3 Victoria Kisyombe and SELFINA

Building a Leasing Business in Tanzania

Maya Perl-Kot

Figure 3.1 SELFINA Logo

Source: Reproduced with permission from SELFINA, October 29, 2012.

SELFINA, a micro-leasing business that Victoria Kisyombe envisioned from a personal family challenge, grew into a unique company that had an impact on tens of thousands of lives. The company provided invaluable equipment leasing opportunities to women entrepreneurs on a financial basis, which allowed clients to pay toward ultimate ownership. It accepted women who were often turned away by traditional financial institutions, and offered business training as well as other services critical to clients’ success.

A woman of humble origins from the inland part of Tanzania, Victoria saw her exceptional vision mature into a thriving company that had issued over 22,000 lease contracts. Her business idea—spurred by personal necessity, an entrepreneurial spirit, and the social needs she witnessed around her—was an innovative one for Tanzania: SELFINA was one of only a handful of organizations that provided leasing on a micro-credit basis, and the largest one that focused exclusively on women. Under Victoria’s extraordinary leadership, SELFINA drew both domestic and international attention, which, in turn, resulted in increased financing sources for the firm, enabling it to continue to expand its client base. “This has been an amazing experience,” she recalled. “It is a business that allows me to give to others, but has simultaneously contributed so much to my own personal development.”

The Origin of an Idea

Victoria was the daughter of farmers from Mbeya, a city of over 2 million residents in the southwestern highlands of Tanzania. After studying for her bachelor’s degree in a nearby city and completing her master’s degree in tropical veterinary medicine at the University of Edinburgh in the United Kingdom, fully funded by a British Council scholarship, she worked for the local government, treating animals in her town and in the surrounding villages.

She had not intended to end up in the financing business. But when she saw a need she could not ignore—Tanzanian women’s need to provide for themselves and their families—innovation came naturally. The urgency of the situation was clear: Women were expected to help support their families but, particularly in rural areas, had virtually no employment opportunities. Small enterprises—selling produce, groceries, or other items—were often the only alternative. But women lacked access to productivity-enhancing technology to improve, or even basic assets necessary to start, these businesses. They were either unaware of where and how to seek them out or, upon trying, were turned away by local financial institutions. Despite national laws that declared and mandated equal rights for men and women, many customary and cultural laws still impeded women’s financial freedom.

The specific problems are diverse: women are oftentimes the breadwinners for large, extended families, playing an integral role in the rural economy, but they cannot obtain the equipment to maximize their income. In Tanzania, to get assets, one needs collateral which, for the majority of Tanzanians, could only consist of land. Women are largely uneducated about the need to obtain official deeds for land that may have been passed down between generations. Thus, when the time comes to use the land as collateral, women seldom have a way to prove ownership. Moreover, even when official ownership does become a salient issue, property is seldom registered in the woman’s name. Although the law equates the two genders, the reality of things is different. Obtaining a deed can be a cumbersome and complicated task. The consequence of these various elements is clear: women lack collateral and, as a result, lack the ability to get the assets they need.

The injustice of the situation did not elude Victoria. While thinking about possible ways to address it, she was able to conceptualize another dimension: an opportunity to make a profit by offering the services that women lacked. SELFINA (Sero Lease and Finance Ltd.), the company Victoria started, offered a credit window exclusively for women and focused on two products: (1) leasing equipment on a financial, rather than an operational, basis (where the lessee had the right to ultimately own the assets); and (2) buying women’s equipment when they needed liquidity and then allowing them to keep the equipment on lease.

Women and Tanzania's Social Fabric

SELFINA’s operating environment was a challenging one. Incomes in Tanzania were low and left little room for investment or savings. The country ranked 157th in income per capita according to the World Bank’s 2008 World Development Indicators Report,¹ with average individual annual earnings of less than US$1,200. Even for existing small enterprises, paying back loans (or leases) could take a significant toll on a family’s disposable income—not to mention the added difficulty of completing a convoluted registration and start-up process that new businesses faced. Many women shied away from entrepreneurial endeavors for fear of financing ventures that would not succeed, or of becoming indebted without the ability to repay commitments.

