Motorcycle Microfinance

A few of you have inquired about the sudden disappearance of my blog posts. While there are a few reasons for this (including a loss of my faster internet connection and some travelling that I've been doing), this post is definitely worth me braving a now ludicrously slow internet connection to get it online.

You may have noticed by now that my blog thus far has been primarily focussed on my weekend adventures, and has been a little light on details on the whole reason I came to Sierra Leone in the first place: microfinance. While I’ve done what I’d characterize as some consulting work thus far, such as working on a training program for SMT’s finance staff, I found this work to be a little slow so I decided to take some initiative and start my own project. I’ve spent the majority of the last few months working on this idea, but didn’t really want to talk much about until I knew it was actually going to pan out. That time would be now.


The most crowded motorcycle ride of my life.
If we were Sierra Leonean, we’d also have had a
small child perched on the gas tank. 

Almost everywhere I travel in Makeni is by motorcycle taxi. Some foreigners don’t like flying through the streets on the back of an old bike with useless suspension, brakes that may or may not work and no helmet, weaving in and out of traffic on a mix of dirt and paved roads (on a recent trip I hit my elbow on the door mirror of an oncoming car. I’m glad we weren’t travelling six inches further left). All manner of things can be carried on these bikes. Plywood, TVs, an entire family, livestock and 30 foot long pieces of rebar are just a few of the items I’ve seen being transported by ingenious Sierra Leoneans. Having had my bike license for seven years, and having raced motorcycles for two years, I think it’s a brilliant way to get around, not to mention the only affordable method of transport for most of Makeni’s population.

When I first arrived here, I chatted to a few of the guys riding the bikes, and heard almost the same story from each one. Many have completed most or all of their secondary education, and are trying to earn enough money to survive while also saving to further their educations. Others use the money they earn to support themselves and their young families. Some are even former child soldiers, and have the missing limbs to prove it. In all cases, it was clear, even without them disclosing any numbers, that the money they made from the job was limited (a taxi ride usually costs between $0.25 and $0.50) and the hours were long, most working 12 or more hour days, 6 days a week. In hindsight, I can’t believe how long it took me to realize this, but these young, hard working guys with limited resources are the exact type of people I came here to try to help. Could there be a way to use microcredit to somehow improve their lives?

I spent a month researching the idea, taking taxi ride after taxi ride, and grilling the riders on all aspects of their business, such as a typical days’ earnings, working hours, fuel costs, other expenses, etc. Riders were a bit reluctant to disclose details at first (just imagine a stranger walking into your office and asking you how many hours a day you work, how much money you make, what you spend it on, etc.) but once I built up a bit of a rapport, I started to get some meaningful information. By the end of my research, I put together a report with the following conclusion. A typical bike rider collects about $12-14 per day in sales, but after expenses only clears about $2/day. The largest expense that they have? Renting the bike from a local business owner eats up about half of their revenue. Using the data I’d collected from my informal survey, I did the math and worked out that by financing the bike through a microloan, they could immediately increase their daily earnings to $3/day (the combined principal and interest payments on the loan would actually be less than what they’re currently paying to rent a bike for the day), and once the loan was fully repaid, the riders could be earning about $7/day. This means we could more than triple one of these riders’ incomes in less than a year! There was only one problem, and it was a big one. A bike costs about US$1,100, well in excess of the ~$100 we typically loan to a first time borrower. This creates a lot of risk on our part, and was almost a deal killer, but fortunately we came up with a solution.

The Executive Director of SMT suggested I speak to the local motorcycle taxi riders union to see if there was any way they could get involved. A meeting was set up with the Chairman, who, once we explained the concept, I’d characterize as interested but hesitant. We agreed to meet the following week with the entire executive committee of the association. I got to work putting together a pitch.

I presented my idea and proposed a structure whereby the riders union would guarantee all of the loans made to the individual riders. I added a slide on how this would be beneficial to the association as it allows them to really build their standing in the community and be seen as doing some significant good for their members. It would also increase their membership and their own revenue, as more bikes means more riders, which would translate into more union dues. It seemed like a bit of a long shot, but it was the only idea I had. 

Despite my previous griping about how slowly business can move in Sierra Leone, these guys loved the idea and wanted to get started immediately. Negotiations started right there on the spot, and were intense. Just imagine a small room packed with one soft spoken white guy, and 15 screaming Sierra Leoneans. Since I don’t speak Krio or Temne, I had a translator whose primary task, other than translating the actual words I spoke, was to make everything I said sound angrier and more belligerent. He did a fantastic job.

