Case Study Assignment for IB 1005 January Semester 2011(20%)

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I. Context

A. Socio-economic Overview

Any discussion of the history, politics or economy of South Africa begins with

Apartheid. For much of the 20

century, industrialist policies enforced economic

migration and deprived rural villages of local investment, the ability to accumulate

assets and access to credit. Large producers and business hubs prospered on the backs

of cheap labour and an insulated banking sector, while remittances typically covered

only food and housing needs in rural villages. In this environment, the Small

Enterprise Foundation (SEF) was founded in 1992 to combat the severe lack of

economic opportunities among the rural poor in the Limpopo Province, in the

northeast corner of the country.

Ten years after the first democratic elections South Africa remains one of the

most economically polarised countries in the world. Although South Africa is

classified as an upper-middle income country (source), the Limpopo Province has a

Human Development Index equal to that of neighbouring, drought-stricken

Zimbabwe, which ranks 121

in the world. The dividends of steady economic growth

since exchange rate shocks in _____ have not resulted in significant commercial

investment in rural villages. In many cases, men are forced to follow the Apartheid-

era patterns of economic migration to find work in mines or on farms.

With the unemployment rate at over 60% in rural villages self-employment

presents the best hope for the poor and the very poor to generate a sustainable income.

Yet, without access to credit or savings most small businesses cannot build up assets

to withstand the shocks of accidents, disease, natural disaster or other urgent financial

requirements. The chicken-and-the-egg dilemma of extending credit to poor

populations without credit history or collateral is as old as micro finance itself.

However, following the fall of Apartheid, the new government attempted to

provide incentives for lenders to cover the risk of reaching the previously unbankable.

In the raft of legislation passed to spread equality and opportunity following the fall of

Apartheid the government exempted micro credit providers from complying with

interest rate ceilings and other regulatory requirements. Unintentionally, the measures

enfranchised the usurious practices of informal moneylenders in rural villages and led

to a mushrooming of the now formal ‘moneylender industry’. Among poor and very

poor populations, who have little access to information and are often illiterate, the

effect was disastrous on their chances of emerging from poverty.

Currently, (Parliament) is circulating draft proposals of the National Credit

Bill, which would regulate the practices of all micro credit providers and, crucially,

set an interest rate ceiling that would apply to the moneylender industry. The damage

has been done, though, obliging the poor and the very poor to regard promises of

collateral-free credit with wariness and suspicion. The difficulty of establishing loan

products in this compromised micro credit environment is compounded by South

Africa’s high labour costs, crime, and poor transportation infrastructure and

unaffordable IT services. Bernadette Moffet, a micro credit specialist working for the

Women’s Development Bank in South Africa, calls South Africa “the most expensive

place to operate a micro finance institution (MFI) in the world.”

As in many countries of sub-Saharan Africa HIV/AIDS threatens economic

development in South Africa, especially in poverty-plagued rural villages. According

to the UNAIDS Global Report in 2002, “Adult HIV prevalence rates have risen higher

than thought possible in this region, with over one third of adults currently infected in

a number of countries.” Reliable statistics are difficult to collect in the Limpopo

Province because of the persistent societal stigma attached to the disease and the

prevalence of tuberculosis – resulting in misdiagnosis or falsified records. In March

2005, SEF’s HIV/AIDS and gender empowerment partner, the Rural AIDS &

Development Action Research Programme, estimated that over 16 percent of the

population in SEF’s target areas are infected with the disease (Paul Pronyk source).

Among its 25,000 clients SEF loses ____ clients to what official death certificates

almost universally label as “natural causes.” (For more information on SEF’s efforts

to combat HIV/AIDS see SEEP Network case study: “Efforts to Address the Impact

of AIDS on Clients, Households and Enterprises”)

This unique set of economic and environmental challenges – remnants of the

Apartheid-era economic structure, an emboldened moneylender industry, high

business costs and the HIV/AIDS epidemic – affect

The unique economic and environmental challenges in South Africa require that a

sustainable MFI must set clear goals and streamline its structure in order to reach the

poor and very poor.

- Add definitions of poverty/poverty line in South Africa

B. Purpose of Intervention

Understanding the choices SEF made in developing Tshomisano Credit

Program (TCP) and mapping its future requires a full grasp of its mission and its own

definition of success. From the day that founder and Managing Director John de Wit

formed SEF’s first group the goal was to eradicate poverty. This is a single-minded

pursuit that drives SEF to target the poorest and most vulnerable in the villages of the

Limpopo Province, subordinating its performance on common microcredit

benchmarks. In distinguishing SEF from its brethren, Ted Baumann wrote in his

institutional analysis that, “Other MFIs are committed to reaching the very poor, but

most accept a balance between poverty outreach and sustainability that leaves out the

very poorest.” (Preface) Against the better recommendations of many experts, SEF

did not ‘accept a balance’ that altered its original goal in any way.

The allegiance underpinning this mission rigidity is to eradicating poverty by

attacking vulnerability at a deeper level than strict income security. In working with

the very poor the need to develop social capital is clear and stands as a prerequisite to

financial independence. In the words of SEF MD de Wit, “The very poor often have

low self-confidence and social skills, do not participate in community structures, and

have weak social networks – particularly in times of trouble.” (16) While recognizing

the need to build social capital among the very poor SEF also realizes that the process

is not technical, nothing like building a house or even teaching a class.

Direct, linear transfers of material or information do little to create lasting

improvements in household stability, human investment (e.g. health and education)

and community involvement. Adding another new-age nail in the commercial coffin

of microfinance, SEF understood its focus to be, fundamentally, on purpose, process

and people – not strategy, structures and systems. In short, the very poor – all of

whom are black in South Africa – have been told what to do for their whole lives.

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I. Context A. Socio-economic Overview Any discussion of the history, politics or economy of South Africa begins with Apartheid. For much of the 20th century, industrialist policies enforced economic migration and deprived rural villages of local investment, the ability to accumulate assets and access to credit. Large producers and business hubs prospered on the backs of cheap labour and an insulated banking sector, while remittances typically covered only food and housing needs in rural villages. In this environment, the Small Enterprise Foundation (SEF) was founded in 1992 to combat the severe lack of economic opportunities among the rural poor in the Limpopo Province, in the northeast corner of the country. Ten years after the first democratic elections South Africa remains one of the most economically polarised countries in the world. Although South Africa is classified as an upper-middle income country (source), the Limpopo Province has a Human Development Index equal to that of neighbouring, drought-stricken Zimbabwe, which ranks 121st in the world. The dividends of steady economic growth since exchange rate shocks in _____ have not resulted in significant commercial investment in rural villages. In many cases, men are forced to follow the Apartheid-era patterns of economic migration to find work in mines or on farms. With the unemployment rate at over 60% in rural villages self-employment presents the best hope for the poor and the very poor to generate ...
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