EFTA Ltd is a Tanzanian finance company specialised in serving small and medium enterprises and farmers. We focus on equipment loans of up to USD 60,000, with no collateral except for the equipment itself.
EFTA is the first company in Tanzania seeking to employ financial leasing to boost employment levels in the country and bring business growth opportunities to the “missing middle”. Africa’s private sector is heavily made up of informal small enterprises who lack the formality and collateral requirements sought by commercial banks and therefore lack access to the finance they require to grow their businesses.
EFTA’s zero collateral requirement addresses one of the key constraints on small enterprise borrowing levels, allowing our customers to pursue more ambitious growth plans. We are head-quartered in Moshi and have offices across the country, serving entrepreneurs within a two-hour drive time of these offices.
EFTA has a social mission, but we believe in business: both as the solution to poverty, and as the best method to get there. EFTA aims to be the most efficient small business investor in the market, focusing on smart evaluation of risks and patient returns on capital.
By investing in local businesses, EFTA fuels inclusive growth, promotes jobs creation and encourages formality.
Our product allows Tanzanian SMEs and farmers to obtain capital equipment without collateral, so that their growth is no longer limited by the assets they already own. This is in addition to any bank financing they are able to access, complementing traditional banks to fuel additional growth. As with conventional collateral, the equipment still allows us to make recoveries in case of default and provides a repayment incentive. Our equipment financing focus also gives EFTA assurance that the finance will be used in a business that will allow repayments. We also serve customers who might not qualify for bank loans at all, using alternative credit assessment methods where audited accounts or banking history are not available.
This all makes good business sense for EFTA. By focusing on a major unserved market, we also access an exceptional growth opportunity for our company. We firmly believe that good business goes hand in hand with economic development.
Benefits to Tanzania
EFTA’s business model can have a transformative impact on Tanzania’s economy as a whole and drive inclusive growth. Many of EFTA’s customers would not be able to borrow as much as they need from the banks as they do not have enough recognised collateral, and many others would not qualify for bank lending at all.
There are currently still less than 3,000 large companies in Tanzania, paid employment levels remain low, and the vast majority of citizens still earn their primary income from small scale farming. Capital investment in small farmers is vital to improve agricultural productivity, in order to raise the incomes of this majority directly as well as reducing Tanzania’s reliance on imported food. This also creates more paid employment, and also helps to develop businesses that can grow into medium and large enterprises.
EFTA’s business model
We use a standardised approach to keep costs low and allow operational scalability. This reduces negotiation time and management oversight and makes it easier to resource new applications
EFTA’s application forms function as a business plan template as a further means to standardise the review process and to accelerate follow up. Prospective customers are invited to a half-day seminar where they are given basic training in how to complete the form, but the onus is on the applicant. Upon a customer’s application, local managers conduct a basic due diligence which take less than 3 days. This includes checking personal references, stress testing economics and interviewing customers.
EFTA’s systems are designed to prevent fraud by customers, suppliers or employees. All investments are reviewed by EFTA’s Credit Committee to ensure quality and compliance to company policy. After approval, EFTA pays the supplier directly to ensure a clear link between asset purchase and delivery to the customer. New suppliers are vetted thoroughly and are also approved by EFTA’s Credit Committee. Once activated, customers are encouraged to make repayments directly into EFTA’s local bank account, so that cash does not go through local offices. Customers are given repayment receipts, as well as regular account statements, so they can check all of their repayments have been recorded.
Is this the same as microfinance?
Microfinance is currently a controversial topic. Many social investors remain strong defenders of microfinance, while others look at reports of over-indebtedness or doubts about the ability of micro-loans to drive economic growth. EFTA is crucially different from microfinance as it has come to be understood, because our investments are exclusively in capital assets that fuel economic growth.
We start from a minimum of $10,000, with a typical term of three years. In contrast, the microfinance industry has tended to focus on smaller loans to “self-help groups”, often all women, working gradually up to $1,000 over the course of many repeat loans, with typical terms of three months. There is not usually any assurance that this will be invested in revenue-generating activities, and it does seem much less likely to fuel local economic development in competitive sectors which might offer higher income possibilities to lift people permanently out of poverty.
We believe that microfinance remains important as an alternative to informal local money-lenders who often charge extreme interest rates without stable or transparent terms. Increasingly microfinance institutions are considering “finance” more broadly than just credit and looking at the other financial services such as insurance and savings that are needed to improve quality of life for the very poor.