Olivia van Rooyen has little patience with the fuss made of her pioneering Kuyasa Fund, which has lent millions of rands to thousands of South Africa's poor to improve their homes.

It is a simple business, she says, no more special than the thriving retail chains where the poor buy their furniture on credit. As for being honoured as Ernst & Young's social entrepreneur of the year, she says: "I kind of heard two years ago that there’s this new buzz thing called 'social entrepreneur'."

Actually, she is just a development worker in a subsector that can pay for itself, she says. And she has it easy because her clients, despite being poor, are "in a place of hope" when they look for finance to improve their homes, compared to social workers who have to deal with despair.

At one stage she called herself "the aunty from the NGO", or at least that is how she believes she was perceived by the lecturers at Stellenbosch University where she did her MBA part time. The designation scored her at least 5% extra for her assignments, she says, just for being different to the executives who did the course with her.

Van Rooyen’s self-effacement stems from her mission to prove that ethical lending to the poor is viable, even easy. Kuyasa was started in the late 1990s as a R350 000 experiment by the Development Action Group, a housing NGO, to prove to the banks that the poor are credit-worthy even if they lack formal-sector payslips or assets.

Ten years later, Kuyasa has made its point. It has lent R103-million to 18 325 poor people, 93% of whom earned less than R3 500 per month. Kuyasa turns down only 4% of applicants and boasts a default rate of only 5%. With 8 600 clients, a field force of 60 loans officers and six branches in the Western and Eastern Cape, Kuyasa is about to break even.

The Ncita family of Site C, Khayelitsha, are typical Kuyasa beneficiaries. It is hard to imagine that the small lounge and open-plan kitchen William Ncita is sitting in was the two-room hokkie in which he lived since 1986. Except for the Saturday morning township sounds outside, he could be anywhere in suburban South Africa.

Phakama, his wife and a domestic worker, heard about Kuyasa through the stokvel to which she belonged and applied for a R5 000 loan to top up their R28 000 government subsidy. It allowed them to add a stoep and garage to the rudimentary shell.

Repayment was R355 a month over two years. A second loan of R10 000 followed for ceilings, painting and flooring. The Ncitas are currently paying off R1 054 per month on a third loan of R15 000 for finishing the bathroom and garage.

Phakama received the loan despite the fact that William was retrenched from a carpentry business in Ottery. He now works for himself, installing kitchen cupboards for local families who are also improving their living conditions.

Van Rooyen paints a rosy picture of the market opportunity. By 2005, 2.1-million households had been given a platform upon which to uplift themselves through the housing subsidy. "It's a massive transfer of wealth from the state to the people," she says.

This "gift", combined with the entrenched culture of group savings among the poor, offers a clear opportunity for financiers. It is only when asked why the banks are still standing timidly on the sidelines that Van Rooyen gives an inkling of the difficult journey that she has been on.

"This market is risky. It's not a dark, racist conspiracy that the banks don’t work in this market. It's risky," she says. "Part of the problem with banks is they don't know about poor people. It's just this amorphous mass that they don't understand. There are no payroll deductions, debit orders, that kind of thing."

They'll pay for market surveys and embark on pilot schemes, but “they don’t see those efforts through, and when the problems come, they don't iron out those problems. They drop it for a year or two, and then they go back and start from scratch. So they end up losing their institutional memory."

In other words, the banks lack an entrepreneurial approach: the ability to spot the gap and with a mixture of evangelical belief, experimentation and doggedness climb the steep learning curve towards a sustainable model. This is the path that Van Rooyen took with Kuyasa. Her background gave her a solid foundation for understanding the poor.

Political activism made her give up her legal studies at the University of the Western Cape in the late 1980s for a job at a retail workers union, which took her to the Cosatu-affiliated unemployed workers movement. There, she "learned to understand the smell of hunger on people's breath". It was then a short step to savings cooperatives and various non-profit experiments to uplift the poor by leveraging their savings through credit. Her experience in the early 1990s as a junior officer at the failed Community Bank gave her some ideas of how not to do it. There was too much of the established banker's mind-set, she says, not so much in the plushness of the offices as in the overreach into a market that required a novel approach.

