Access to finance for women entrepreneurs in Liberia

A little background

Liberia is a formerly conflict-affected state that is still considered fragile. The economic situation is tough, literacy levels are low, and unemployment rates are high. Women are economically, socially and culturally disadvantaged and violence against women is high.

The 2017 World Bank Enterprise Survey showed that only 17% of adults had a bank account and only 2% had access to formal credit.

I couldn’t find figures specifically for women, but since the 2019 Gender Inequality Index says that Liberia ranks 156th out of 162 countries, I’m betting those percentages are much lower. Which also means that much smaller numbers of women in Liberia have access to finance.

Women's Club members at Mineke Foundation

Mineke Foundation’s Women’s Club

From 2015 through 2019, my NGO, Mineke Foundation, offered regular, formal vocational and business training to (young) women in Liberia. In these years, we trained about 450 women; about 65% of whom launched micro businesses after completing their training.

In 2016, we launched our Women’s Club. This is a programme of monthly meetings covering topics that were of particular interest to women. Topics such as: health, gender-based violence, childrearing, entrepreneurship, leadership in the community etc.

We also started a Savings & Loans Club, with women saving small amounts on a regular basis. Women used the accumulated capital to give each other micro loans.

Savings and micro loans

The women set the terms of the loans, guided by Mineke Foundation (i.e., a slightly below-market interest rate; default risk offset by linking the loan size to the amount saved etc). Mineke Foundation also “saved” money. Our savings were added to the interest payments to encourage more women to save.

Both the Women’s Club and the Savings & Loans Club worked well.

The Savings & Loans Club became something the women felt was entirely theirs (something we applauded, though we did negotiate with them to share information about the number and size of loans and how much was being saved).

Additional savings clubs (susus) also sprang up, with the Give and Take susu in particular serving as a social safety net for members.

The Savings & Loans Club continued to function even when COVID forced us to stop all group activities, though the amounts saved and the loans given out were smaller.

Women's Club members at Mineke Foundation, Liberia

The problem

Our 2017 evaluation showed that most micro businesses had started struggling after 12 – 18 months. There were two key reasons:

    • Women lacked the skills to maintain and grow their business

    • They couldn’t access additional finance

In part, this was because personal and business were intermingled. For example, a medical emergency ate up all their profits or a storm tore the roof off their home/place of business. But another part was simply that they could not meet banks’ lending conditions. Or did not want to. For example, if the bank insisted on a male guarantor.

In a second evaluation among those who didn’t start businesses after completing our course, most said they couldn’t because they didn’t have the money to start. They also couldn’t save enough to take a large enough micro loan from the Savings Club.

Women's Club members at Mineke Foundation in Liberia

Our initial solution

We reached out to various (inter)national NGOs to see if they could help to increase women’s access to finance in our working area. We asked them to step in to offer micro loans and business training.

But our working area isn’t part of the target areas that these organisations work in. One or two were willing to give it a try, but charged interest rates (~6% per month) that the women simply could not afford.

We didn’t give up.

Mineke Foundation’s Micro Loan Fund

In 2018, we piloted the MF Micro Loan Fund. We designed the fund in close collaboration with the women, focusing on the following questions:

    • What could the loans be used for?

    • What lending terms & conditions would apply?

    • What interest rate would we charge?

    • How would we mitigate the risk of default?

The women helped us design the fund to be supportive of their interests while still meeting our objective of achieving (almost) full repayment.

But we didn’t have the money or the knowledge to scale this up. We may know a thing or two about education and entrepreneurship, but not about being a microfinance institution.

The challenges that need solving

A few things were clear:

    1. As more women completed our courses and started businesses, more of them would need money to start.
    2. Several of them would be able to grow their businesses. This meant that the loan amounts they needed would also increase.
    3. Women were not getting access to finance through commercial banks. Nor were they accessing the various programmes offered by international NGOs.
    4. Many women who started businesses would need coaching and additional business training to help them maximise their chance of success.

Talking to women in Dabwe Town - Mineke Foundation

Identification of root causes

Why weren’t women getting the money they needed? Who could provide the necessary business coaching & additional training?

We set out to do a basic identification of root causes and figure out which actors might help solve the problem.

During a visit to Liberia, I spoke to many organisations, (international) NGOs and banks as well as ministry representatives and diplomats.

Meanwhile, our local Mineke Foundation team spent a lot of time talking to the women, women’s groups and women’s representatives in our area.

In brief, these were our key findings:

Risks are too high for lenders

Lenders told me that high interest rates were needed for multiple reasons:

    • How can you be sure you will get your money back? The person you lend it to could simply move someplace else.

    • How can you be sure that the business will make enough money to repay the loan? Medical expenses or mismanagement could eat up profits.

    • How can you trust the person asking for a loan when there’s no way to verify their business track record or creditworthiness? Many businesses aren’t formally registered and if they are, that’s no guarantee that figures are correct. Plus, they might have multiple loans from multiple lenders.

    • How can you be certain that the business you went to visit actually belongs to the person claiming to own it? Somebody else might be pulling the strings and even be the actual recipient of the money.

These questions – there were many more! – make it clear that lending money is not without risks. For lenders, this means a LOT of legwork to do due diligence, verify & follow up.

It also means that there is a strong tendency to err on the side of extreme caution. I.e., high collateral demands, guarantors and high interest rates.

