Big Payoff for Small Loans

A BAKER and a shoemaker here are among several hundred Togolese proving that hard work and honesty pay off - and that just a little foreign aid can go a long way in Africa.

Shortly after dawn, Dunyah Ablavi, gripping a long-handled, wooden shovel, slides another flat tin of long, golden-brown, loaves out of a clay oven in her backyard. This batch is part of hundreds of loaves of various sizes she will bake today to fill her increased orders.

Here and in most of Africa, commercial banks says it's too risky and time-consuming to lend money to small business owners like Mrs. Ablavi. But last year, she qualified to borrow the equivalent of $1,000 from a self-financing, foreign-funded loan program. The loan enabled her to buy greater stocks of flour and other ingredients at wholesale prices and to repair her courtyard oven and cover it with a small roof. The result: She started baking and selling more bread - and making more money.

"I like the work because it helps me feed my family," says Ablavi, whose husband is retired. She has paid back the principal and is paying off the interest on the loan.

Half a mile away, Tchakpide Traore sits cross-legged on a wooden bench in his tiny, wooden shoemaker's stand on a busy main street. He, too, has more customers these days. Last year he took out two loans worth a combined total of $200 from the same program. He bought more leather, shoe glue, and plastic soles to offer a greater selection of shoes.

"With the loan, I could buy more material and make more shoes," says Mr. Traore. "And that has attracted more clients." He paid back his loan in less than six months, ahead of schedule.

The loans to the baker and the shoemaker are part of approximately 300 loans made since 1988 under an $18,000 loan project funded equally by the United States-based Catholic Relief Services (CRS) and the US Agency for International Development (USAID). The loans are administered by a private, Togolese organization.

Even this relatively small amount of foreign aid has been recovered. The original $18,000 - plus interest - has been collected from repaid loans and interest payments and will probably be used during 1992 to start a second loan program in another Togolese town, says John Corrao, CRS director in Togo.

ve seen much bigger [foreign aid] projects that haven't gotten the results we have," Mr. Corrao says about the loan project here.

Corrao sees several benefits, including providing small-business operators and artisans with needed capital to expand their work and establishing a link between savings and loans. A savings-account program is run in conjunction with the loan program, and only those with savings accounts are eligible for loans - up to twice the amount of their savings.

The program also "shows it's possible for people to understand that loans have to be paid back," Corrao says. "A lot of these loan schemes are launched in developing countries, and people never have the idea they have to be paid back."

The average loan under the CRS/USAID-funded program is the equivalent of $500, with few loans of more than $1,500. Borrowers are charged about 2 percent, a lower interest rate than Togo's commercial banks charge.

Agoro Ouro-Bere, a mechanic, borrowed about $2,000 from the program in 1990 and paid it back "without a problem, without delay," he says. Mr. Ouro-Bere used the loan to buy an old car, which he rents out as a taxi. He now owns two taxis and says, "I may buy two more."

"We [small businessmen] can't get credit at the local [state] bank," Ouro-Bere says. "We're not well-known.'

According to a mid-1990 evaluation by CRS, using a CRS employee and an outside, private consultant who once worked for CRS, about one-fourth of the borrowers were late in making repayments. But the default rate, at the time of the evaluation, was only about 5 percent.

"The loans are only for six months," says Koffi Ahanogbe, a Togolese economist and project manager of the program for CRS. "It's not long enough." Eventually, almost all the loans are paid off, he says.

But some borrowers confuse greater income in their expanded businesses with greater profit, without calculating greater costs, says Corrao. Others do not put a monetary value on their own labor. Nevertheless, borrowers say they feel they are coming out ahead, he says.

"Since I didn't make any loss, I know I made a profit,' says Ablavi, in between her early-morning bread "dances." She makes graceful, fast movements as she pulls bread out of the oven at just the right moment, then pushes new batches of dough in for baking.

CRS Director Corrao would like to see the program do more to help borrowers understand basic bookkeeping.

The Inter-Professional Artisans Group of Togo, known as GIPATO, its acronymn in French in this former French colony, administers the project. GIPATO was set up as a training program for small craftsmen and business operators in 1985 by the government of Togo and the United Nations' International Labor Organization.

Loans are made on an individual basis, after screening by program administrators. The loan rate is about 100 loans a year.

The loan project is part of a larger training program for artisans and other small-business operators funded by CRS and USAID at about $120,000 a year, or nearly $500,000 since it began in late 1987. The program, which Corrao says "costs a lot of money," helps people learn accounting and how to make new products.

USAID funding for these small-loan programs - in Africa, Asia, and Latin America - has quadrupled from $18 million in 1988 to an estimated $72 million this year. "We feel it's a good program, part of AID's responsibility for the poor," says Bob Young, a US Department of Labor official currently working at USAID on such programs.

The average loan size worldwide is just over $300, says Young. Critics point to examples of some loan recipients treating the loans as welfare and not paying them back. But, says Young, "We think the successful programs are clearly helping people." Both Congress and a small grass-roots lobby in the US have backed expansion of the program, Young says.