A LOAN IS AN ACT OF TRUST by Aaron Kirunda

In communities where access to credit is a challenge due to high interest rates and or disproportionate collateral, the economy is trapped in a negative circle, unable to grow:

NO CAPITAL – NO ENTREPRENEURS – NO COMPANIES – NO ADDED VALUE

In Uganda, banking institutions provide loans with interest rates higher than 25% per year and collateral that is 2 times the value of the loan, while micro-finance institutions provide loans that is sometimes higher than 120%. These terms push the majority of low income entrepreneurs to look for alternative financing mechanisms. They usually end up with loan shacks charging interest rates higher than 150% per year for limited amounts of capital over short terms periods.

With the emergence of credit over the phone through mobile money promising easy access and a reliable micro-finance option for low income communities, interest rates are 9% per month or 108% p.a. You can only qualify for a sizeable loan amount after saving with the provider over a perioid of time in addition to regular use of the service.

Which business can increase value at a higher rate than 100% per year in order to reimburse these loans !?

In an attempt to challenge the status quo, I have seen how in Uganda companies like Numida or Patasente, provide business acumen to limit the risk of lending capital to SMEs. They do this by proposing lower interest rates and better conditions, including uncollateralized loans to low income entrepreneurs.

Their work in providing access to capital is essential because the power of a loan goes way beyond the amount of money this loan injects in a business. Credit is literally trust, and by granting a loan, we grant an entrepreneur trust in her project, and her capacities to conduct it. Granting an entrepreneur with this kind of trust is what ultimately makes her accomplish the impossible.

UBUNTU, by Nqo Ndlovu

Impact investing to me reflects the spirit of Ubuntu. “ Umuntu ngumuntu ngabantu “ is a Zulu/ Ndebele proverb which when loosely translated means, “ a person is a person because of other people”. We are, therefore I am. Our individual destinies and identities are thus intertwined.

I was raised in Zimbabwe and in my community, families relied heavily on each other for financial support. Very often, members of the community who had established themselves in the big cities and had stable jobs, would fund and support relatives with less financial means. In this way, one contributed to the betterment of his/ her community.

My friend Philani, recently supported the launch of his uncle’s spaza shop (kiosk), and most of my peers, are paying for the school fees of relatives who will one day become successful professionals and pay it forward by supporting other community members. It’s how we’ve always done it, we invest in each other. We do not make these investments to get financial gain but instead we invest in people, to generate positive impact in the lives of our loved ones and broader community.

In my travels i’ve met fellow Africans across the continent and in the diaspora and always marvel at how this mechanism is alive, across borders and generations. However, in most cases this investment behaviour is only limited to one’s relatives and immediate community.

As we launch the JAMY project, we begin with the question: “ What would it take, to expand this existing mechanism of impact investment to a wider community ?”

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Scaling Impact Investments, By Clement de Alcala

Impact investments account for only 0.05% of the total amount of money invested via crowdlending. One may ask why this is. In other words, why are only a fraction of peer investors focused on impact ?

Our team at JAMY recently conducted a pilot project in Uganda, where we asked 50 people from our network to invest in social companies. 25 of these people were from the impact ecosystem and the other 25 from outside of this ecosystem. 56% of the impact community invested in the social companies we identified, whilst only 8% of the conventional investors (7 times less) invested.

In his blog Seth Godin notes, “if we experience what people experience, if we know what people know and if we believe what people believe, then we will certainly do the same.” Impact investors know that impact investing can financially perform as well as conventional investing. Impact investors also trust that their investment in social companies will bring about social and environmental good to the community they operate in and beyond.

Observing the crowdlending ecosystem, it is difficult to blame the 99% of the people who do not invest in impact. Less than 1% of all existing crowdlending platforms focus on impact. These platforms mainly target an already committed group of social investors, with limited communication tools, in Europe and North America.

Our contention is that, if we manage to increase awareness about impact investment through high quality and easy to share content, while providing investors with financial gain, we can encourage a lot more peer investors to become Impact investors. Based on our modest experiment, multiplying actual impact crowdlending by 7 would avail $1.4 billion in loans to social companies, every year. It may very well be worth investigation further.