73% of the Congolese population lives on less than $1.90 a day, according to World Bank data of 2018. In the conflict-affected eastern region of the Democratic Republic of the Congo, Kivu struggles with even higher unemployment rates than the country’s average. In a situation like this, many people have no other option but to open their micro-business and hope it would be enough to sustain their families. Entrepreneurs struggle to save enough money to start a business most of the time. And even if they do, navigating daily challenges without affordable credit is almost impossible.
Accessing finance in fragile countries
Access to a suitable credit line is one of the most significant issues for fragile states. The banking sector is underdeveloped and for the most part unavailable for small traders. In the last decades, microfinance has shown the transformational impact access to credit has on the lives of impoverished communities. Still, affordable financial services are not as widespread as they need to be. Bad roads and infrastructure and low population density lead to high operational costs for microfinance institutions (MFIs), making credit more expensive and harder to access for the vulnerable populations who lack collateral.
Only MFIs with a solid social mission can help clients manage financial shocks and keep their businesses afloat. But building a financially inclusive society takes more than just offering cash loans to vulnerable populations. Serving the real needs of the clients means going beyond using common practices. It means learning about their livelihoods and motivations.
Financial diaries research: learning about MFI borrowers
Esther Duflo, a 2019 Economics Nobel Prize winner, transformed the field of development economics with a simple idea: Scientific research is essential to breaking the cycle of poverty, and all interventions must be tested in the local context. Inspired by Esther’s work, CIM is dedicated to implementing a scientific approach into impact investing.
To learn more about the livelihoods of Congolese entrepreneurs using the financial services of the MFIs, Cordaid Investment Management funded research for our partner Hekima. This MFI with a strong social mission operates in the North and South Kivu region and develops financial solutions tailored to the needs of low-income households, mainly led by women. The financial diary research, realized by an experienced team of L-IFT, was meant to generate insights into clients’ behaviours and help design the products that clients need.
Over six months in the series of interviews, researchers could dive deeper into borrowers’ livelihoods and daily struggles. At the same time, keeping a financial diary and tracking their economic lives helped Hekima’s clients better understand their own financial situation. While the summary of findings and main takeaways from the research on MFI borrowers will be published shortly, in this two-part series, we tell the stories of the Congolese entrepreneurs. Their courage and entrepreneurial spirit promise a bright future for the country’s private sector.
Mukandirwa Muhombo is an experienced entrepreneur: she established her fruit stand back in 2002, and up until today, this small-scale trade has helped to feed her children. She managed to open her business with only $5 as starting capital. After 20 years, she felt she had enough experience to scale up her business, buy a bigger fruit kiosk or become a wholesaler. Yet as the primary provider for the family, she always had other household expenses, so in those years, she managed to save not more than $200.
Recently she heard about the microfinance institution’s services and decided to try it out. So far, it provides her a sense of security and helps to navigate daily activities and take care of the family. Although the initially offered loan size did not allow her to buy a new fruit kiosk, she could buy more fruits and significantly increase the turnover. “Once I even had $70 by the end of a day, which is quite a profit,” says Mukandirwa Muhombo. It gives her confidence that gradually she will be able to expand and possibly diversify her source of income - in the future, she wants to buy land and build a house for rent there.
Mukandirwa says that thanks to participation in research, through recording and analyzing daily transactions she now better understands her financial situation. It is easier to translate those dreams into concrete goals and steps needed to achieve them.
“During the past six months of the research project, I’ve made a habit of registering daily income and expenses. And I will continue doing it in the future. I have a much better insight on how to improve my business since now I can project profits and plan expenses much better,” concludes Mukandirwa Muhombo.
“I started my first business in 1994 when I was 21 years old. I was repairing bicycles and motorcycles and selling spare parts in Kiwanja, a village in Rutshuru Territory. This small enterprise allowed me to meet the needs of my family. But very soon, our lives were disrupted by the war,” says Kasereka Seseti.
Since 1992 this mountain region of the eastern DRC has suffered from violent conflict between rebel groups and government troops, taking many lives and lifting the poverty level to the extreme.
Kasereka Seseti’s wife died in this conflict, and soon after, rebel forces took over his business. After these tragedies occurred, he moved to the province’s capital, Goma, where he had to start over. Only years later, in 2007, he saw an opportunity to re-start his enterprise and opened a motorcycle repair shop.
“Now I have a business that works well and provides a necessary service for the residents. It supports my household and helps solve problems in the community, such as unemployment. That makes me proud. I want to grow and diversify my business further so that I can create even more jobs,” says Kasereka Seseti.
Soon after starting his business, Kasereka Seseti has learned about the savings and credit services of Hekima. Affordable credit helps him deal with daily challenges and unforeseen events like occasional thefts. “Access to finance allowed me to set new goals and advance my business. I’m working towards having a full-scale repair shop for cars and motorbikes and selling spear parts. Sometime in the future, I would like to have a farm as well,” explains the client of the MFI.
The research has shown Kasereka Seseti the importance of keeping track of financial operations daily: “Financial diaries allowed me to have a much better idea about the management of my business.”