(Original article posted on afterblixen blogs)
Zambia, a landlocked country in southern Africa bordered by the Democratic Republic of the Congo to the north, Tanzania to the north-east, Malawi to the east, Mozambique, Zimbabwe, Botswana, Namibia to the south and Angola to the west, has a population of roughly 15.5 million and ranks a 139 out of 188 in the recently published Human Development Index for 2015 (UNDP).
The country was for many years the world’s largest producer of copper, which brought considerable income to the country and pushed its GDP to lower middle-income status (World Bank). However, the Zambian economy became very one-sided and dependent on the copper mining industry. This dependence also made the country vulnerable to unstable copper prices on the world market and the resulting shocks of these on the country’s economy. Shocks that have also brought about the realization that the country needs to diversify its economy.
Agriculture is one of the focus areas of this diversification. Seventy percent of the population is employed in the agricultural sector, mainly as smallholder subsistence farmers, in spite of the prominent role of the mining sector. The sad reality is also that despite the large income generated from the copper mines, poverty is still widespread as 60% of the population lives below the poverty line and 42% are considered to be in extreme poverty (World Bank).
Agriculture provides a small but growing contribution to GDP, but if this contribution is going to reach its full potential, substantial impact investments are needed. Increasing access to technology is key in this transition to ensure an increase in agricultural yields, and the company Rent to Own is playing an important role in making agriculture equipment available to smallholder farmers through their hire purchase business concept.
I spoke to the Rent to Own team before Christmas to learn more about their business model and the impact they are having on the agricultural sector in Zambia, and the potential their business model has to be scaled up to other African countries. A big thank you to the Rent to Own team. Look forward to seeing you expand your reach and changing lives along the way!
How did Rent to Own get started? Where did the idea come from?
Rent to Own (RTO) was co-founded by Mark Hemsworth from Canada and his Zambian counterpart Patrun Chikolwizu in 2010. At the time both were working with Forest Fruits in northwestern Zambia, a company that sources honey from smallholder producers. Through extensive interactions with farmers and rural businesspeople, Mark and Patrun saw the demand for equipment that could improve livelihoods of these people, but such equipment was not available or affordable to them. Hence came the idea of selling productive assets on hire purchase, in an all-in-one package solution that allows clients to acquire and repay both the asset and financing, through payment schedules tailored to clients’ income streams, last-mile distribution, and technical assistance.
What is the vision for the business?
We want every person in Africa to have access to the tools they need to live a better life.
The company aims to be the first-choice provider of quality assets across rural Africa, and to provide impactful products and access to credit to over one million direct beneficiaries by 2022.
What are the different kinds of equipment that you offer?
RTO distributes and sells high-impact assets for farm, business, and home use on hire purchase. Our products include gensets, water pumps, fridges/freezers, laptops, electric stove, butcher saws, dehullers/hammermills, maize shellers, oil presses, tractors, flatbed trucks, bicycles and solar lights, etc.
We are continuously working to expand our product range and carrying out tests with select clients.
What are the most popular products?
The top selling products vary considerably depending on the type of client, but include: pumps, mills and presses for farmers, refrigerators for shopkeepers, and bicycles for dairy producers.
Who are your typical clients?
Ruth Nyirongo is from the farming area of Chibombo District, Zambia where she produces cabbage and tomatoes to sell at local markets. A few years ago, she started working with RTO in order to expand her farming business through irrigation. At the time, Ruth had to water her crops by hand, drawing water from a nearby well with buckets. While this was proving effective, she was unable to expand her farm further to meet the demand for her produce. Now with her own water pump, whether in the rainy season or dry season, Ruth is able to grow and sell her produce throughout the year. The use of a pump also means that she is able to irrigate a larger portion of land in less time and without being restricted by the tiring task of carrying buckets of water to her crops. After having successfully completed her first hire-purchase contract, Ruth came back to us in 2015 and bought her second piece of equipment.
