When I heard about young entrepreneurs in Mwanza I was very interested to visit them and find out more about the connection between entrepreneurs and loans. I have often heard that if only there were more money business could be taken to the next level and would become more profitable. My own views differ but I was willing to listen.
Swisscontact had teamed up with a donor on one side and local trainers on the other side to start a project for unemployed youths.
Idle young people were asked which trade they wanted to learn and were offered a trainee-ship with a local trades person. After completing the training roughly 50% chose to become self-employed. I got the chance to visit two of them with friendly support from Swisscontact Mwanza.
The first one was a young lady who learned to braid hair. It’s something she was passionate about since she was 2 years old and saw a close relative doing it. After graduating from the traineeship she continued working at her trainer’s place and managed to save some money which she used to buy material for her future self-employment.
For 9 months she has been working in her own shop and is meanwhile earning enough to fully support herself and pay school fees for her little sister.
When asked what she lacked most at the current time she mentioned skills. Some customers apparently have asked her for services she can’t yet provide. In a distant future she wants to be a producer of hair extensions and other accessories she is currently buying.
Her trade is one of many that fulfill a couple of criteria in order to be included in the program: local demand, local know-how, low cash requirement, potential for self-employment.
Next we met a young carpenter. He’s learned how to build all furniture items used in a traditional home. Chairs, table, bed, cupboard. He runs the business together with his brother and they employ part-time helpers. After only 4 months he is able to support wife and son. His trainer sometimes passes on woodwork jobs.
Working with a minimum of capital and tools, this young man has some concerns. Having only one of each tool his employees cannot work efficiently and are often forced to wait until the tool becomes available. Here we are talking about basic tools such as hammer, screwdriver, etc.
Certain process steps he cannot perform and has to buy from another place. With more capital he could buy more material and build more furniture. He found out that customers don’t want to wait but buy on the spot if they like an item. Currently he is forced to sell the bed before he can purchase more material to build another bed.
He does no longer make a list of revenues and expenses but knows how much he paid for the raw materials. So bookkeeping is simple for him. In a distant future he wants to have more machines and a large sheltered place to display all furniture. He currently works outside between two buildings.
Both entrepreneurs started off with no employment and a bleak future and they now have valuable skills and support themselves. As a project this is about as good as it gets I could imagine. Well done, Swisscontact!
Outside this project I have met another entrepreneur who is running an internet cafe. His challenge is the slow printer. As more and more people can afford smartphones and internet connections the compelling reason to go to an internet cafe is to print documents. He often has customers who have to run while the print job is not completed. So the next purchase should be a large printer. However there is no money to finance it and the bank loan that he could get for his business is too small to allow for this next purchase.
So two out of three people mention that a loan would be necessary to run the business in the way it should be run. That’s clear evidence, isn’t it? Only I am not convinced by it at all. Having seen the poor maintenance state of many aged products in Tanzania I have the impression that maintenance and replacement is never factored in the price. So what most people do is either sell things too cheap or take out too much profit. Both actions lead to a steady depreciation of the product with no cash left to buy a replacement. That’s when machinery is abandoned, cars are dumped, houses collapse.
So far it’s just a theory. I’m happy to be presented with evidence that it’s the loans making all the difference.
Thanks to Swisscontact Tanzania and Mr. S for their insight in the matter.