How does the Small Business Fund work?
I talk a lot about our Small Business Fund program. Today I’m reposting my (updated) FAQs about how it actually works!
1. What is the SIA Small Business Fund (SBF) and how does it work?
The Small Business Fund (SBF) is SIA’s program to support economic development in developing countries. SIA has supported 660 small businesses in Kenya, Malawi, DR Congo, Rwanda, Nigeria, Uganda, India, and Philippines since the program started in 2003.
Groups (often family groups) of 3-5 people receive business training and a $100 initial grant to start or expand their business. After three months, if the group is successful, they receive an additional reinvestment grant of $50.
The SIA office receives a copy of the business plan, a 3-month Business Report and a One Year report, so that we can follow the group’s successes and challenges.
2. So it’s a grant, not a micro-loan?
Our grants are the first step out of poverty and can eventually lead to micro-loans once the businesses are established. Micro-finance institutions, even ones that claim to help the poor, often require high collaterals and have crippling interest rates – we heard countless stories about families losing their belongings and being charged as much as 48% interest on a two week loan. SIA works with people and in areas that are often ignored or exploited by micro-finance institutions.
It is rarely acknowledged that no company in the United States begins without start-up capital from outside investors. These investors are known as “angel investors” because they believe in the business model and they are willing provide the entrepreneurs with the capital needed to get their idea off the ground. SIA follows the same principle; SIA donors are effectively Angel Investors for people in developing countries.
3. Who are the SBF Coordinators?
We currently work with six SBF Coordinators who serve in their local communities. They are dedicated volunteers with experience in community development, who work with our SBF Guidelines and send us reports and stories of the businesses. Before people become SBF Coordinators, we get to know them over the course of many months to establish a relationship of mutual trust. Through this process, we also come to better understand the specific needs and challenges in their community.
SBF Coordinators canaan Gondwe (Malawi) and Dennis Kiprop (Kenya) at our conference in Uganda in 2014.
4. How do you decide who receives the grants?
Our SBF Coordinators develop location-specific criteria to identify the poorest households in their community. They visit families to ask how many meals they eat and if children can attend school, and to detect the opportunities and skills that the family could use to start a new business.
5. What do you provide in addition to the grant?
Before anyone receives a SBF grant, they receive business training from our Coordinators. They learn about record keeping, accounting, decision-making, marketing, and budgeting.
After receiving the grant, the Coordinators continue to check-in with the group, offering tips to help them improve their business and giving words of encouragement. Many people we met in Kenya and Malawi appreciated this individual support and saw this as a crucial part of their success.
6. Is $150 really enough to start a business?
Yes! Without capital, capable business people cannot get the start-up supplies needed to open a business. The initial $100 grant can enable them to buy materials for repairing bikes or items for their new store.
To ensure that the businesses continue to thrive, our SBF program also requires reinvestment. Members often reinvest 25-50% of their profits to expanding their business.
7. What kinds of businesses do people start?
People start businesses to fill the needs and wants in their community.
Some typical businesses are:
Farms (maize, vegetables, tomatoes, cassava, etc.)
Bakeries and restaurants
Basketry and other handicrafts
Buying items in bulk and reselling in the market
Small grocery stores
This woman and her husband started a pottery business in Uganda. He forms the pots and she fires and paints them.
8. What do people do with their business profits?
SBF members use their profits to expand their businesses and improve their lives. After receiving the small SBF grant, their businesses can generate enough profit to:
Send a child to school
Buy roofing for their house
Buy new clothes and shoes for their families
Provide better food
Buy a bicycle, so that they don’t have to walk everywhere
Buy more items to sell in their stores
9. Shouldn’t people have to pay back the grant with their profits?
Rather than ask people to pay back the funds to SIA, we ask them to pay it forward, through our Sharing The Gift initiative.
Once a business has been successful they give back to help someone else. For example:
Winkly in Malawi received the gift of a piglet from a successful SBF piggery
5 groups in Nigeria saved $150 from their business profits so that someone else could start a business.
Mary in Kenya trained another woman to make wedding cakes, so that she could open a new business.
10. How do your Christian principles enter into the SBF program?
Most of the people we work with come from a Christian faith tradition and people from many different churches and denominations come together through the SBF program. Our training guidelines teach about listening prayer and starting prayer groups to help group members share their problems and pray together for solutions. However, SIA is not evangelical and does not require anyone to declare his or her faith to participate.
Your donation of any amount helps people start small businesses and live up to their potential! We invite you to become an Angel Investor and take a chance on these worthy business-people. You can donate online or find more information here.