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Published By Fehmeen Khan on July 25, 2010
This article was written by Fehmeen who blogs at Top Money Hacks.
Ever heard of interest-free loans in microfinance? Probably not, because some microfinance institutions need to cover their expenses and others are in it for the money. But Seeds for Development, which is a UK-based microfinance charity specializing in micro crops, is different because interest rates play no role in their business model. I recently had the privilege of interviewing Alison Hall, the chairperson of the charity, and decided it was worth sharing.
Fehmeen: Please tell me a little about yourself and how you, along with your friends, setup this charity.
Alison Hall: Well, first of all, I have no background (or previous experience) in Africa, microfinance, microcredit, farming or charity work! I am a marketing manager at IBM. In September 2007, along with the 3 other founding trustees, I was sent to a conference in Oslo where Josephine Okot, the MD of Victoria Seeds, gave a very emotive talk about Uganda and the challenges farmers face, especially around
access to affordable credit. I had a light-bulb moment and decided to do something to help, and after some deliberation, we came up with the idea of lending farmers seeds (which is what they needed).
Seeds for Development was born!
Fehmeen: What exactly is it that Seeds for Development does a microfinance institution?
Alison Hall: Individual farmers looking for seeds to plant, approach Victoria Seeds, a seed retailer in Uganda, who combines the request of dozens of farmers and sends the details to us. We transfer the required money to the bank account of the consolidated group of farmers (Seed Farmers), who use the
money to purchase seeds, say, 20 kg of soybean seeds, from Victoria Seeds.
Once the crop is harvested, Victoria Seeds, bound by an earlier agreement, buys back the seed crop and deducts the monetary value of the seeds, which is recycled in the system to support other farmers. (In other words, the microloan is returned when the monetary value of seeds is deducted).
Fehmeen: What makes Seeds for Development stand out from the rest of the microfinance institutions (MFIs)?
Alison Hall: Microfinance institutions often charge interest rates that are outrageously high and hide under onion skins, so you have to peel away the layers to find out exactly how much they charge. Numerous people give their money to charities in good faith thinking all their donations go to the people they want to help, but when their money go via MFIs, very little of that donated amount actually lands in the hands of the people they want to help.
This is one of the reasons I set up Seeds for Development; all our donations go directly to the farmers we want to help, “ no interest, no risk and 100% repayment so far!
Fehmeen: Could you elaborate how you eliminate risk?
Alison Hall: The farmers carry no risk because we agree with them that if the crop fails due to flood, drought, disease, war or ultimately their death, then the microloan is forgiven. Even though we do not expect to get the money back ourselves (because it was all raised from charitable donations) we make sure the farmers believe that this is not charity.
Fehmeen: How does Seeds for Development cover expenses if all donated funds are forward to farmers?
Alison Hall: We pay for them ourselves because we all have day jobs. The costs we face are limited to travel, web-hosting, domain name registration, and the Just Givingâ online donation tool fee (we get the bank to waive bank transfer charges), so you can see our expenses are pretty non-existent at the moment. However, as we grow this will have to change and I am looking to see if we can get support in the form of grants to cover these expenses. All of our individual donations go directly to the farmers and we want to keep it that way!
Fehmeen: The activities of Seeds for Development are limited to helping farmers in a third world country; are there any specific reasons for your choice of helping farmers only?
Alison Hall: I believe the word farmer is misleading as it can conjure up an image of affluence. In fact farmers are the poorest people of the land and they have the greatest difficulties in securing credit. Agriculture is widely accepted as key to poverty alleviation and we want to help the poorest, most challenged people farm their way out of poverty.
Plus, most of our clients are refugees who were displaced because of the twenty-year civil war that plagued Uganda from 1986 to 2006, and caused 2 million people to flee their homes and live in IDP camps. When Seeds for Development was setup, more than 500,000 people were still living in these camps.
We are trying to help people leave these camps and go home to rebuild their lives through microfinance. This is very challenging for them because many of them have known nothing but war, have no education and no older generation to pass on knowledge. Their land has not been touched for 20 years they often have no house to go home to, and have no food security.
Since most of them are starting from scratch, we also provide funds to help them purchase other basic agricultural inputs, such as forked hoes, hand hoes, wellingtons, weeding sprays, drying tarpaulin, fungicide, etc. to cultivate their micro crops.
Fehmeen: Your results are commendable â€“ a 100% repayment rate, even in microfinance, is remarkable. What factors would you attribute to that: commitment of workers, good credit discipline, strict client selection criteria, or complementary training of clients?
Alison Hall: Thank you! Yes, the selection process is very strict. Victoria Seeds select the farmers groups for us to work with, educates and trains the farmers on seed production and closely monitors their progress throughout the growing season.
Most importantly, our farmers are totally committed to getting themselves out of poverty and know that they have to farm their way out. They have an astonishing attitude!
I meet the farmers as an equal partner we shake hands and look each other in the eye. They give me their word that they will be honest, trustworthy and hardworking and the group committee signs an agreement. I then go and meet them again to see how they are getting on, etc.
A really motivating factor for the farmers is that when they pay back the loan, we transfer the money back to the group to use as rolling credit. This was a temporary arrangement because we didnâ€™t have the infrastructure to take the money back and reallocate to other farmers. However, it is so successful that we will leave it this way and build on it.
Fehmeen: How many loans have you advanced so far? Could you share a few figures about your growth prospects and success?
Alison Hall: We have advanced 4 loans to 3 groups so far (here are their details):
- Group 1 has received two micro crop loans, totaling £3,500, and thanks to the rolling-credit facility, these farmers have been borrowing seeds against it for 4 seasons now. The idea caught on fairly quickly because the repayment rate was perfect and the group size rose from 80 to 200 at one point, before settling at around 100.
- Group 2 (70 farmers) and 3 (60 farmers) received much larger micro crop loans (over £4,500 each) because they belonged to the war-torn Northern Uganda. Despite this, they too have scored a 100% repayment rate, and we’ve recently forwarded funds to a third group in the North.
In addition to this, we also paid for 60 of the farmers to have a daylong training in organic farming because we felt it was vital to invest in furthering their education and building their knowledge.
Fehmeen: What is the way way forward for Seeds for Development?
Alison Hall: We currently have enough funds to support 2 more groups of around 40 to 50 farmers in each with significant (£4,000) micro crop loans this year. Our goal is to raise around £10,000 per year, which will allow us to support 2 new groups per year. However, we overachieved this by 50% last year, so we were able to take on an additional 2 groups this year.
We need to have some more formal structure in place to ensure that we can build on our success and grow in a sustainable way; for example, we will need to invest in management systems to track, monitor and develop the rolling credit model efficiently.
But beyond that, I have lots of dreams and ideas for Seeds for Development!
(Just in case you’re wondering, there are no minimum donation amounts for Seeds for Development; in fact, some people donate as little as £1 at a time).