Lender’s demands are too high for women

Not many women have assets that can serve as collateral. Or, if they do, it may be a piece of property and they’re unlikely to hand over the deed to the only security they have to get a loan for a business venture that is by definition insecure.

Women also told us they really hate the requirement of bringing along a guarantor because it often means they have to appeal to a richer family member or friend. Some banks even explicitly demand a male guarantor!

Not only does this mean giving an outsider insight into your business dealings (and profits!), this person also often requires a cut of the loan and/or your profits for helping you.

Plus, the more people that know you have money, the more ‘friends’ and ‘distant relatives’ suddenly remember how much they love you and really can’t live without you …

High interest rates speak for themselves: it makes borrowing very expensive.

Add to that the fact that women tell us they don’t feel respected, seen as equals, or taken seriously by banks, and you can see why they prefer to look elsewhere.

NGOs and other organisations aren’t active in our working area

Long story short: international organisations work in predetermined areas. Our working area doesn’t fall within those areas and policy guidelines won’t change any time soon.

Local NGOs follow the money, because they depend on it to survive, so they work where funders’ money goes. A few were willing to start programmes in our area, but only if we funded them and only for as long as we did.

That wasn’t what we wanted.

We wanted a long-term solution.

Preferably a market-based solution that would exist and expand with only limited funder support.

One commercial micro loan bank was willing to entertain the idea of working with ‘our’ women, especially if we could reduce some of the risks. Specifically, the lack of a well-documented track record and the problem of not knowing who you’re lending to.

In return, they would consider offering softer loans – at lower interest rates and with less-stringent collateral requirements. This meant that the women would have to first build up their track record.

Women's Club meeting - Mineke Foundation

Our solution

We decided that, Well, if the mountain wouldn’t come to Mohammed, Mohammed would have to go to the mountain.

AKA, we’ll do it ourselves.

In 2022 and early 2023, our team worked with the women to design a business training & coaching programme + micro loan scheme, while I coached the team and made sure they covered all key bases.

In addition, I reached out to funders to get support for the project.

Business training & coaching for better business performance

We’ve launched an entrepreneurship training curriculum comprising of three tiers:

    • Basic

    • Intermediate

    • Advanced

Business coaching complements the business training. Dedicated Mineke Foundation staff make regular visits to the women’s place of business to see how things are going, offer advice, and generally help them make their business a success.

In time, we plan to develop this into a full-scale Small Business Management course that will be part of the adult education programme at Damiefa School to ensure its sustainability. For now, the programme is donor-funded.

Tiered micro loan funds to increase access to finance

We also launched a three-tier micro loan fund that links women to the formal financial sector.

Level 1: Savings & Loans Club

It all starts with our Savings & Loans Club where women save small amounts and use the capital to give microloans to each other. In 2023, the women decided to open the Women’s Club to anyone who wanted to join, including men. This will lead to a larger savings base and the possibility of giving out more loans.

Mineke Foundation will focus on capacity building with regards to lending and saving and keeping business and personal separate.

It means we’ll also be encouraging members to join the informal Susu club (where members save for household items etc) and the Give & Take susu (which serves as a social safety net -> members save an amount monthly and each month, the full amount is given to the 1 or 2 members who most need it. No repayment is required and no interest is charged.)

Level 2: Special Credit Fund

Our new Special Credit Fund (SCF) gives out bigger microloans to groups of women. It has relatively soft terms and conditions, but still operates on a strict risk mitigation basis. For example, members can only get an SCF loan if they’ve previously taken out loans through the Savings & Loans Club.

In addition, our Women’s Club leadership is strongly involved in both the evaluation of loan applications and monitoring the repayment process. Our ambition is for this to become a revolving fund.

Level 3: MF Micro Loan Fund

Our existing MF Micro Loan Fund approximates a commercial microloan fund. While still charging below-market interest rates, the terms and conditions are fairly similar to what you’d find if you went to a commercial bank. The loan size is also significantly bigger than what you’d get from the SCF.

As you can likely tell from the structure, women move from one level to another based on their track record (repayment) and business growth. We’re also building relationships with the women.

When they “graduate” from the MF Micro Loan Fund, we’ll be handing them over to our partner, the commercial microfinance bank. With whom we will obviously be working closely to ensure a smooth transition for the women.

Women's Club members at Mineke Foundation, Liberia

What’s next?

We have no idea how this is going to turn out. But we are convinced that any solution can only be sustainable if it – in time – solves the problem, continues to have buy-in from the women and no longer requires support from donors. We believe that this is such a solution.

The project will be donor-funded for 5 years.

Initial results are encouraging.

The Women’s Club restarted full operations in April 2023 and – at the time of writing in August 2023 – had 46 members. We were aiming for 40 regular members at the end of 2023 given that we started in April, so are quite pleased with this number.

Over 37% of women applied for a loan from the first funding round.

We also know that a much larger number is interested but has adopted a wait-and-see attitude. (Can’t blame them. Liberia is a country where many NGOs start projects that don’t last.)

We still have a long way to go before we see real results. And before we know if this indeed improves Liberian women’s access to finance. We will be closely monitoring the project to see the impact on access to finance, business growth and more economic opportunities for women and youth.

Want to know how this turns out? Follow our progress on LinkedIn or check out our weekly updates on Facebook.

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