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HANGAMOTO LPF, ZANZIBAR, TANZANIA

Abass Hussein Saateni P. O. Box 2782 Phone: 223 0616/5500523 Email: changamoto@hotmail.com

FUNDING PROPOSAL
CHANGAMOTO LPF, ZANZIBAR ISLAND, TANZANIA

May 14, 2012 Program Manager USADF or ANY DONOR Dar es Salaam Tanzania RE: Request for funding from USADF We, at Changamoto LPF, are introducing our project in order to increase the potential for SMEs and provide accelerated economic growth and to decrease poverty in Zanzibar. Our main focus is providing micro-financing to SMEs. We however realize that that financial support alone is not enough for achieving sustained economy and competitiveness, as a result, we included business development services (BDS) for SMEs. BDS are all types of SMEs support services, including business skills training, consulting, technical and managerial assistance, marketing, and policy advocacy. Our BDS approach is specifically aimed at helping small enterprises to overcome market imperfections and inadequate access to technology, as well as to operate more competitively and with greater efficiency in the market. Among the advantages of supporting SMEs through micro-financing and BDS SMEs, our main goal is to impact a large number of lives through the expansion of our program to the greater Zanzibar SMEs communities. During the last few years, we piloted our program with a handful of SMEs engaging in various business activities but, lacked business skills and a capital for potential growth. Since then, we have seen a measurable success. Our training provides tools to aid the SMEs community in self-sustaining these initiatives, by providing resources to reduce the barriers of growth of their businesses, and to have access to the value chain while launching a market base approach to secure livelihood in Zanzibar, including the possibility of expanding to other parts of Tanzania. The total funding required is TSH.200, 000000 and has been calculated based upon financial requirements after the completion of phase 1 and 2 of the pilot program. The summary of the breakdown of all funds made available is such to support our administrative cost, expansion of the initiative, training equipment and materials, office furniture, computers and computer equipment and means of transportation for easy access to some of the beneficiaries. Zanzibar is a major tourist hub, and as a result, most SMEs focus on tourism or tourism related business. Tourism has considerable 1

potential linkage especially with Agriculture and Fisheries, which can significantly minimize the existing leakage effect. Contributions for generating operational revenue, by the Organization will be achieved through various initiatives combining the membership fees and loan interest rates charged to our members. The project duration is limitless and with proper funding and continued operations and management, Changamoto LPF should gain and remain self-sufficient and increase financial training opportunities, sustainability and selfreliance to various SMEs for its target market for years to come. By meeting our goal to partner with USADF and more SMEs in Zanzibar, we intend to raise more awareness of the vitality of linking the Tourism, Agriculture and Fisheries sector, and the role it plays in poverty alleviation. The potential linkage created between the SMEs and hotels/restaurants and our organization will enable participants to maximize their potentials and will benefit all SME sectors and consumers, increasing sustainable revenue potential for the Zanzibar community in general. The request for funding submitted to USADF is to aid in the expansion of this incredible project, which will only improve the lives of the local people and the Zanzibar economy through a successful collaboration and coordination between the Agriculture, Fisheries and the ever popular Tourism industry in the Zanzibar region, with the possibility of expanding into other regions of Tanzania in the future. We hope that USADF will take an interest in our Organization and project in helping Zanzibar SMEs towards poverty alleviation. Please contact us at: Phone number and or email address if you require any further information or have questions concerning this proposal. Truly yours, NGO SECRETARY or RESPONSIBLE PERSON

1. Context and justification of the project

2.1. Context

Zanzibar consists of two main islands, Unguja and Pemba, and several other smaller islands. Zanzibar is located in the Indian Ocean, about 30 kilometres off the East Coast of Africa between latitudes 5 and 7 degrees south of the Equator. The Island has a total area of 2,654 square kilometres; out of this, Unguja, which is the largest, has an area of 1,666 square kilometres while Pemba has an area of 988 square kilometres. Zanzibars population has rapidly grown from 980,000 in 2002 to 1.1 million in 2011, which around 65% lives in rural areas and that a large percent are involved in small business activities catering to tourism industry and the local community. In 2005, a Household Budget Survey (HBS) showed that 61% of Zanzibaris lived below the basic needs poverty line and 22% lived below food poverty line.

It is difficult to estimate the total number SMEs operating in Zanzibar, largely because most of them are operating informally without registration. Regardless, the full potential of the SMEs sector has not yet being exhausted, due to the following constraints hampering the development of the sector. They include: Unfavorable legal and regulatory framework Undeveloped infrastructure Poor business development services Limited access to finance Ineffective and poorly coordinated institutional support framework Lack of competitiveness Operating in a legally prohibitive environment

SMEs nomenclature is used to mean micro, small and medium enterprises. It is sometimes referred to as micro, small and

medium enterprises (MSMEs). The commonly used yardsticks are total number of employees, investment and sales turnover. In

the context of Tanzania, micro enterprises are those engaging up to 4 people, in most cases family members or employing capital amounting up to Tshs.5.0 million. The majority of micro Small enterprises

enterprises fall under the informal sector.

