If you go to a market in Ghana you can hardly avoid meeting some of the Susu collectors. They have conducted their trade, which originates in Nigeria, for at least three centuries. The concept is not only old, it is also simple and a useful service for small traders.
In short it is a system where Susu collectors handle the cash management of micro entrepreneurs or traders – both their savings and their loans. The Susu collectors, who typically have 500 clients, collect an agreed daily amount of savings from the trader every day and deposit this on a bank account. The collector’s fee is the sum of one day’s collections every month.
There are approx. 4000 Susu collectors in Ghana collecting from 650,000 savers, 60% of whom also obtain loans through the Susus and the repayments are recalculated to a daily repayment amount which is collected along with the savings.
Traders pay a small sum to register with a Susu collector. The collector makes his daily rounds and collects a similar amount over a 31-day rolling period from each of his customers. At the end of the period, the collector pays out lump sums to the customers, while retaining one day’s payment from each customer for his services. The system runs so well that people from Senegal, Tanzania and Kenya have come to Ghana to study it, as Ghana has a record of good implementation and governance of it. But as simple as it may be it isn’t always simple or cheap to set up a Susu operation.
Samir knows all about that, he’s the CEO of a small company called Uniplux Ghana Ltd., where Susu is the key. Samir and his partner have had a tough time getting started. They saved money for five years but still needed capital to launch their business, and the banks were either shutting the door on them or demanding a very high interest rate. They’d have to pass on the high interest to their clients which wouldn’t work as they could put their clients at risk of becoming over-indebted instead of helping them grow their micro businesses.
– That’s why we came to you, says Samir, who’s hoping that MYC4’s investors can help.
Same thing with his colleague, who’s running a company called Royal Gold Investment. He had to sell some property to get going and to put in his car as collateral for a loan in a bank – and not only did he have to give it as collateral, he had to hand it over to the bank and park it there for six months.
During a meeting in Accra in February 2009, the GCSCA (Ghana Co-operative Susu Collectors’ Association) confirmed their interest in using MYC4 as one of the loan options to offer their members to access even more affordable financing. Hence MYC4 and GCSCA are working to start supplying the first SUSU collector pilot loans with Premier Resource Consulting as Provider. The project has been long underway, but the first Susu product was approved for the MYC4 platform earlier this month. The first loans are expected to be opened for bidding in the next two weeks’ time.
Are the loans used for operations of the Susu companies or to be handed out as loans to clients?
Leveraged investing in Microfinance institutions… hmmm…
Why is it so expensive to start up this kind of business? What do they need all that money for, when they get money every month?
Dear J Krog,
The Susu system works as follows:
The Susu operators collect savings from their clients every day of the month. At the end of the month, the clients get their savings back to buy stock, pay rent, pay school fees, etc. The Susu operator gets the equivalent of one day’s savings as fee. Often the clients save as little as half a euro per day which means that the Susu operator makes half a euro a month on each client. These fees have to cover all the operational costs of the Susu business.
Also, the Susu operators are regulated such that they are not allowed to use the clients savings for credit. This means that in order to offer loans to their clients, the collectors have to either use own funds, reinvest their profit (if any) from the monthly fee, or borrow funds to on-lend.
Hello Joerg,
The loans are actually used for onlending to micro-entrepreneurs. This is one good avenue for the bottom of the pyramid accessing funds for business growth.
It is indeed leveraged financing for the susu collectors. The risks on these loans are however minimal given that there are several safeguards. 1) the loans are given using co-guarantee group solidarity model 2)the susu collector further secures the loan with own collateral 3)And the provider has guaranteed the loans 100%. The Susu collectors are well regulated in Ghana through the Ghana Co-operative Susu Collectors Association.
Thanks for the reply. Sounds like a good investment to me. 🙂
Ah. Maybe you should mention in the article that it’s indeed a regulated business.
This is very interesting, although the comments that the susu sector is regulated and that leveraging MF right now (“hmmmmm”) are both valid. We often hear of the “evil money-lenders” that exploit the poor and that MFIs apparently replace these rogues with fairer credit. The distinction is often not so clear. There has been little evidence of millions of moneylenders now out of work. I would like to know the interest rates charged to the poor by susu collectors, but I suspect (without any evidence), that these actually compare favourably with MFI rates. In which case this raises a very fundamental point about MF in general:
Can individuals such as susu collectors actually offer more favouable terms to the poor than MFIs, presumably in part due to their small scale and limited infrastructure/operating costs?
I have no idea what the answer to this question is, but the general appearance of the MF sector is that there are only three players: evil money-lenders, banks that refuse to serve the poor, and MFIs that magically fill this gap. These susu collectors appear to challenge that model. I would like to find out more about this, as the implications are far-reaching. Would MyC4 be able to confirm the actual APRs charged by these guys, and some indication of their default rates? The newsletter suggest susu collectors wish to “offer their members to access even more affordable financing” – what does this mean in practice?
