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June 05, 2009

Small Investments, Large Growth

Andrew Umans ’10
Investment Officer, Microlumbia
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On Sunday, May 17, 2009, Matt Berry ’10 and I landed at the Mbarara airstrip in southern Uganda (see map) to begin our weeklong due diligence of Ruhiira Millennium Savings and Credit Co-Operative (RMSACCO), a tiny savings and loan cooperative to which Microlumbia is considering making a $10,000 loan.

RMSACCO is in the village of Ruhiira, roughly one hour on pot-holed roads from our home base in Mbarara. The entire region is covered by banana plantations, the favored crop which takes up over 60% of the arable land. The SACCO has 864 members, all with savings deposits. There is a minimum requirement to join, helping to inculcate a culture of saving in the village. The organization’s loan portfolio totals roughly $35,000, constraining its capacity to disburse loans. It works closely with the Millennium Villages Project (MVP), a multi-country, multi-sector economic development project led by Jeffrey Sachs, Director of the Earth Institute at Columbia University. Ruhiira is in the MVP’s Uganda project zone, and RMSACCO benefits from the increased economic activity related to the MVP’s initiatives. However, RMSACCO is not officially part of the MVP and has members outside of the project zone.

During our week with the SACCO, we became intimately familiar with its processes for appraising loans, recording transactions, and recovering bad debts. We conducted extensive interviews with the three employees — Cleophus, the manager; Jude, the loan officer; and Agatha, the cashier. We were greatly impressed with the SACCO’s knowledge of local economics and its abilities to track every transaction on paper. They have a computer, but no electricity; they hope the MVP will provide them with solar power soon. Without a computer, it is difficult for the SACCO to organize its data so that it can analyze its portfolio quality or devise a strategy built on key value drivers.

One of our key takeaways from the week is how compelling the local economics are. For example, a small investment in time and money can enable a banana farmer to increase his yields five-fold. In order to do that, though, he not only needs the money to invest in some basic modern tools and inputs — roughly $1,000 investment per acre, but most families own only a fraction of an acre — but also enough to live on so he can get by without selling bananas for the year the field is under rehabilitation. However, whereas most plantations currently earn roughly $375 per acre per year, a rehabilitated field earns roughly $1,850 per acre per year. Without institutions like RMSACCO, such investments are simply not possible.

We will present our findings later this year on RMSACCO’s social impact, operations, and likely ability to repay our loan to the Microlumbia Investment Committee. If the loan is approved, we will likely expand the relationship by asking the SACCO to work with Microlumbia’s consulting arm to implement some improved accounting procedures and to drive the loan portfolio in a more strategic direction. I am confident this would be an educational experience for the students and bear some operational benefit for the SACCO.

Photos courtesy of Pangea Advisors