are mostly formalised undertakings engaging between 5 and 49 employees or with capital investment from Tshs.5 million to Tshs.200 million. Medium enterprises employ between 50 and 99

people or use capital investment from Tshs.200 million to Tshs.800 million. (Please see table below)

Categories of SMEs in Zanzibar

CATEGORY Micro enterprise Small enterprise Medium enterprise Large enterprise

EMPLOYEES 1 4 5 49 50 - 99 100 and more

CAPITAL INVESTMENT (TSH). 100,000 to 5 million 6 million 200 million 220 million 800 million 850 million and higher

Small- and medium sized enterprises (SMEs) are the backbone of virtually all economies in the world, including those within Zanzibar. SMEs numbers in the thousands and account for 90% of all non-agricultural businesses in most parts of Zanzibar and Tanzania as a whole. Although their long-term growth and competitiveness has been compromised by chronic and often acute constrains on their access to formal-sector finance among other

systemic and institutional problems, they are still a great socio-economic significance.

1.2. Organization description Changamoto LPF is a micro lending NGO that provides micro credit service to the poorer members of the Zanzibar community to engage in legal productive activities as means to maintain sustainable income. Changamoto LPF is registered as a nongovernmental organization in September 1997 under Society Act No. 6 of 1995 with a registration No. 48. The NGO replaced 'Changamoto Saving and Credit Society' that was registered under the provision of Cooperative Act of 1986 due to the need to: Advance its services to interested no n members of the NGO Incorporate other income generating and gender activities not legally covered under the Cooperative Act such as establishing of micro and medium scale credit programs

Changamoto LPF is a membership organization with a total of 392 members (60% women), providing credit to low income people, members and non-members as a source of short term working capital. The main components of the fund are the owners fund which serves the saving and credit wing, micro finance serving micro business activities and higher purchase which serves loans on special commodity. Changamoto LPF is committed and dedicated to provision of credit, education, and consultancy and encourages self-employment and sustained income to the needy Zanzibar community. The project was designed on the basis of a number of fundamental principles as defined in the Changamoto LPF business plan including:

Increase of 40% Portfolio of higher purchases, and saving and credit

Increase of 3% repayment rate of micro finance scheme. The current repayment rate is 96%

Increase of loan portfolio to TSh.40,000,000 Improve business to 300 micro business group Enhance relations with government institutions, corporate sector local non-governmental organizations and international organizations

Improve technical competence of the members on monitoring and evaluation, credit management and office management

The main activities of Changamoto LPF include: Saving and Credit Scheme Credit delivery Owners Fund: This serves the saving and credit from members Micro Finance/Loan Facility: Serves the micro business activities by providing credits to members and non-members from the community to undertake income generation activities Hire Purchases: Services loans on special conditions. The organization buys assets and durable goods on behalf of clients who then make monthly repayments at 20% interest

Changamoto LPFs Credit scheme provides credit to members of the society to engage in income generating activities. Changamoto LPF provide micro financing to men and women with emphasis on youth and women within the urban and west district engaged in small business activities such as: Kiosks

Carpentry workshops Fruit stands Tailoring Poultry Vegetable farming Bakery and etc.

The organization provides small loans between TSh.50, 000 - to TSh.1, 000,000. The term for the loan is a maximum period of six months in monthly payments with a 20% interest rate. The initiative to provide loans to members of communities is very much in line with government policy on micro finance where the overall regulatory framework set by government is intended to affect the ability of micro finance institutions to become more market oriented, integrated and able to provide financial services to the poor. The principal providers of financial services to the poor and low income households in the rural and urban areas of Tanzania consist of licensed commercial banks, regional and rural units ' banks , savings and credit cooperative societies, and several NGOs whose micro- credit delivery operations are funded and supported with technical assistance by international donors.

1.3. Problems to be resolved Increase capable human capital by creating a diverse, skilled, and qualified workforce that meets the demand of the economy Advocate for and support equality of opportunity by encouraging a social and economic environment that upholds the equality of opportunity for both men and women

Encourage an open and effective markets through creating of business environment that stimulates entrepreneurship, that is open to competition and market expansion

Encourage more women to be involved in SMEs, activities, due the fact that they play a central role as income earners, in lifting themselves, their families, and their communities out of poverty. Yet they face significant huddles to full and effective participation in many economies, as employees, employers, and entrepreneurs, often due to legal, social, regulatory, and cultural barriers.

