Cash, Capital, and the Lure of Credit in Rural Sierra Leone (Part 1)

business-1730089_640.jpg

First Things Foundation is building an investment fund that allows us to offer zero interest loans to our impresarios and their most brilliant ideas. These loans will have terms, but they will not demand interest payments of any sort. The currency is loyalty, and the notion that all of us are free to honor what is good. All of our investment loans, when repaid, will return to the fund, to be loaned out to new impresarios who qualify. In the old world these types of loans have real potential. We are looking for business minded individuals who love these kind of projects. Bankers with unique and creative ways to invest in good people. Does our project interest you? Can you help us build our fund? Contact us and let’s talk. The blog that follows from Austin (FW Sierra Leone 2019-21) and we think it helps our readers understand just what our fund will do. There are redemptive ways to connect the old world to the new!

And now, from Sierra Leone, Austin Klise presents: Cash, Capital and the Lure of Credit, Part 1:

About a week back, I was at the local Kailahun market buying food and supplies when I bumped into Doris. She’s one of the widows we work with and is part of Fr. Combey’s CAW widows group. She was at a booth in the market selling fabric. The fabrics she sells are brightly colored with swirling patterns and prints. Taking the opportunity to get out of the sun, I went over to her booth and started talking business. The conversation was an insightful look into the mind of rural Sierra Leonean trader. She told me how she would travel to Guinea to buy her fabrics then would come back to sell them at various markets in the district. Typically she’d go with American dollars to buy in Guinea. On this day she tells me she the dollar is surging and that it makes much more sense to buy Guinean francs from money traders in Sierra Leone, exchanging them for her home country currency—Leonies. Then, pockets full of Guinean francs, she sets out to buy and sell using Guinean francs. Following our conversation on exchange rates I then ask what she would do if she had 500 U.S. dollars (a huge sum for this part of the country). She tells me she’d spend it on her children’s education. Pressing her a bit I ask why she wouldn’t invest in her business. She says something I may never forget.

“No, see… If I invest in my children they will be able to pay me back more than the business.”

My conversation with Doris along with hundreds of economy related conversations I’ve had while in Sierra Leone has led me to some deep thinking on economics, culture and the future of rural Sierra Leone. I’ve come to think a lot about access to capital and how a lack thereof can impact the community I live in.

rome-1815443_640.jpg

Historians trace the usage of credit back to the ancient civilization of Sumer around 3500 B.C. where credit was used for agricultural purposes. The next major credit development came around 50 B.C. in the territory of the Roman Empire. Here it is recorded that the wealthy would use credit for purchases via written promissory notes. Through the Dark Ages the Church and civil authorities questioned the morality of usury credit and it wasn’t until the 1500’s during the Age of Exploration that the world starts to see another credit boom. Columbus’ journey was largely financed by credit through the Spanish monarchy via an Italian financial institution. Three hundred years later banks began to extend credit to less famous and less ambitious individuals. A hundred years after that, in the early 1900’s, we see the outlines of our modern credit card system. Today, for better or worse, credit is the blood in the body that makes modern America run. Individuals in western countries can obtain a line of credit in under ten minutes time. Yet despite all of this, credit remains a unwieldy idea in the developing world. Alternative solutions are cropping up and entrepreneurs are starting to re-imagine the credit game and offer alternatives in rural Sierra Leone, but at this moment lack of capital still remains one of the main economic factors that slows growth. Perhaps one of the most telling examples of the situation is that when you navigate to Sierra Leone’s Commercial Bank (the largest banking institution in the country) many browsers warn you against accessing the site because it is not safe. People distrust the banking system here. For local entrepreneurs this state of affairs is, in a word, disheartening. 

Almost every conversation we have with potential First Things Foundation impresario candidates inevitably turns to securing money. Part of that stems from the very deeply held mindset that money is king in regards to business development, but it also comes from the state of the credit landscape In Kailahun, where FTF operates. In Kailahun there is one bank and one community organization that lends money. The first won’t even let you through the doors if you’re not in the upper middle class of the community. The second only offers short term loans at rates close to 30%. Many people can’t read or write, so going in and securing a loan is a daunting process. Instead, locals turn towards community savings groups. These groups are loose credit unions where money is pooled and then distributed at very, very low rates. This works, but it isn’t a silver bullet. You have to apply to be part of these groups, you can only take a loan a few times a year, and the cap on your loan is essentially how much money you’ve put in.

At FTF Sierra Leone, a large part of the work we do on the ground is helping people navigate the deficient economic landscape. In the case of our work with Mr Kongo and the CDC team we helped them set up a business plan that wouldn’t make them a slave to a large loan. Instead, it was determined getting local investors was the best course to take. Now they have a system where board members and, in the near future, community members, will be able to buy shares. To date, they are 100% investor financed and haven’t had to turn to a lending institution with staggering rates. We’ve done similar work with Fr. Combey and the CAW widows groups. 

money-2165758_640.jpg

Access to credit is only one of the many economic issues that creates challenges in rural Sierra Leone. Record keeping, the insurance landscape, and access to technology are all significant factors at play. Sierra Leone’s political and financial powers are working to address these issues, however, in the meantime FTF will continue to play a critical role in connecting entrepreneurs to seed funding from donors, investors, and credit institutions when necessary. 

In many ways our work resembles a royal road, beset on both sides with pitfalls. We journey with our impresarios as they try and avoid crippling loans on the one hand, and debilitating capital deserts on the other. If things go well, we acquire healthy capital necessary to create sustainable growth, more jobs and a degree of stability. If this kind of conversation interests you, contact us and let’s talk about ways you can change lives and assist our impresarios in their quest for a better life.

Recommended Reading: https://www.brookings.edu/blog/africa-in-focus/2018/08/01/giving-credit-to-africas-financial-markets-and-why-we-need-to-step-up-reform/

Sources: https://www.visualcapitalist.com, www.slcb.com