EEA Financial Services and Products
The EEA pilot group lending program started at the beginning of 2009 with a single loan product – Solidarity Small Business Loan.
EEA requires clients to save 20 percent of their requested loan amount before disbursement. The primary purpose of compulsory savings is to cover any default risk. The compulsory savings pay the depositors interest at 12.5 percent. The clients do not have an individual savings account. EEA collects the savings from their clients and deposits it as an accumulated amount on their business account at the CRDB Bank. EEA pays out the interest (minus a commission of two percent) when the loan is fully repaid or in year three when their clients open voluntary saving accounts. Access to the compulsory savings is blocked while the client has an outstanding loan and can be seized by EEA if the client fails to repay the loan. The funds are not otherwise available for EEA’s running costs.
In year four, EEA intends to convert to a non-bank financial institution, which will make it eligible to collect savings deposits. Thus, EEA will replace compulsory savings with their voluntary Passbook Savings product and fixed deposits. Furthermore, in the fifth year EEA plans to introduce a new loan product to rural areas. Rural products would be customized based on the needs of small scale businesses focusing on agriculture.
The loan applicants have come up with very creative ways of income generation through which they will take care of their daily needs. They want to engage in small businesses such as food vendors, vegetable and fruit gardeners, poultry retailers, real estate agents, etc. These alternative ways protect wildlife and environment in general. They have also signed a commitment form to reduce CO2 emission and indoor air pollution.
Loan Disbursement and Repayment Procedures
All loans require bi-weekly payments. EEA will not offer a grace period on repayments.
Contractual loan terms varied between six and 12 months, it is projected that in general clients took an extra month to fully repay their loans.
Average loan amounts are expected to increase annually by the rate of inflation. The annual client retention rate is about 95 Percent at the moment.
EEA charges 30 percent annual interest using flat balance calculations and nonrefundable commission fees of three percent on all loans before disbursement. All lending has been transacted in local currency, with no indexing to external values. The management decided to take a lower interest rate than the market average, which would attract more customers at the beginning and is in accordance to the Poverty Reduction Strategy of the Tanzanian Government. If the profitability projections turn out to be unacceptable, it will re-price the loan product again.