In addition, the HIV/AIDS epidemic created a further burden for Tanzanian women. Although Tanzania fared well relative to some neighboring countries, more than 6 percent of the population carried the virus in 2007. The disease often altered traditional family structures and left young women, with few skills and little education, in charge of providing for extended families. From a business perspective, offering leases to such women required both an in-depth understanding of their intricate family situations and, at times, the ability to refuse contracts despite the hardships the clients faced.

Finally, the lending and leasing industry in Tanzania was extremely underdeveloped and underfunded. Despite national guidelines and legislation meant to facilitate microfinance lending, actually starting an organization remained an extremely challenging task. The Microfinance Companies and Microcredit Activities Regulations, and the 2006 Banking and Financial Institutions Act, gave the Bank of Tanzania authority to oversee all micro-lending activities,² and mandated a minimum capital requirement of 800 million Tanzania shillings (TZS), about US$600,000, from multi-branch microfinance institutions (MFIs).³ Because of the relatively high benchmark, only nine microfinance organizations were operating in Tanzania in 2007, with US$67 million in total portfolio value⁴ and a range of products generally limited to savings and credit;⁵ SELFINA was one of only three MFIs that provided leasing services.⁶ The government offered little institutional support, and the financial sector lacked the transparency and communication capabilities needed to nurture successful firms.

Despite these multiple external challenges, Victoria’s combination of ambition, resourcefulness, and innovation enabled SELFINA to overcome barriers and transcend industry scope. But the road was never easy.

Unusual Beginnings

SELFINA began out of a personal tragedy. In 1991 Victoria’s husband passed away, leaving her to care for three young children on her own. Victoria’s salary as a veterinarian was not enough to sustain the household—let alone save any money to guarantee future security. Her husband’s only bequest was a cow named Sero, the word for “leader” in Maasai, the tribe to which he belonged. Sero produced enough milk for the family to consume in addition to a sizeable surplus that Victoria was able to sell in the local market. Combining this revenue stream with her wages allowed Victoria to send her children to school, purchase necessary goods, and even accumulate some savings. Sero’s value as a productive asset became clear immediately:

It was then that Victoria became inspired to start a company to address the situation. Although she had no formal education or training in business and economics, she understood the principles of leasing: Purchase equipment that clients need and rent it at a reasonable, fair rate that still generates a profit. A leasing company would satisfy both women’s need for productive assets and Victoria’s own desire for personal and professional growth. By observing the business environment around her, Victoria understood the types of equipment that would be most useful. Refrigerators and freezers for small convenience stores, sewing machines for making clothing, and productivity-enhancing farm tools (whether livestock or machines) were at the top of her list. As Victoria knew, anything that could either improve the profitability of existing enterprises or allow women to start new ones would be in high demand.

Victoria took her idea seriously. She began circulating it among family, friends and colleagues, who were all supportive. Not only were the products of a leasing company in high demand, they said, but the leadership of a woman personally familiar with the circumstances and difficulties clients faced could really set the company apart from competitors.

Encouraged by the positive feedback she received, and impelled by a desire to seek the advice of decision makers, in 1993 Victoria left her veterinarian job in Mbeya and moved with her three children to Dar es Salaam, Tanzania’s largest city. She wanted to establish herself and the seeds of her business in the country’s financial, social, and professional hub.

While laying the foundations for SELFINA, as she was familiarizing herself with Dar es Salaam’s micro-lending industry, Victoria embarked on another, related endeavor. She started SEBA (Sero Businesswomen Association), a nonprofit organization whose aim was to empower and create a vibrant community for women entrepreneurs. SEBA offered training and lessons in practical business issues such as accounting, people management, and negotiation—allowing women to supplement monetary support with professional coaching. “SEBA was an idea intrinsically linked to my goals in coming to Dar es Salaam,” Victoria observed.

As secretary-general of SEBA, Victoria was able to earn an income and, at the same time, capitalize on the connections she had been making in Dar es Salaam’s industry circles. Aided by money she had saved and received from various sources, Victoria devised a pilot study program to test her leasing business idea. She selected forty women who, based on personal acquaintance or in-depth research, she believed would achieve relatively quick paybacks, and made their lease terms short in order to complete the pilot within a certain time frame. She bought several pieces of equipment—primarily sewing machines, secretarial equipment, freezers and refrigerators—and leased these to the women.