At the Development Action Group the idea developed to offer the banks a guarantee for home improvement loans to the poor. They did not bite, and Van Rooyen was delegated to set up Kuyasa and start lending herself. Instead of aiming to achieve a set of targets, her project started with a list of questions: "What does the product need to look like? What are the repayment patterns? What are the required systems? How much is it going to cost? Can it be scaled?"

Like most small start-ups, the market research mostly took the form of learning on the job and she didn't hesitate to copy from others. Realising that the most common form of formal credit among the poor is a loan for a lounge suite, Van Rooyen made a careful study of the furniture industry. Under Van Rooyen's lead, the organisation evolved a system that is both human and machine-like.

"You absolutely have to [run a tight ship]. It is almost militaristic. Your systems have to be rigorous and disciplined and your organisational culture needs to remain humane. You need to find the balance. I don’t think there is a contradiction between humanity and rigour," she says.

On the human side of the business, Kuyasa lends on the basis of the relationship between the client and the loans officer who is incentivised to be cautious but entrepreneurial. Kuyasa does not do repossessions or blacklisting. If a client defaults, she is talked back into the fold. A significant portion of Kuyasa's bad loans recorded in one financial year is eventually paid the next year.

On the machine side of the organisation, Kuyasa has developed an SMS reporting system that requires field officers to report to branch managers at certain times of the day on exactly how many clients they have seen, instalments they have collected and new loans signed.

Branch managers in turn report to the head office in Cape Town and at 8.30pm Van Rooyen receives a report on her cellphone which flags every significant glitch in the day’s operations. The "drama" caused by a series of telephone calls down the management ranks on the very same evening helps to keep the machine oiled, she says.

Despite working under extremely standardised procedures, where daily routines are mapped out by the minute, branch managers and loans officers know they can bring loan applications outside of the standard procedures. Van Rooyen says this is how innovation is driven in Kuyasa.

When requests for exceptional loans from the field become regular, it is turned into a new product. Late last year, Kuyasa formalised small business loans for its self-employed clients to boost their businesses.

If institutional financiers are scared of home improvement loans to the poor, they are petrified of informal businesses and for good reason: not one micro-business loan project has survived more than a few years in South Africa and there have been many. But if anybody has a chance of making a small business loan system work, it is Van Rooyen, who knows more about how entrepreneurs think than she cares to admit.

http://mg.co.za/article/2011-02-21-lending-a-helping-hand

• Social entrepreneur category - Olivia van Rooyen – The Kuyasa Fund
Social entrepreneur category winner of Ernst & Young SA chapter of the World Entrepreneur Awards, Olivia van Rooyen started The Kuyasa fund to support community groups to save towards housing and grants loans to individuals who qualify for the state housing subsidy within their belief that the poorer of the poor are still credit worthy and that through mobilising savings they are able to build financial and social capital – specifically housing. Kuyasa provides microfinance services to those with secure occupational rights but whom are traditionally excluded by the South African banking fraternity. The underlying belief behind the business of Kuyasa is that by improving the quality of housing of these people – the moral and social fibre of the community is enhanced by pride felt in being a home owner, and the stabilisation it gives to families.

About Entrepreneur Of The Year
Ernst & Young’s global Entrepreneur Of The Year programme is the world's most prestigious business award for entrepreneurs. Recognised globally, the award provides a unique way of encouraging entrepreneurial activity and recognising the contribution of outstanding men and women who inspire others with their vision, leadership and achievement. As the first and only truly global award of its kind, Ernst & Young Entrepreneur Of The Year celebrates those who are building and leading successful, growing, and dynamic business, recognising them through regional, national, and global awards programs in 125 cities in 40 countries.

