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FUNDING SMEs through MICRO - FINANCING and BDS training. ZEST PROJECT-Brian M Touray
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HANGAMOTO LPF, ZANZIBAR, TANZANIA Abass Hussein – Saateni P. O. Box 2782
Phone: 223 0616/5500523 Email: [email protected]
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FUNDING PROPOSAL CHANGAMOTO LPF, ZANZIBAR ISLAND, TANZANIA
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May 14, 2012 Program Manager USADF or ANY DONOR Dar es Salaam Tanzania RE: Request for funding from USADF
We, at Changamoto LPF, are introducing our project in order to increase the potential for SMEs and provide accelerated economic growth and to decrease poverty in Zanzibar. Our main focus is providing micro-financing to SMEs. We however realize that that financial support alone is not enough for achieving sustained economy and competitiveness, as a result, we included business development services (BDS) for SMEs. BDS are all types of SMEs support services, including business skills training, consulting, technical and managerial assistance, marketing, and policy advocacy. Our BDS approach is specifically aimed at helping small enterprises to overcome market imperfections and inadequate access to technology, as well as to operate more competitively and with greater efficiency in the market. Among the advantages of supporting SMEs through micro-financing and BDS SMEs, our main goal is to impact a large number of lives through the expansion of our program to the greater Zanzibar SMEs communities. During the last few years, we piloted our program with a handful of SMEs engaging in various business activities but, lacked business skills and a capital for potential growth. Since then, we have seen a measurable success. Our training provides tools to aid the SMEs community in self-sustaining these initiatives, by providing resources to reduce the barriers of growth of their businesses, and to have access to the value chain while launching a market base approach to secure livelihood in Zanzibar, including the possibility of expanding to other parts of Tanzania. The total funding required is TSH.200, 000000 and has been calculated based upon financial requirements after the completion of phase 1 and 2 of the pilot program. The summary of the breakdown of all funds made available is such to support our administrative cost, expansion of the initiative, training equipment and materials, office furniture, computers and computer equipment and means of transportation for easy access to some of the beneficiaries. Zanzibar is a major tourist hub, and as a result, most SMEs focus on tourism or tourism related business. Tourism has considerable
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potential linkage especially with Agriculture and Fisheries, which can significantly minimize the existing leakage effect. Contributions for generating operational revenue, by the Organization will be achieved through various initiatives combining the membership fees and loan interest rates charged to our members. The project duration is limitless and with proper funding and continued operations and management, Changamoto LPF should gain and remain self-sufficient and increase financial training opportunities, sustainability and self-reliance to various SMEs for its target market for years to come. By meeting our goal to partner with USADF and more SMEs in Zanzibar, we intend to raise more awareness of the vitality of linking the Tourism, Agriculture and Fisheries sector, and the role it plays in poverty alleviation. The potential linkage created between the SMEs and hotels/restaurants and our organization will enable participants to maximize their potentials and will benefit all SME sectors and consumers, increasing sustainable revenue potential for the Zanzibar community in general.
The request for funding submitted to USADF is to aid in the expansion of this incredible project, which will only improve the lives of the local people and the Zanzibar economy through a successful collaboration and coordination between the Agriculture, Fisheries and the ever popular Tourism industry in the Zanzibar region, with the possibility of expanding into other regions of Tanzania in the future. We hope that USADF will take an interest in our Organization and project in helping Zanzibar SMEs towards poverty alleviation. Please contact us at: Phone number and or email address if you require any further information or have questions concerning this proposal.
Truly yours, NGO SECRETARY or RESPONSIBLE PERSON
1. Context and justification of the project 2.1. Context
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Zanzibar consists of two main islands, Unguja and Pemba, and
several other smaller islands. Zanzibar is located in the Indian
Ocean, about 30 kilometres off the East Coast of Africa between
latitudes 5 and 7 degrees south of the Equator. The Island has a
total area of 2,654 square kilometres; out of this, Unguja,
which is the largest, has an area of 1,666 square kilometres
while Pemba has an area of 988 square kilometres. Zanzibar’s
population has rapidly grown from 980,000 in 2002 to 1.1 million
in 2011, which around 65% lives in rural areas and that a large
percent are involved in small business activities catering to
tourism industry and the local community. In 2005, a Household
Budget Survey (HBS) showed that 61% of Zanzibaris lived below
the basic needs poverty line and 22% lived below food poverty
line.
