Crowdfunded loans help refugee entrepreneurs thrive

ABIDJAN — Jacqueline Muhimpundu, a former fabric seller in Burundi, fled the country in April 2015 after a contested presidential election sparked violence. Forced to rebuild a life for her family, she relocated to nearby Kigali, Rwanda, and began making liquid soap in her modest two-bedroom home: one room for sleeping, the other for soap production.

Later that year, a friend told Muhimpundu of a program offering business-skills training and loans to refugee entrepreneurs.

After reviewing her business, the African Entrepreneur Collective awarded Muhimpundu a loan for 5 million Rwandan francs ($5,600) in March 2017, which she used to legally register her business, hire five staff, rent a production space, and purchase equipment to increase production. Muhimpundu finished repaying her loan in November 2018.

“When I received the loan, initially it was a bit hard to pay back,” she admitted. “I had some delays as I juggled to pay for other expenses that came along as the business grew, but I kept up with my monthly payments.”

Now, Muhimpundu averages a monthly revenue of 3 million Rwandan francs ($3,375) per month, half of which she keeps as profit. The 35-year-old plans to hire more staff by next year and expand the business beyond Kigali.

How the loans work

Muhimpundu is one of 11,000 refugee entrepreneurs financed by Kiva’s World Refugee Fund, an interest-free crowdsourced fund that provides financing to local field partners such as AEC, which then offer direct loans to refugees.

Kiva itself is a San Francisco-based online crowdfunding platform for microloans. Individual donors lend $25 at a time to support projects such as microbusiness expansion, access to clean energy, higher level education, medical expenses or community projects.

To date, Kiva has lent more than $1.2 billion via a network of 300 partners in 84 countries, who disperse the funds locally. Many partners are microfinance institutions; others are social enterprises, education institutions, accelerators, and incubators.

Once a borrower requests a loan, the partner conducts an approval process to determine the legitimacy of the request and understanding of the market. It is then listed on the Kiva site for lenders to crowdfund up to the approved amount. Lenders are repaid incrementally based on a given schedule and the ability of borrowers to repay. Funds are channeled back into the lenders’ online Kiva account, and can be reinvested into another loan, donated, or withdrawn.

Impact on refugees

Kiva launched the World Refugee Fund in 2017, recognizing that as displacement situations were becoming more protracted and humanitarian assistance stretched thin, “more sustainable solutions were needed that focused on livelihood assistance for refugees,” WRF Senior Investment Manager Lev Plaves told Devex.

The group noted that very few financial service providers were willing to serve the world’s 68.5 million displaced people due to perceptions of them being too high-risk.

“This was largely around the perception of flight, where refugees could flee either to another part of the country to resettle, or to another country completely, and also due to the fact that refugees often have limited credit history or limited access in the country where they have settled,” Plaves explained.

Because Kiva capital is crowdfunded, it comes to field partners at low cost and low risk, placing Kiva in a position to “encourage local field partners to serve a population that otherwise may be too risky or too costly for them to serve,” he explained.

Kiva expects to deploy over $6 million in loans to refugees and internally displaced people this year, doubling the $3 million lent last year. The team has also more than doubled its network of field partners serving these populations, especially those in Jordan and Lebanon serving Syrian refugees.

Overall, WRF boasts a 96.6 percent loan repayment rate, according to its 2018 impact report. In Rwanda, it has seen a 100 percent repayment rate, largely due to the business-skills development component and determination of entrepreneurs to bring their families out of poverty.

“Based on our experience, lending to refugees is a very stable and impactful form of financing,” said Julienne Oyler, CEO at AEC. Since refugees are often excluded from traditional finance opportunities, refugee entrepreneurs are very serious about repaying their loans.

“There is a lot of money circulating and a lot of consumption happening in refugee-based communities,” Oyler told Devex. “What a lot of people don’t understand is that refugees are consumers, so there are many entrepreneurs that have found a good product for their market, and by establishing loyal customers and having the right product for their market, are able to turn really good businesses.”

For Muhimpundu, an urban refugee, soap sales have skyrocketed, allowing her to easily send her children to school and provide for her household.

“Before coming to AEC I produced five gallons of soap per week, and now I am producing 100 gallons each week,” Muhimpundu told Devex.

“Not only have I increased demand with the use of my marketing team member who gives presentations to hotels, bars, restaurants, and hospitals around town, but I have paid my loan and can request another to help my business expand even further.”