The Donut Hole Conundrum + Mamoud’s Story

By Tejal Desai, KF16, Sierra Leone

Earlier this year, a Kiva fellow in KF14, David McNeill, wrote about his interaction with a Sierra Leonean taxi driver, and addressed a hot issue in microfinance: the financial donut hole. The driver asked David what type of work he was doing in Sierra Leone, and after David mentioned he was involved with microcredit, the driver expressed, “Ah, that is for women.” In his post, David explains how the driver was mostly right: why the microfinance industry concentrates on lending mostly to women, although there are still a small percentage of men who are eligible to receive loans. He continues to explain that the microfinance industry generally targets the poorest of the poor, this “bottom of the pyramid,” but leaves out those who fall in between: the people that are financially overqualified for microcredit, but too poor to receive a bank loan — resulting in the donut hole conundrum. His post makes it clear that microfinance has a long way to go until it can reach all levels of poverty. During my fellowship at BRAC Sierra Leone, however, I have learned about a particular product that is proving to be a small but effective means to fill that rather large donut hole: the small enterprise loan.

A different slice of the pyramid

BRAC’s microfinance program offers services that target both the bottom and mid-section of the pyramid, including the microloan and the small enterprise loan. As opposed to the microloan, which ranges from $100 to $300 and is provided to female first-time borrowers who need capital, the small enterprise program (SEP) provides male and female entrepreneurs with loans ranging from $700 to $3,000. These small business owners fall into the “donut” category of individuals who are overqualified for a microloan, but lack sufficient collateral to receive a bank loan. The main purpose of these 12-month small enterprise loans is to help entrepreneurs expand their small business, create employment opportunities, and provide new services. Additionally, microloan borrowers have the opportunity to graduate to an SEP loan once their businesses grow and needs change.

A few questions lingered in my mind upon first learning about this loan type: where do these business owners get capital to start their business? How had their business been performing before they took out ­­­­the SEP loan? And most importantly, is the loan creating a positive impact on their business and family’s standard of living?

Mamoud’s story

I was fortunate to meet a few of these SEP borrowers during my borrower verification, a type of Kiva-verification process that allows fellows to go into the field and cross-check loan details with the MFI’s and Kiva’s records. One of the enthusiastic borrowers I met was Mamoud, a 39 year-old single father with an 18 year-old daughter, and the sole owner and employee of a stationary store in downtown Freetown. His story answered many of my questions about the SEP loan, and inspired me to learn more about small enterprise loans and their impact on entrepreneurship in Sierra Leone.

The first few minutes of our meeting were interrupted due to his high volume of customers flooding into his store, which was exciting to see. He zipped between customers and ensured everyone had been helped – a sign of a dedicated businessman who puts his customers first – before he sat down and shared his inspiring story.

Over a decade ago, Mamoud learned about the stationary business from friends, who showed him the ropes after he completed school, and allowed him to observe the high demand for office supplies and profitability of the stationary business. Mamoud then decided to start an enterprise on his own, so he took his knowledge, all of his savings (since he wasn’t eligible for a bank loan), and opened Mamoud K. Enterprises, right off the busiest street in downtown Freetown.

Mamoud has been in the stationary business for 10 years now, but recently realized that the income he was generating wasn’t sufficient to pay for his daughter’s education. Moreover, fluctuating costs of office supplies due to inflation were making it harder and harder for him to increase his inventory and accommodate turnover. Mamoud decided he would take a loan of 5,000,000 leones (about $1,150) from BRAC Sierra Leone to expand his range of stationary products and stock up on high-demand items. He took out an SEP loan in June 2011, and has since been able to purchase more pens, notebooks, ink cartridges, glue sticks, and printing paper (the biggest seller!).

Although Mamoud has only used his loan for 4 months now, and still cites inflation as a prevalent challenge, he has optimistically kept a clear and unwavering vision. Someday, he described, he wants his business growth to enable to export and import goods from neighboring countries, expand into a larger enterprise, and provide a strong educational foundation for his daughter’s future. A self-made businessman, dedicated father, and stationary expert who prioritizes his customers’ needs, Mamoud is certainly on that track.

Mamoud’s story opened my eyes to the impact of small business loans, and the growing need for such opportunities within the large community of Sierra Leonean entrepreneurs who struggle with similar challenges: high inflation, keeping up with growing costs that make it difficult to pay for education (or let alone, get by), and pushing business growth. These loans don’t just help entrepreneurs keep up with their inventory, business operations and utility costs, it fuels their dreams of growth and creating prosperity for their families and opportunities for their children. I encourage you to lend to small business owners like Mamoud, and help make dreams like his come true.

Tejal Desai is a Kiva Fellow working with BRAC Sierra Leone in Freetown, Sierra Leone. Please support entrepreneurship by joining BRAC Sierra Leone’s lending team and investing in a BRAC borrower today.