The equipment had the predicted impact on the businesses and, with the help of increased earnings, the women met their payments. At the time, more important than making a small profit was the fact that Victoria had proven the feasibility of her idea to banks and potential investors. The repayment rate was virtually perfect, and Victoria had firmly established the precedent that would help in going forward with her business plan. Moreover, the response she received from the women was extremely positive. They all appreciated the opportunity she had afforded them and were enthusiastic about additional lines of credit to help grow their businesses. “The responses from the women in the pilot were incredibly gratifying,” Victoria said. “These women would have been turned away by the local bank and were forced to fend for themselves. I came along as an intermediary who was willing to give them a chance.”

Victoria was confident, but knew that real success required a larger scope. She needed more clients. However, she faced a serious business strategy challenge in this area: in the absence of an organized credit-assessment mechanism (customary in the West) and without requesting sizeable collateral from clients, judging women’s ability to repay proved to be difficult. Although according to the contracts, Victoria effectively owned the equipment until it was paid in full (thus making it de facto collateral), the repossession mechanism was costly, time-consuming and, therefore, unreliable. So, while validating the market demand for her product, the pilot study also reinforced the need to choose clients effectively. Victoria deduced these key takeaways and decided to take the next big step.

Founding Sero Lease and Finance Ltd.

In April 2002, after working arduously to raise capital and navigate through bureaucratic channels, Victoria finally registered Sero Lease and Finance Ltd., dubbed SELFINA in short. Much like her future clients, she too faced a collateral problem when trying to borrow from the bank. Her own father came to her rescue by transferring the deed of the family’s land into her name. “He was a great man and a constructive figure in my life. Despite a lot of traditional conventions that mostly disenfranchise women, my father was an encouraging man who supported my ambition,” she noted admiringly,

With US$110,000 of investment capital and US$20,000 in bank loans, Victoria’s venture was a huge risk—especially with her parents’ home at stake—but she knew there was no other way. “If I didn’t take a chance, I knew my mobility and freedom would always be limited. Beyond that, I sensed a calling in what I was pursuing. It meant something to me, and it would mean something to a lot of other women.”

Thanks to the lessons Victoria applied from the pilot, at its inception SELFINA was already beyond its teething stage, and she knew not to overstretch its operations. As Managing Director of the company, she hired experts in women advocacy, law, accounting, and finance as her staff. Together, they developed a rigorous framework with specific metrics to assess applicants, estimate the monthly payments they would be able to meet and, thus, determine the maximal size of each contract.

The selection methodology included several stages.⁷ First, potential clients came to SELFINA offices to learn about the company, the general leasing process, and the specific requirements to obtain a lease. These requirements included an established, operational business or an advanced business plan in place; a guarantor to co-sign any contract; and the ability to participate with a down-payment of up to 15 percent of the value of the desired equipment. The latter was meant to give the client an initial sense of ownership and a personal stake in the lease, as well as to spread the company’s risk exposure.

Clients then filed a lease application form, where they gave details about themselves and their business. The staff reviewed applications during weekly selection meetings and, upon approval of the application, a SELFINA loan officer visited the woman to conduct an investigation. The officer examined the applicant’s residence as well as the location of the business, and scrutinized the earning potential of the lease equipment. The officer then returned to company with a full assessment report, and the staff made a final decision regarding the application.⁸

Ultimately, the criteria Victoria developed proved to be reliable predictors and the women SELFINA chose were successful borrowers, gradually becoming owners of the equipment they leased. The interest she generally charged—at 2.8 percent monthly and 30 percent annually still high by Western standards—was lower than what banks charged the same women, and the attractiveness of her product was clear.

Victoria entered a wide variety of industries, including cooling, machinery, transportation, and livestock. The new SELFINA bought and leased freezers and refrigerators for drinks or produce; sewing, gravel-making, and baking machines; tractors, cars, and trucks (see Figure 3.2), and a variety of farm animals. Her advantages as a large, consolidated business entity were clear: She could negotiate better prices for equipment when SELFINA purchased large quantities, and she had enough collateral to receive increasingly lower interest rates from the bank which she then passed on to her clients.

