Loans letting bodas drive their own futures

Two years ago, Ahmed Segawa was struggling to make ends meet. There was no end in sight to the weekly rental fee on his boda boda, and it meant he wasn’t saving a shilling.

So he took out a loan, and for just Shs10,000 more each week, he began working towards owning a bike. Today, the profits Mr Segawa makes with his boda are his own.

“Paying school fees is even now becoming easy,” says the 30-year-old father of six.

The benefits are those of a classic microfinance fairytale, but Own Your Own Boda (OYOB) is not your typical microfinance organisation. It calls itself a social enterprise for one – applying a business model to a philanthropic cause.

“It’s a great way to allow people to invest in themselves and to start accumulating capital,” says the company’s 25-year-old CEO Michael Wilkerson.

The Master’s degree student at Oxford University has been back and forth from Uganda on various media internships and research trips over the past five years. In that time he became fast friends with his regular boda rider Medie Sebi, who he calls the company’s inspiration.

Mr Sebi had already begun defying the rules of renting. By the time the company bought its first couple of bikes back in 2009, he had already paid off two of his own.

“This idea in the loan, you don’t look near, you have to look a year, one and a half years ahead of you,” Mr Sebi says.

By all accounts, OYOB’s success is due to Mr Sebi’s forward thinking and entrepreneurial nature. As the secretary of his former boda stage, Sebi had already encouraged the members of his stage to pitch into a savings pool. He is making plans to develop some farmland, and is thinking about a land loan scheme in the future.

Today, his role as the company’s managing director means he no longer has to ride a boda. He has upgraded to a special hire and oversees all of OYOB’s collections instead.

The company has come a long way from humble beginnings. In just over two years, it has given out more than 60 loans and boasts a waiting list of more than 50 people.

Clients are given new bikes upfront, and charged a base rate of Shs60,000 per week (compared to an average Shs50,000 per week for a rental), over a span of 16 months. OYOB’s first motorcycles in 2009 cost Shs2.6m and would be paid off at Shs4.24m, working out to 4 per cent interest monthly. Rates and costs have fluctuated with the value of the shilling. Today, bikes cost Shs3.2m and are paid off at Shs5m, working out to 3.5 per cent interest monthly. Riders can also offer up bigger lump sum payments, which many do, to pay off the loan more quickly. OYOB’s collection rate stands at about 70 per cent.

Hedging risk
A boda rider is a high-risk client that most would stay away from – banks and insurance companies won’t touch the dangerous job with a 10-foot pole.

So far, OYOB’s risks have been largely controlled by virtue of keeping clients within the family of recommendations.

Defaulting borrowers are not treated as charity but clients. OYOB operates on a two-strike policy, where missed payments ultimately result in impounded bikes.

“It’s hard to crack down on people – we don’t want to have to take away their bikes, but sometimes we have to,” says Mr Wilkerson.

The company is small and personal enough that it can make exceptions when it needs to, but making too many would hold it back from bringing it up to scale. Once their bikes number in the hundreds, OYOB says providing social securities could readily follow. As the risks of the individual are outweighed by the lowered risk of a group, insurance companies could charge lower premiums they could afford.
OYOB makes no excuse for making a profit – or rather the profit it will make once its investors stop buying more motorcycles.

“Maybe we should take a little (capital) out to hedge some risk, but it’s just so exciting to get a new bike,” Mr Wilkerson says.

It is a position all four investors have taken – Mr Wilkerson, Mr Sebi, co-founder and friend Matt Brown, and journalist Andrew Mwenda. Mr Mwenda and Mr Sebi make up 51 per cent of the money, making it majority Ugandan owned.

The microfinance debate

The microfinance movement, which spread quickly following the early successes of the Grameen Bank in Bangladesh, has traditionally aimed at small rural loans, most often to women.

The for-profit social enterprise model that followed came close to collapse last year in India, the veritable hub of microfinance. It saw massive defaults after business owners were accused of charging high interest rates at the expense of the poor.

Mr Mwenda, a vocal critic of traditional aid, says tapping into an existing framework is what sets OYOB apart from the rest.

“It is so important that you identify a need,” he says. “The problem with aid is to identify a particular aid project in a particular village which has succeeded, and think that now you can transplant it from that village and spread it across the world with billions of dollars and it works. Because you ignore the norms, values, peculiar skills and circumstances in that village.”

Yet Mr Mwenda doesn’t dispute that the poor is where the money is. His experience in real estate development tells him that the returns are much higher on developing low-income housing over high-end homes, for instance.

“The highest margins are in those areas where the service is to the poorest people – possibly because they’re the most risky also,” he says.

Now studying law in Canada, Mr Brown says by adapting to the local setting, OYOB has minimised that risk, while tapping into both need and profit at once.

“That’s what great about our business – we already know these people who are entrepreneurs, they just don’t have the capital,” he says.

“And that’s the challenge of microfinance – because not every person can be an entrepreneur.”

On the entrepreneurial track
Uganda’s business savvy is lagging in the region. The Centre for Global Competitiveness and Performance ranked it 121 out of 142 registered economies - outflanked by Rwanda at 70, Kenya at 102, and Tanzania at 120. .

The government is beginning to throw more money at the problem – it says Shs57bn over the next five years will go towards the cause. Shs11.8bn of that will go towards increasing firm-level capabilities – an effort lined out in the Competitiveness & Investment Climate Strategy (CICS) as targeting the country’s entrepreneurs. While more than one third of the country’s GDP is generated by entrepreneurs, most of them are struggling to survive.

The report identifies access to finance as the main constraint to business, and pegs investment clubs and venture capital funds as the way forward.

Mr Wilkerson says businesses like his could grow much more rapidly with the availability of loans with lower interest rates than banks, which currently hover at around 30 per cent.

“We would love to be able to import or to purchase an entire container of motorcycles at once to reduce our costs, and we can’t do that because we are kind of week-to-week,” he said.

Across the country, people are looking for financing. According to a 2009-2010 report from FinScope, an independent body that measures access to basic financial services, only 21 per cent of the population can get a bank loan. Meanwhile, 30 per cent of Ugandans have no access whatsoever. Two years ago, OYOB’s clients fell into the overwhelming 42 per cent of the population who is being served informally. Today, they are part of an emerging one – the seven per cent who have found a way to access formal financing outside of the traditional banking system.

With the informal sector seen as a major part of moving the country into a more formalised economy, Mr Wilkerson says he hopes the company can be an example of how the two can merge successfully.
“I would love it if we were part of a wave that changes the market – to a point where everyone is getting loans,” he said.

Boda rider Mr Segawa says his loan has inspired him to think beyond his boda for the first time since he began riding it.

“They [OYOB] opened my eyes, it was like I was sleeping,” he said.
“One, they are developing my brothers who they give the bikes to ride, two, I am developing myself, and three, I am developing my children.”

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