Once negotiations were complete, everyone stopped
shouting for long enough to take this photo. SMT’s
Executive Director is on the far left, while the
union’s Chairman is on the far right. 

Once the dust settled, we had all of the major details of the proposal hammered out in about two hours. We would be making 10 loans (up from our original proposal of 3) as part of a pilot program to individual bike riders who currently rent their motorcycle. In exchange for being given a more prominent role in the process (such as selecting the riders, purchasing the bikes, and collecting payment from each rider), the riders union agreed to guarantee each loan. They also agreed to put up the union’s headquarters as collateral. This meant that including the combined value of the property and the bikes (with the bikes at a conservative 40% discount), we would still be more than 1.6x covered on the loan value.

Following the negotiations, I started drafting all of the legal documents (I'm not a lawyer, but apparently I am qualified to be doing this in Sierra Leone) and application forms, and working with the riders union to get all of the required due diligence items we needed to have before launching the financing (copies of bank statements, land appraisals, riders’ IDs, etc.). For all my lawyer friends out there, I don’t know how you do this on a daily basis. It was painful work but, as all business professionals know, a very important part of the process. It was at this time that the Sierra Leonean business culture that I’m trying very hard to learn to love also reasserted itself. I spent large parts of my days running around re-requesting documents and signatures, for the third or fourth time, from both my own colleagues as well as the members of the riders union. Promises were made and just as quickly forgotten. Proposed timelines were agreed to and then simply ignored, with no communication or explanation as to why. It was unbelievably frustrating, but after nearly four years of investment banking, I’ve seen enough deals fall apart at the last minute that I knew I needed to keep pushing. And so I did, struggling to keep the financing moving forwards at what I felt was a reasonable pace (clearly the Sierra Leoneans and I disagree over the definition of the term "reasonable").


Riders participating in the training program.

As I had quite a bit of down time during this phase of the process, I also set about putting together a simple training program for the riders. My aim with the program was to provide them with and teach them how to use a very basic cash flow forecasting template. This should hopefully allow the riders to track their revenues and costs to ensure that they have sufficient funds on hand each month to make their loan payments, as well as to cover any unexpected repairs or other expenses that might arise.

After what felt like several years (it was actually two months), all of the documentation was in place and it was time to advance the funds. In microfinance, this is normally done by handing out physical cash to the loan recipients at our head office. However, given that the largest bill denomination here is Le 10,000, the Le 47,000,000 loan would have required an actual wheel barrow full of cash. So instead, once the final contracts were signed, the plan was to write the Chairman of the riders union a check for the loan proceeds. As I was sitting at my desk, just hours before the loan proceeds were supposed to be advanced, I was informed that the financing had been be delayed (again) by a week. What? I went to track down the Finance Manager to see what was going on, and the answer I got was ridiculous. Apparently, despite both the Finance Manager and Executive Director having known about this financing for weeks, and both knowing that the funds were going to be advanced today, SMT didn’t have Le 47,000,000. The organization keeps its funds in US$, and it would take five days to convert them to Leons.

After trying very hard (and, I must admit, somewhat unsuccessfully) to hide my frustration, I came up with what I thought was the perfect solution. We could simply advance the funds in US$. The bikes are priced in US$, and the first thing the union was going to do upon receiving the loan proceeds was convert them into US$ anyways. I talked to the Chairman, and he actually preferred to receive US$. Unfortunately, the answer I got from SMT was "no". The explanation? "That’s not how we do things here." Gotta love bureaucracy. An appeal to the Executive Director was met with the same response, leaving me with nothing to do but wait… again.

Finally, a week later, the funds were in place and the check was written. The riders union purchased the bikes (from Guinea, as they’re a lot cheaper there than in Sierra Leone), and the program is now underway.


The Star Sports TVS. This 125cc Indian-made beauty isn’t
quite as well built as a comparable Honda XL, but at less
than a third of the price, it’s the perfect bike for this project.

To sum things up, we’ve now got an innovative loan product making what’s hardly considered a microloan anymore, extended to a group of first time borrowers with no credit history that gives them the chance to more than triple their $2 / day income in less than a year by doing the exact same job for the exact same number of hours that they would be doing anyway. And all with minimal risk to us as a creditor. Already we’ve been contacted by other regional riders associations asking if they can participate in a similar project. While we need to run with the pilot for a few months to make sure everything runs smoothly before extending too much credit into this space too quickly, I’m proud of what we've accomplished so far, and excited about the potential that this program has.