Marketing, Expansion, and Business Structure

The business model worked, and SELFINA became a huge success. Moreover, that success had a multiplying effect: With more women repaying their leases, institutions were more willing to provide money for SELFINA—and the more money SELFINA had, the more it was able to lend. From just a few dozen clients in 2002, SELFINA was financing over 200 in 2004. As clients accomplished a 98 percent repayment rate, confidence in the company grew and demand for its products skyrocketed.

Figure 3.2 Sewing Equipment Leased Through SELFINA

Source: Reproduced with permission from SELFINA, October 29, 2012.

Then the real wave occurred: In less than 5 years, between 2004 and 2009, SELFINA expanded its client base from approximately 200 contracts to more than 16,000. Portfolio volume also grew exponentially, by over 600 percent, and by the end of 2008 stood at TZS 7,000 million, about US$5 million. All of this growth was without advertising; by word-of-mouth alone, SELFINA received more requests than it could fund. “The foundations we established initially were critical in guaranteeing the company’s future,” Victoria noted. “It was a highly professional approach that focused on the mutual business benefits, both for SELFINA and the lease holder.”

Horizontal growth, which constituted new “low-cost” women leasing amounts of US$3,000 to US$4,000, grew by about 80 percent annually. Vertically, “active women”—graduated lessees seeking second, third, or fourth terms—requested increasingly larger contracts. Such leases reached anywhere from US$7,000 to US$25,000. The Global Bridge Fund (GBF), an affiliate of the World Bank and the International Finance Corporation and a part of ACCION, an American nonprofit that specializes in microfinance, helped SELFINA create the “Next Stage Fund,” an initiative to provide one-on-one training for these “active women.”

At the same time, SELFINA pursued geographical expansion, opening nine additional branches across Tanzania. After identifying regions or provinces where services seemed lucrative, Victoria utilized local activists or community leaders to identify each locality’s true potential. She then traveled to personally establish the foundations of the branch. Employees were selected based on competence and fit, and underwent comprehensive training from SELFINA staff in all of the company’s regulations and codes. Finally, Victoria officially appointed the managers and closely monitored each new branch during the first months of activity, participating in all leasing activity decisions and traveling frequently to the location to assess progress.

SELFINA grew in size, and by 2009 had more than 100 employees. While the company maintained a flat operating structure, it had clear roles and responsibility assignments to ensure that each function was fulfilled. Every branch had distinct business units and positions: accountants reported on local portfolios once a week and, on a daily basis, sent an email report of any irregularities; the operations team visited lessees and sent an updated report of client files once a week; and headquarters was in charge of final authorization of any new clients based on the company-wide rules.

The refusal rate generally remained at 1 percent. Women who were not approved as clients were advised to seek credit from smaller micro-lending organizations until they established their credentials with SELFINA and could lease in larger sums:

With over 22,000 leases in total and 15,000 active contracts, SELFINA had US$1.1 million in equity by the middle of 2009. Together with additional funding totaling US$3 million it had received but not yet leased out, the company had more than US$10 million in operating capital in the middle of 2009.

National and International Recognition

The rapid growth SELFINA experienced drew continued domestic and international attention. Because there was no similar Tanzanian for-profit business with a comparable business model and customer base, Victoria became a national figure in women’s advocacy circles and an expert on property rights and micro-leasing. She appeared on television frequently and was deeply involved in the country’s overhaul of property-leasing laws, which resulted in the Financial Leasing Act that dramatically increased women’s rights and promoted leasing as a tool for economic progress.⁹ When, in April 2008, Parliament passed the bill, she received a personal mention from the president of the United Republic of Tanzania, the Honorable Jakaya Mrisho Kikwete, who spoke about the jobs SELFINA had created and the number of women it had assisted.

Victoria was also identified by international organizations and agencies as a role model for business entrepreneurs. She was one of seven women profiled in the World Bank’s 2008 report Doing Business: Women in Africa.¹⁰ In 2007 she traveled to Washington, D.C., to speak before the president of the World Bank and six foreign ministers as part of a conference on gender and development. “It was really emotional and rewarding to hear the leader of the nation acknowledging everything that we do,” she recalled. “And the opportunity to go abroad and speak to such important international figures—well, that is something I could have never even dreamed of before. I was extremely excited to have been selected.”