2. Objectives and expected outcomes 3.1. General objective Building economic foundation: Advocate for the government to enhance the necessary legislative and regulatory business, and financial framework upon which sustainable growth can take place Capacity building: Strengthen SMEs financial and economic management capacity at the local and regional level

Policy advocacy: Advocate for the improvement of policies and regulatory frameworks and systems and their implementation, all of which are key to stable local and regional economies

Supporting women: Support the establishment of more micro, small and medium-sized viable enterprises, especially those led by women
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Enhanced Business Development Services (BDS): Enhance BDS will enable the private sector enterprises that are using the acquired knowledge in their businesses, expanding their businesses, and increasing income generation

Expansion of Micro-credit: Opportunities to access microcredit for a wider outreach to allow poorer Zanzibar communities engage in micro business activities

2.2. Specific objectives Strengthen SMEs productivity: Assess and strengthen SMEs and improve their productivity and return on investments, resulting in increased stable economic growth and formal employment opportunities for the poor Growing businesses: Evaluate and enhance the financial viability, productivity, and competiveness of micro, small and mediumsized private sector enterprises, resulting in increasing employment for the poor Credit accessibility: Identify the accessibility of suitable credit and financial services that result in business and trade growth to benefit the poorest population groups Investing in people: Evaluate and improve the employment potential of individuals to increase access to, and
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benefits from, opportunities in the informal and formal business sectors Community survey: Conduct survey to evaluate the relevance of the loan in reducing poverty to the members of community benefiting from the credit services. Capacity assessment: Assess organisational capacity and commitment as a provider of micro credit schemes 2.3. Expected outcomes

Currently, Changamoto LPF, provided credit to 2,664 entrepreneurs, which 1,196 are female, reflecting 55% of the beneficiaries. With more support from donors, we anticipate to deepen outreach and delivery of financial services to the greater Zanzibar community and the rural communities, increasing the beneficiaries by 45% by the year 2015. By doing so, we project that employment rate will increase by 15% strengthening the capacity of the community, wider market access and increased economic sustainability within the poor.

3.4. Activities to be carried out (to be filled by NGO) Goal Purpose Activities Means Verifiable indicators
Indicators of achievement (both qualitative and quantitative)

Important assumptions
Important assumptions on which the success of the project depends and the risks that have been considered.

What are you trying to accomplish by engaging in this project

Outputs needed in order to achieve the goal

Activities to be undertaken to produce the outputs

Required means for implementing each activity (human resources, logistics, materials)

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3.5. Indicators of Economic Sustainability

INPUTS: Mico-financing & Business Development Sevices OUTPUTS INDICATORS: Developed and enhanced Business Develoment Services Serviced 2,664 entrepreneurs, out of which 1,196 Expanded outreach to the West, North and Central are female. districts

OUTCOMES INDICATORS:
Loan portfolio grew from TSH. 4 million in 2002 to TSH. 110 million in 2011. Since then, the total amount of loan provied is equal to TSH. 248 million Enhanced and strengthened the capacity and delivery of microfinancing Deepened outreach and delivery of micro-loans and employment creation Increased the rate of employment by 5% since 2002, of which 70% are women

IMPACT INDICATOR:
Household Budget Survey of 2005 shows that 61% of Zanzibaris lived below the basic needs poverty line Increased houshold income by reducing the poverty line from 61% in 2005 to 40% in 2011 Per Capita income of SMEs increased by 7% since 2005

4.

Implementation of the project 4.1. Timeline/Calendar of activities (to be filled by NGO)

Activities

Start Dates

Completion Dates

4.2. Cost and funding of the project (provide narrative cost)

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TO BE COMPLETED BY NGO OR COOPERATIVE GROUP SEEKING FUNDING

4.3. Budget (you have to fill out the table below)

Type of expenses Unit cost Unit specification (ex : month, bags) Quantity Amount USADF Amount other source Total

1. Human resources 1.1 1.2 Sub-total Human

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resources 2. Equipment 2.1 2.2 2.3 GRAND TOTAL

5.

Feasibility and sustainability 5.1. Risks foreseen (you can add to or edit the bullet points)

High financial illiteracy among population is a medium risk, but still an impediment within the SMEs community of Zanzibar. Nonetheless, there are other risk factors that require more attention. They include: Lack of market Poor governance Difficulty in obtaining accurate information about borrowers Poorly coordinated institutional support framework

5.2. Monitoring and Evaluation procedures Monitoring and Evaluation will be conducted quarterly, this tells us whether we are on track to reach our objectives, and whether or not the program achieved or contributed to the desired impact. Frequent monitoring and evaluation of the

programs designed and activities implemented to eliminate or reduce income inequality and poverty will help determine the

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effectiveness and develop a better program that responds to specific needs and circumstances in the target community as they change overtime. Changamoto LPF, intend to use the following tools of M&E: Performance indicators Formal surveys Participatory methods Expenditure and buying power surveys Theory-based evaluation Rapid appraisal method

5.2. Institutional & Economic sustainability Having exclusively focused on the poor and very poor of entrepreneurs and farmers, Changamoto LPFs client outreach expanded and increased by 40% since 2010, increasing the number of new loans serviced to SMEs to 3000 men and women, and increasing the business expansion among exiting SMEs to 27% of which 19% are women. This was achieved through: Conducting BDS, capacity building and gender mainstreaming workshops. Changamoto LPF buys and sells computers, computer equipment and motorbikes at the end of partners projects, also runs photocopying services, charges loan interest rates and memberships fees which are reinvested to help maintain administrative cost.

Appendix Application form Certificate of registration Constitution of the organization

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 Financial report Project proposal Supporting documents (if any)

Prepared by on behalf of NGO/Cooperative: Brian M Touray MSc. Project Manager Zanzibar Enterprise & Sustainable Tourism

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