Grant Enables Microfinance Organization to Expand the Reach of Loans to Small Business Owners KAABA Microfinance Institution will provide in-kind loans to 125 small entrepreneurs in several towns throughout western Somaliland.

Gabiley, Somaliland—Options for business loans are scarce in the town of Gabiley, located 30 kilometers north of the Somaliland capital Hargeisa. Farmers take tools and pesticides on credit, and small shop owners give small loans to trusted friends and extended family. Since there are no commercial banks in Somaliland, small business owners in need of capital have few places to turn. Getting “approved” for a loan from the local shop owner is never guaranteed. Her capital is limited, and she chooses only her closest friends and family. As a result, small-scale farmers and vendors find it difficult to invest and expand

operations or acquire new equipment. In 2008, Hargeisa-based KAABA Microfinance Institution opened an office in Gabiley to provide loan services for local farmers and small business owners. Instead of cash loans, KAABA gives clients in-kind loans that are paid back in cash. Loans range from $100 to $500, and every loan recipient must present a co-signer or guarantor. In addition to the loan—which must be paid back in monthly payments of $50—clients must pay a 10-15% administration fee or murabahah, as it is known in the Islamic banking world. In the first two years, KAABA’s Gabiley office made an average of 20-30 loans per month. As microfinance institution’s reputation grew, so did the clientele especially among farmers looking to expand their fields. Today, KAABA disburses nearly 50 loans every month. In 2012 the USAID Partnership for Economic Growth program awarded the organization a grant worth $50,000 to supplement KAABA’s growth spurt in loans. KAABA has identified 125 people who will each receive an in-kind loan worth $500 for the operation and expansion of micro and small sized business in the western Somaliland towns of Gabiley, Arabsiyo, Wachale and Borama. The Partnership program selected KAABA according to a series of rigorous standards including economic growth impact, technical feasibility, market supply and demand, and business management experience, among others.

“We have really focused on using the grant money for women-led businesses because women typically have fewer chances of getting a loan,” explains KAABA’s Gabiley-based loan officer, Yacquub Abdulahi. In order to secure the grant, KAABA must match 25% of the grant. By supplementing the grant with its own capital and in-kind contribution, KAABA shares the risk with the Partnership program and plays the role of investor instead of just grant recipient. Over the next year, KAABA’s Gabiley branch will use its increased fund to disburse loans to a variety of shopkeepers, vegetable vendors, pastoralists and farmers from the area. In addition, and by ensuring a high repayment rate, KAABA will be able to revolve the funds to expand their clientele over the coming years. Partnership for Economic Growth is a USAID-funded program that began targeting SMEs (small and medium enterprises) and private sector development organizations in Somaliland in 2011. The program partnered with the Somaliland Chamber of Commerce and Ministry of Commerce to select 13 business and organizations through a Somaliland-wide competitive review process. For this first-of-its-kind business matching grants activity, Partnership contributed nearly $1 million in grants across a variety of sectors, and grantees also made significant contributions to their investments.