It is difficult to estimate the total number SMEs operating in
Zanzibar, largely because most of them are operating informally
without registration. Regardless, the full potential of the SMEs
sector has not yet being exhausted, due to the following
constraints hampering the development of the sector.
They include:
Unfavorable legal and regulatory framework Undeveloped infrastructure Poor business development services Limited access to finance Ineffective and poorly coordinated institutional
support framework Lack of competitiveness Operating in a legally prohibitive environment
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SMEs nomenclature is used to mean micro, small and medium
enterprises. It is sometimes referred to as micro, small and
medium enterprises (MSMEs). The commonly used yardsticks are
total number of employees, investment and sales turnover. In
the context of Tanzania, micro enterprises are those engaging up
to 4 people, in most cases family members or employing capital
amounting up to Tshs.5.0 million. The majority of micro
enterprises fall under the informal sector. Small enterprises
are mostly formalised undertakings engaging between 5 and 49
employees or with capital investment from Tshs.5 million to
Tshs.200 million. Medium enterprises employ between 50 and 99
people or use capital investment from Tshs.200 million to
Tshs.800 million. (Please see table below)
Categories of SMEs in Zanzibar
CATEGORY
EMPLOYEES
CAPITAL INVESTMENT (TSH).
Micro enterprise 1 – 4 100,000 to 5 million
Small enterprise 5 – 49 6 million – 200 million
Medium enterprise 50 - 99 220 million – 800 million
Large enterprise 100 and more 850 million and higher
Small- and medium sized enterprises (SMEs) are the backbone of
virtually all economies in the world, including those within
Zanzibar. SMEs numbers in the thousands and account for 90% of
all non-agricultural businesses in most parts of Zanzibar and
Tanzania as a whole. Although their long-term growth and
competitiveness has been compromised by chronic and often acute
constrains on their access to formal-sector finance among other
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systemic and institutional problems, they are still a great
socio-economic significance.
1.2. Organization description Changamoto LPF is a micro lending NGO that provides micro credit
service to the poorer members of the Zanzibar community to
engage in legal productive activities as means to maintain
sustainable income. Changamoto LPF is registered as a
nongovernmental organization in September 1997 under Society Act
No. 6 of 1995 with a registration No. 48. The NGO replaced
'Changamoto Saving and Credit Society' that was registered under
the provision of Cooperative Act of 1986 due to the need to:
Advance its services to interested no n members of the NGO
Incorporate other income generating and gender activities
not legally covered under the Cooperative Act such as
establishing of micro and medium scale credit programs
Changamoto LPF is a membership organization with a total of 392
members (60% women), providing credit to low income people,
members and non-members as a source of short term working
capital. The main components of the fund are the owners ‘fund
which serves the saving and credit wing, micro finance serving
micro business activities and higher purchase which serves loans
on special commodity. Changamoto LPF is committed and dedicated
to provision of credit, education, and consultancy and
encourages self-employment and sustained income to the needy
Zanzibar community.
The project was designed on the basis of a number of fundamental
principles as defined in the Changamoto LPF business plan
including:
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Increase of 40% Portfolio of higher purchases, and saving
and credit
Increase of 3% repayment rate of micro finance scheme. The
current repayment rate is 96%
Increase of loan portfolio to TSh.40,000,000
Improve business to 300 micro business group
Enhance relations with government institutions, corporate
sector local non-governmental organizations and
international organizations
Improve technical competence of the members on monitoring
and evaluation, credit management and office management
The main activities of Changamoto LPF include:
Saving and Credit Scheme
Credit delivery
Owners Fund: This serves the saving and credit from members
Micro Finance/Loan Facility: Serves the micro business
activities by providing credits to members and non-members
from the community to undertake income generation
activities
Hire Purchases: Services loans on special conditions. The
organization buys assets and durable goods on behalf of
clients who then make monthly repayments at 20% interest
Changamoto LPF’s Credit scheme provides credit to members of the
society to engage in income generating activities. Changamoto
LPF provide micro financing to men and women with emphasis on
youth and women within the urban and west district engaged in
small business activities such as:
Kiosks
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Carpentry workshops
Fruit stands
Tailoring
Poultry
Vegetable farming
Bakery and etc.
