhere.I took about 10 pages of notes on that. I will tell you one major lesson for development. It all hinges on good record and bookkeeping with the small businesses. Without that foundation. It is not sustainable. Can't get bank loans, can't diagnose business problems etc. without good records. We asked if he saw a need for insurance. He said absolutely. First pension and health insurance. This is offered through the government. Cost is about $10 a year. The businesses need to develop a bit more, but that is something he plans to talk with them about and would like to meet insurers willing to work with his businesses. He started a second group of 28 this year.Interestingly, he noted that there was a credit default risk product that was started by some church called Economica Church Loan Fund. They require farmers to put up some additional money for default risk insurance. But if they pay their loan off on time, they get the money back. That seemed to work according to Kwaw. Will be interested in hearing if any other institutions do this.

Well,we pulled into Tamale at night. It was really HOT as everyone had warned. HOT Tamale. It is actually pronounced Tom-ah-Lay. Funny, when we pulled into the hotel their was a group of students (11 of them) from Michigan doing study abroad. Health Education. The lobby of the Mariam was full of Americans. Not what I expected to see when I pulled into a hotel in northern Ghana. Will try to post some photos later today.

Faithfully submitted,
Jim