About the Schwab Foundation For Social Entrepreneurship
The Schwab Foundation for Social Entrepreneurship was co-founded by Klaus Schwab, Founder and Executive Chairman of the World Economic Forum, and his wife, Hilde. Since its inception in 2000, the Foundation has been identifying the world’s leading social entrepreneurs in over 40 countries around the globe. Social entrepreneurs implement innovative and pragmatic solutions to social problems by tackling the root causes and creating social transformation. Selected social entrepreneurs of the Schwab Foundation network participate in World Economic Forum events, thus providing unique opportunities for them to connect with business, political and media leaders.

http://www.weforum.org/en/communities/schwabfoundation/

Building Wealth

by: Andre Janse van Vuuren

FORMER TRADE UNIONIST Olivia van Rooyen helped found the Kuyasa Fund as a vehicle to bring housing within reach of low income earners that South Africa's formal banking sector didn't cater for. Van Rooyen is a finalist in the Ernst & Young World Entrepreneur Awards 2010 social category. Founded in 2000, the need for its services was as necessary back then as it's now.


Of the 2,4m houses delivered through Government's housing subsidy system since 1994 only about 100 000 units are linked to credit from SA's formal financial sector. That shows how few of these households have the means to obtain formal credit and that many are unable to renovate or improve the properties they've acquired.



Given most Government houses measure between 23sq m and 36sq m, many people continue to live in housing units that are too small and unable to provide for the development needs of their families.

"Most of our clients are employed in the informal sector, which means they don't have the regular income or wage to even obtain a micro loan from a bank," says Van Rooyen. "Their chances of a getting a mortgage is even less." Most of Kuyasa's clients earn less than R3 500/month.



One consequence of that is the opportunity to build asset and wealth creation through housing is limited, she says. She explains the wealth creation effect of loans as follows:


* A Government subsidy-funded home in the Western Cape is valued at R50 000. After a client invests his savings (around R2 800) and two micro loans (R12 000 to R15 000) the homes of Kuyasa's clients are on average 60sq m and valued at between R150 000 and R250 000 - a massive increase in asset value for poor and very poor households. 



* Loans are issued at 32% interest and typically offered over a six- to 12-month payback term. Van Rooyen says Kuyasa's approach to funding centres on the strong culture of group savings among low-income earners. "Our methodology is rooted in the group savings culture prevalent in SA." Such groups serve a dual purpose: they regulate the risk to Kuyasa associated with lending, as well as supporting clients through long-standing social and financial networks.


Van Rooyen says Kuyasa's approach to funding centres on the strong culture of group savings among low-income earners. "Our methodology is rooted in the group savings culture prevalent in SA." Such groups serve a dual purpose: they regulate the risk to Kuyasa associated with lending, as well as supporting clients through long-standing social and financial networks.


Where required, savings training programmes are offered by Kuyasa to support the development of financial skills among its clients and to promote good governance in savings groups. "To date, of all the members of savings groups supported by Kuyasa only 35% have taken loans from us," says Van Rooyen. That mobilised around R16m in savings and presented a significant financial resource for use in housing.



The organisation uses its beneficiaries' strong familiarity with savings groups as a requirement for accessing a loan, with potential clients being required to save regularly for a six-month period before they can apply for finance. That requirement serves a threefold purpose:


•    To prove an ability to save and manage money.


•    To ensure the development of a relationship with other members of the savings group that can be harnessed by Kuyasa to encourage repayment through peer pressure.


•    To create personal savings to be added to the loan, increasing the amount of finance available for the completion of the housing project.



Van Rooyen says a key benchmark for Kuyasa will be to become profitable next year. The group's lending activities have so far been funded by commercial loans, while other expenses have so far been donor-funded. However, she's confident the group has positioned itself as a niche micro-lender, providing finance for housing at lower rates than the limited alternatives and playing to its major strength of understanding the context of the market.

As many of us wonder how we can do our little part in aid of charity, 13 year old Elliot Friedman from Portland, U.S.A. has contributed with a very rare and exciting concept. Elliot, a 7th grader in the state of Oregon has written a book and will donate all the proceeds to the Kuyasa Fund. The book, Zanzu the Weaverbird, was written by Elliot as a class project. It is based on the concept of Ubuntu, which he learnt about on his many travels to South Africa. While writing the book, Elliot mentioned to his father that he’d like to sell the book and donate the proceeds to a charity helping people improve their living conditions in and around Cape Town. It is here that Elliott’s father, Mark Friedman, discovered the Kuyasa Fund.

Zanzu the Weaverbird will be sold throughout the United States and promises to be Kuysa’s most interesting and welcomed form of funding to date.   Thank you Elliott!!