The organization provides small loans between TSh.50, 000 - to
TSh.1, 000,000. The term for the loan is a maximum period of six
months in monthly payments with a 20% interest rate.
The initiative to provide loans to members of communities is
very much in line with government policy on micro finance where
the overall regulatory framework set by government is intended
to affect the ability of micro finance institutions to become
more market oriented, integrated and able to provide financial
services to the poor. The principal providers of financial
services to the poor and low income households in the rural and
urban areas of Tanzania consist of licensed commercial banks,
regional and rural units ' banks , savings and credit
cooperative societies, and several NGOs whose micro- credit
delivery operations are funded and supported with technical
assistance by international donors.
1.3. Problems to be resolved
Increase capable human capital by creating a diverse,
skilled, and qualified workforce that meets the demand of
the economy
Advocate for and support equality of opportunity by
encouraging a social and economic environment that upholds
the equality of opportunity for both men and women
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Encourage an open and effective markets through creating of
business environment that stimulates entrepreneurship, that
is open to competition and market expansion
Encourage more women to be involved in SMEs, activities,
due the fact that they play a central role as income
earners, in lifting themselves, their families, and their
communities out of poverty. Yet they face significant
huddles to full and effective participation in many
economies, as employees, employers, and entrepreneurs,
often due to legal, social, regulatory, and cultural
barriers.
2. Objectives and expected outcomes 3.1. General objective
Building economic foundation: Advocate for the government
to enhance the necessary legislative and regulatory
business, and financial framework upon which sustainable
growth can take place
Capacity building: Strengthen SMEs financial and economic
management capacity at the local and regional level
Policy advocacy: Advocate for the improvement of policies
and regulatory frameworks and systems and their
implementation, all of which are key to stable local and
regional economies
Supporting women: Support the establishment of more micro,
small and medium-sized viable enterprises, especially those
led by women
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Enhanced Business Development Services (BDS): Enhance BDS
will enable the private sector enterprises that are using
the acquired knowledge in their businesses, expanding their
businesses, and increasing income generation
Expansion of Micro-credit: Opportunities to access micro-
credit for a wider outreach to allow poorer Zanzibar
communities engage in micro business activities
2.2. Specific objectives
Strengthen SMEs productivity: Assess and strengthen SMEs
and improve their productivity and return on investments,
resulting in increased stable economic growth and formal
employment opportunities for the poor
Growing businesses: Evaluate and enhance the financial viability, productivity, and competiveness of micro, small and medium–sized private sector enterprises, resulting in increasing employment for the poor
Credit accessibility: Identify the accessibility of suitable credit and financial services that result in business and trade growth to benefit the poorest population groups
Investing in people: Evaluate and improve the employment potential of individuals to increase access to, and
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benefits from, opportunities in the informal and formal business sectors
Community survey: Conduct survey to evaluate the relevance of the loan in reducing poverty to the members of community benefiting from the credit services.
Capacity assessment: Assess organisational capacity and commitment as a provider of micro credit schemes 2.3. Expected outcomes
Currently, Changamoto LPF, provided credit to 2,664
entrepreneurs, which 1,196 are female, reflecting 55% of the
beneficiaries. With more support from donors, we anticipate to
deepen outreach and delivery of financial services to the
greater Zanzibar community and the rural communities, increasing
the beneficiaries by 45% by the year 2015. By doing so, we
project that employment rate will increase by 15% strengthening
the capacity of the community, wider market access and increased
economic sustainability within the poor.