Ruth is just one of the 1800+ clients whose lives have been changed by RTO’s intervention. They are smallholder farmers growing vegetables on 0.25-5 ha of land like Ruth, emerging farmers who cultivate 5-10 ha of land, shopkeepers who operate small grocery shops or lodges, and dairy farmers who typically own 2-10 cows.
Based on the Grameen Foundation’s Progress out of Poverty Index (PPI), the majority of RTO clients have a small asset base, and they are likely to earn less than $2.50/day. Working with RTO helps clients to build their asset base and improve their income situations.
What selection criteria to choose the clients to work with?
Unlike a lot of banks, MFIs, and equipment suppliers, RTO does not require group financing or collateral. With our in-house client approval system, we evaluate applications against a range of criteria relevant to different client categories (we call these “product lines”). Each RTO product line targets a specific client profile, with clients divided according to their primary methods of income generation. Approvals are based on an evaluation of each applicant’s income-generating activities. Therefore, application data collected varies according to the client profile associated with each product line, and according to the product requested.
How many clients have you had so far? And what are your goals in terms of outreach?
Since our establishment in 2010, we’ve served over 1,850 clients and directly improved the livelihoods of 12,500+ people in Zambia as of December 2015. Of these clients, roughly 75% are men and 25% are women. For 2015, we can see a trend where the female ratio is increasing and we hope to see this continue into 2016.
We are also currently working to re-engage more of our clients to come back for a 2nd piece of equipment. This year we had a quite special client, who has purchased 4 pieces of equipment so far. Returning clients are a real sign that we are making positive impact in the farmers’ livelihoods, just as with clients who come to us through referrals.
The total value of assets disbursed has reached US$ 1.8 million, and this is just the beginning.
Tell me about the Rent to Own team?
Headquartered in Lusaka, we are a team of over 30 full time staff and over 40 commission-based sales agents from the communities served by RTO. Our field operations span across 8 districts in 3 provinces in Zambia. Field operations are directly overseen and managed by seasoned field managers with proven track record of problem solving capability on the ground.
How many pieces of equipment have you rented so far? How many are now owned by farmers?
In the span of five years RTO has disbursed nearly 2,000 pieces of equipment, of which over 1,300 we have transferred ownership to the client, and over 600 are still being paid for.
What has been your biggest inspiration?
The people of Zambia inspired the inception of the business – the drive of each entrepreneur to grow, to do better for themselves and their children made us believe that a solution such as RTO can work.
What has been the greatest challenge/obstacle to your business?
We’ve strived to understand our clients and develop new products that can meet the needs of their businesses, at prices that clients can afford. As we expand, we’ll continue to put our clients first and adjust our offering to cater to their demand. Additionally, due to the nature of our business, we’ll need to raise money to source equipment to be disbursed to clients and thus maintain momentum on our growth path.
On the macro level, RTO is faced with slower economic growth in Zambia and depreciation of the local currency, which require us to constantly gauge their repercussions on our business and develop strategic plans to cope with a challenging macroeconomic environment.
If you had the power to improve one thing for entrepreneurs in Zambia – What would it be?
Access to our services is what we strive to provide to each entrepreneur. After that – access to mobile money like MPESA of Kenya and the growing access of Zoona across Africa.
What has been your biggest achievement?
Proving that the model works! We’ve achieved a sustainable collection rate while we continue growing.
If you could give one piece of advice to an aspiring entrepreneur in Zambia/Africa – what would it be?
Keep trying. If your first idea doesn’t work, no problem, now you’ve learned, try another one…and keep trying until you find the right one for you.
Do you have plans to expand to the business to other African countries?
Absolutely. We’ve spent five years to build, trial, and fine tune a business model that is designed to be scaled up. Our lean field operation organized into individual branches and innovative back end technologies allow us to quickly expand to new geographies both across Zambia and to other African countries in the region.
Where do you see your business in 10 years? And the near future?
We aspire to become a regional leader in providing access to high-impact assets across rural Africa. To get there, the business will grow its offering and expand to new locations in the near future. We will refine programs to grow with each client so that over time they build their asset base and their credit rating simultaneously. Ten years from now, we will have hundreds of locations in multiple countries in Sub-Saharan Africa.