The spotlight furnished more than intangible exposure for Victoria. It was also an unparalleled source of publicity that built SELFINA’s reputation. It created borrowing potential for the company, through which its recognition and prestige constantly increased: Exim Bank, a local Tanzanian institution, lent SELFINA TZS1 billion, about US$1 million, and Deutsche Bank extended US$100,000. PriceWaterhouseCooper implemented a two-month pro bono engagement to improve operational strategy, and, in addition to the Next Stage Fund, the GBF also supplied technology and communication assistance. The company incorporated various software applications, such as Loan Performer, to automate receipt making, and drastically improved the accuracy of and control over bookkeeping and portfolio management.

Beyond Business: Self Fulfillment

Throughout SELFINA’s rapid expansion, Victoria never neglected SEBA or the social cause behind her enterprise:

SELFINA’s growth as a business had a profound impact on Victoria’s personal development, and she admitted readily to the incredible sense of achievement she received from the company.

Victoria mentioned the immediate feedback from clients as one of the most rewarding aspects of her industry: Results were concrete and measurable. The impact the equipment had on clients was visible from the moment they received it, and they would return to SELFINA praising the company for its services. “It’s amazing that we were able to achieve such rapid growth,” she observed. “Even more amazing is that we help shape the future of thousands of women—and that I am in control of my own future at the same time.”

Victoria’s family was extremely proud of her accomplishments. Her parents were uniquely supportive of her idea, even in its infancy—a luxury Victoria knew not all women enjoyed. Her three children all attained prosperous careers of their own. Her oldest daughter even worked for a year in the accounting and finance arm of the company. Although she eventually left to pursue studies in the United States, she supported her mother’s business from afar and hoped to return in some capacity in the future. “In Tanzania women are expected to work, yes, but not to take initiative. My family is amazing in this respect, having not only allowed me to pursue my dream but actually helping me realize it.”

All of Victoria’s children acknowledged the unparalleled benefits that SELFINA and their mother’s entrepreneurial spirit provided for the family, in terms of flexibility, independent time-setting, and financial security. Had she had a regular job, Victoria would never have been able to relocate to Dar es Salaam and send the children to Tanzania’s best university or abroad for schooling. Despite the long hours and hard work that SELFINA demanded, Victoria knew how much better it was compared to the alternative scenario:

Challenges and Hopes for the Future

With near-perfect repayment rates and growing attention around SELFINA, Victoria’s success was apparent. Still, she believed there were additional avenues for expansion and wanted to set the bar even higher. Entering foreign markets was one particularly appealing idea. “We have to leverage and utilize our publicity in order to grow the company, as well as export the concept and enlarge it.”

At the same time, SELFINA faced many challenges. Even with strong institutional financial performance, getting credit for the company often required a guarantor. Despite the good track-record and positive exposure, local banks were sometimes reluctant to lend large sums without one. The company lacked this type of stable support, which led to expenditures for procurement, bureaucratic, and administrative tasks every time a guarantor was needed. One of Victoria’s top priorities was to secure a permanent guarantor that would allow the company to be more agile in its responses to market demands and borrow more quickly. Another priority was to incorporate more technology and connectivity into the company, in the form of more computers, better software, and additional training. “Innovation continues to be a strong driver of our performance. Technology is critical in making businesses, including SELFINA, more efficient. We want to fully utilize technological advances in order to maximize our impact.”

Overall, Victoria hoped to open two SELFINA branches each year over a four-year period, including some in Tanzania’s more disenfranchised regions where she believed demand for leasing products would be especially high. With at least five employees to open each branch, she intended to increase her staff by about 50 percent and the number of women served by 5,000 over the same period. Since each woman provided for additional family members, the number of lives that SELFINA had influenced surpassed 185,000 and, when in 2009 she received the International Alliance for Women (TIAW) World of Difference Award from the GBF, Victoria announced a target of impacting a total of 440,000 lives by 2014.¹¹