3.4. Activities to be carried out (to be filled by NGO)
Goal
Purpose Activities Means Verifiable indicators
Important assumptions
What are you trying to accomplish by engaging in this project
Outputs needed in order to achieve the goal
Activities to be undertaken to produce the outputs
Required means for implementing each activity (human resources, logistics, materials…)
Indicators of achievement (both qualitative and quantitative)
Important assumptions on which the success of the project depends and the risks that have been considered.
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3.5. Indicators of Economic Sustainability
4. Implementation of the project
4.1. Timeline/Calendar of activities (to be filled by NGO)
Activities Start Dates Completion Dates
4.2. Cost and funding of the project (provide narrative
cost)
IMPACT INDICATOR: Household Budget Survey of 2005 shows that 61% of Zanzibaris lived below the basic needs poverty line
Increased houshold income by reducing the poverty line from 61% in 2005 to 40% in 2011
Per Capita income of SMEs increased by 7% since 2005
OUTCOMES INDICATORS: Loan portfolio grew from TSH. 4 million in 2002 to TSH. 110 million in 2011. Since then, the total amount of loan provied is equal to TSH. 248 million
Enhanced and strengthened the capacity and delivery of micro-financing
Deepened outreach and delivery of micro-loans and employment creation
Increased the rate of employment by 5% since 2002, of which 70% are women
INPUTS:Mico-financing & Business Development Sevices
OUTPUTS INDICATORS:Developed and enhanced Business Develoment ServicesExpanded outreach to the West, North and Central districts
Serviced 2,664 entrepreneurs, out of which 1,196are female.
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TO BE COMPLETED BY NGO OR
COOPERATIVE GROUP SEEKING
FUNDING
4.3. Budget (you have to fill out the table below)
Type of expenses
Unit cost
Unit specification (ex : month,
bags)
Quantity Amount USADF
Amount other source
Total
1. Human resources
1.1 1.2 Sub-total Human
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resources 2. Equipment 2.1 2.2 2.3 GRAND TOTAL 5. Feasibility and sustainability
5.1. Risks foreseen (you can add to or edit the bullet points)
High financial illiteracy among population is a medium risk, but
still an impediment within the SMEs community of Zanzibar.
Nonetheless, there are other risk factors that require more
attention. They include:
Lack of market
Poor governance
Difficulty in obtaining accurate information about
borrowers
Poorly coordinated institutional support framework
5.2. Monitoring and Evaluation procedures
Monitoring and Evaluation will be conducted quarterly, this
tells us whether we are on track to reach our objectives, and
whether or not the program achieved or contributed to the
desired impact. Frequent monitoring and evaluation of the
programs designed and activities implemented to eliminate or
reduce income inequality and poverty will help determine the
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effectiveness and develop a better program that responds to
specific needs and circumstances in the target community as they
change overtime.
Changamoto LPF, intend to use the following tools of M&E:
Performance indicators
Formal surveys
Participatory methods
Expenditure and buying power surveys
Theory-based evaluation
Rapid appraisal method
5.2. Institutional & Economic sustainability
Having exclusively focused on the poor and very poor of
entrepreneurs and farmers, Changamoto LPF’s client outreach
expanded and increased by 40% since 2010, increasing the number
of new loans serviced to SME’s to 3000 men and women, and
increasing the business expansion among exiting SME’s to 27% of
which 19% are women. This was achieved through: Conducting BDS,
capacity building and gender mainstreaming workshops.
Changamoto LPF buys and sells computers, computer equipment and
motorbikes at the end of partner’s projects, also runs
photocopying services, charges loan interest rates and
membership’s fees which are reinvested to help maintain
administrative cost.
Appendix
□ Application form
□ Certificate of registration
□ Constitution of the organization
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□ Financial report
□ Project proposal
□ Supporting documents (if any)
Prepared by on behalf of NGO/Cooperative: Brian M Touray MSc.© Project Manager Zanzibar Enterprise & Sustainable Tourism