Dear Hugh,
Here is a response from Felix Quansar of PRC. Due to a minor misunderstanding, his reply was posted elsewhere on the site which partly explains the delay.
This discussion has unfortunately been closed for comments, but should you want to reply to Felix, you are more than welcome to send me an email and I will post it for you.
Best Regards,
Githa
githa@myc4.com
MYC4
_____
Hello Hugh, I am sorry I could not contribute to the discussion until now; I have been in and out of the office on some very pressing issues. This is subject is very dear to my heart so I requested that it waited for my personal attention.
In response to the issues you raised, I write to further clarify that the Susu operation in Ghana has evolved to institute the self-regulatory framework to regulate the members of the Ghana Cooperative Susu Collectors Association (GCSCA). As such, the GCSCA identified and regulates four (4) areas namely Membership Criteria, Annual Renewal of Membership, Monitoring Mechanism and Incentives and Sanctions. Hence the regulation does not cover the entire operatives within the sector. It is estimated that there are over 4,000 susu collectors in Ghana whiles the membership presently stands at 1,400 operators. MYC4 involvement would only engage the membership of the GCSCA.
The self-regulatory framework is officially recognized by the Central Bank (Bank of Ghana) and for that matter the Government of Ghana and I am happy to mention here that I personally formulated and spearheaded the advocacy action by GCSCA to secure the recognition of the Central Bank and Ghana Government, for self regulation of the Susu operators in Ghana.
Regarding the rates charged the micro enterprise, this is regulated by the Association and in the past the Association allowed 5% additional charge on top of the rate charged by the lender, which is apportioned as 3% to the Susu Collector and 2% to the Association for monitoring and regulatory responsibilities. However, this is already included in the interest fees of the provider and administrator. We recognize the GCSCA as a sub-provider and the collector as a sub-administrator. There would be no additional charges to the loan beneficiaries the micro entrepreneurs.
It is also important to mention here that the loans are assigned directly to individual entrepreneurs and not the collector. The beneficiaries can be identified in attached list specifying each amount an entrepreneur receives. Transparency is really upheld in this process as demanded by MYC4 policy and core value. It is also important to remember that Susu Collector do not lend on their own, however, they are allowed to do on-lending. The same would apply in this instance and particularly serves as a channel to disburse the loan and collect repayment on daily basis, which eases the repayment burden to the entrepreneur immensely.
Regarding the rates charged by MFIs, our rate is a multiple less. Whiles the real interest cost to the entrepreneur and for that matter what the entrepreneur actually pays totals approximately 30% of the sum borrowed, the borrower would pay minimum 60% or more and even 120% to MFIs and other related lenders. Hence in practice the loan offered through this channel is by far affordable compared to other loans that might be accessible to the individual micro entrepreneur.
The susu collector is able to offer cheaper loan to the clients because the collector, in the first place, represent a group of the clients and therefore benefits from lower interest rate compared to what an individual client might be charged and furthermore has no additional operational and monitoring costs compared to the MFI. With GCSCA facilitation, the collector in many instances obtains the loan at interest rates ranging between 30 and 34% which is cheaper than what the micro entrepreneur can get on the market. From past records the highest default rate registered is 15% and GCSCA took the guarantee responsibility.
I would really like to know what the interest rate is that lands with the entrepreneurs. Reading this I am worried this will really be very unfavourable and not at all compare well with MFI’s. I understand that the Susu collector provides an important service that a MFI does not. But if the investors get 20%, then add MYC4, Premier Consulting and the Susus Collector, what is the interest that the entrepreneur pays ?
Dear Heshimal,
Here is a response from Felix Quansar of PRC. Due to a minor misunderstanding, his reply was posted elsewhere on the site which partly explains the delay.
This discussion has unfortunately been closed for comments, but should you want to reply to Felix, you are more than welcome to send me an email and I will post it for you.
Best Regards,
Githa
githa@myc4.com
MYC4
____
Hello Heshimal, as we have just mentioned in an earlier blog this morning, PRC is committed to upholding the transparency policy, value and principle of MYC4 and therefore the interest charges as indicated in the product description are all the entrepreneur pays. Interest to Susu Collectors and GCSCA is all inbuilt in the provider and administrator interest fees. The actual interest cost to the entrepreneur is 30% of the borrowed sum. I can assure you that this is by far competitive and much favourable to the entrepreneurs. It is by this conception or belief that the entrepreneurs have been concerned with the delay in starting this operation.
Invariably, susu collectors continue to bridge the financial service gap or marginalization experienced by these informal micro entrepreneurs. It is important to appreciate that the susu collector by the relationship with the entrepreneur does not see the risk the MFIs or formal banks perceive in the lending process. These factors make the susu operators operation invaluable to the micro entrepreneurs and the Government of Ghana, the Central Bank and the Development Partners have acknowledged this position and consequently have contributed to facilitating the development and training of susu collectors and consented to the self regulation.