Making a profit from credit

Charles Nangwale explaining how the Malawi Rural Finance Company balances its goals, both supporting farmers and staying in business.

Making a profit from creditCue:A private credit offering institution, like the Malawi Rural Finance Company, will soon go out of business if borrowers fail to keep up their repayments. Such companies need effective ways of maximising repayments, while also deciding how they will respond to natural disasters such as drought, which can greatly effect people?s ability to pay off their loans. Many institutions have realised that lending to groups rather than individuals can improve rates of repayment. The Malawi Rural Finance Company has also taken this approach, and supports the groups who borrow from it with a variety of training packages. Excello Zidana spoke to Charles Nangwale, Credit Officer of the Northern Region Branch, and asked him what mechanisms the company was using both to support the farmers who borrow from it, and to keep itself in business. IN:?We know people are different?OUT:?to improve their life standard.?DUR?N3?56?BACK ANNOUNCEMENT:Charles Nangwale explaining how the Malawi Rural Finance Company balances its goals, both supporting farmers and staying in business.TranscriptNangwaleWe know people are different, we are born with different characters and we want these people to be able to work together. So the first thing is, we train them on group dynamics. And after that we train them on the particular farming activity or business they want to carry out. Then we teach them our credit procedures so that they understand how we want them to run the businesses, how we want them to repay our loans. ZidanaIn any society there might be some people who are definitely not honest. If they fail to honour their loans what do you do?NangwaleWe are working to assist the people but at a profit. So we have tried to be a bit clever. During the training we teach those people to draw a constitution which is supposed to govern, you know, their group. So in that constitution they are supposed to outline what are they going to do should somebody fail to repay their loan or should somebody maybe passes away, what is going to happen? The first thing is those people themselves are going to take an action against whoever has failed to repay the loan. But then if the group has failed to do that, then we come in and that?s why, you know, we have things like loan agreements so that we know we can act on these people without any legal problems. ZidanaNow during the times of natural disasters like drought what do you do?NangwaleDrought is unpredictable and you cannot prevent drought. We know this is a problem, it is not the customer?s making, it?s something that has just happened to him. So we give those people an opportunity to reschedule their loan so that they can repay it maybe in the next two years, should there be no drought that is again.ZidanaI understand that most lending institutions before they give out loans, they think of sureties. What does your company do in this regard?NangwaleYes we also require these people to give us what we call collateral. Of course we don?t require collateral for all the loans because Rural Finance has targeted everybody so we know there are people out there in the villages who cannot raise collateral. So for those people we give them loans which don?t require collateral. But for those people who want loans that require collateral, we require two types of collateral, cash collateral and material collateral. In cash collateral we require our customers to pay 20% cash deposit of the loan they are looking for. And material collateral is supposed to be 150% of the loan they are looking for.ZidanaBut as you said that your main focus is on the poor of the poorest farmers. So when we go around you see people in the villages, they are still very poor and some even complain that your company tends to take other items as part of the whole strategy of loan recovery. Is this act aimed at helping farmers?NangwaleYes if you remember what I said, I said Rural Finance is a company which is there to assist the farmers and the general public as a whole. But then we are supposed to do that at a profit, because if we don?t make profit then we won?t survive. When somebody has failed to pay us back there must be a way of getting back our money you see because we are in business. Much as we want to assist the farmers they shouldn?t just take that as a grant, they should actually work to pay off the loan and to improve their life standard. End of tape.