What Do You Mean By “Profit”?
20 February 2009 at 05:45 Julie Ross 7 comments
The word “profit” does not translate easily into foreign languages. I’ve now tried to convey the idea both in Swahili and in Kinyarwanda and I often come up with nothing more than blank stares or long pauses. The difficulty lies in what “profit” includes (or doesn’t). A client may answer my question as to what their monthly profit is with a confident declaration of “30,000 Francs”, but when I ask what she uses the profit for, she answers that she pays the rent and pays off her loan. If that is the case, then her profit is not in fact 30,000 Francs but rather is 30,000 Francs minus rent, loan repayment, and other expenses. Unfortunately language barriers consistently stop me from explaining this coherently.
I understand the confusion. It serves as a reminder that many of these business-owners do not have any formal training in accounting or personal finance. Afterall, for much of their lives there was probably no need for this knowledge. They began businesses with survival and advancement of their families in mind, not as a result of thorough market research or financial backgrounds. Yet despite confusion on what, precisely, I’m asking, after some quick calculations every client is able to give me some number. The only problem with the figure is that I really am not sure what it represents. I have often included these numbers in Business Profiles and Journal Updates that I post on Kiva, but I recently realized that they may be misleading so I am beginning to hold off unless I am sure that the question was properly understood.
This is not to say that clients are oblivious to their earnings. On the contrary, they are very much aware of how much is coming in and how much is going out. They price their goods extremely carefully and perfectly in line with market rate. This is particularly essential since many shops sell the same goods, and a shop that tries to sell for more than market rate will quickly lose its customers. My point is merely that a balance sheet is not something that many shop owners have learned to rely upon. Training at many microfinance institutions is improving upon this as they teach their clients basic bookkeeping before disbursing loans, but it’s not yet ubiquitous. This is why I was particularly surprised when I met Aimable, one of Vision Finance Company’s clients.
Upon first glance, Aimable’s ease with numbers was noticeably absent. There was a significant pause when I asked the size of his loan. This is particularly unusual, as this number tends to live on the tips of the tongues of microfinance clients. As Aimable produced a notebook with detailed accounts of all costs, purchases, and sales, I understood how he was able to allow these numbers to slip from the front of his mind. He kept them on paper instead. In the U.S., we might view such paper bookkeeping as archaic. What’s paper? But here, even microfinance institutions often lack computer technology and do most, if not all, of their paperwork by hand. Therefore Aimable’s meticulous calculations make him ahead of the curve, not behind.
Aimable's Balance Sheet--he meticulously tracks all expenses and income
Aimable in front of his shop, bursting into the street with his many goods for sale
As you can see from the photo, Aimable’s business is booming. In fact, he is bursting out of his small shop with his quantity of goods for sale. I can’t say that this is the result of his careful bookkeeping, but I don’t see it as a coincidence that he has both been very successful and keeps close track of his income and expenditures.
Across the board, microfinance clients are impressive in their ingenuity, drive, and ability to survive within the marketplace. With a little bit of training on bookkeeping, they could likely be even more successful. I am optimistic that in the future, such training will become the status quo. I look forward to the day when my excitement at Aimable’s papers fades as balance sheets crop up all over and eliminate the confusion over that pesky word: “profit”.
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Julie Ross is currently serving as a Kiva Fellow at Vision Finance Company in Rwanda. She recently completed her first placement with BRAC Tanzania.
Entry filed under: Africa, KF5 (Kiva Fellows 5th Class), KF7 (Kiva Fellows 7th Class), Rwanda, Vision Finance Company s.a. (VFC), a partner of World Vision International. Tags: Julie Ross, Kiva, Kiva Fellows, microfinance, Rwanda, Vision Finance Company.
1. Dan | 23 February 2009 at 20:19
Julie,
It sounds like the concept of profit your clients are talking about is “gross profit”, or the difference between their revenue and the “cost of goods sold.” This is an easy concept to grasp and to calculate. If they buy a product at wholesale prices and sell it at retail, then the difference is their “profit.” As you learned, they are leaving out a lot of other costs that are not as easy to attach to specific products sold, but are fixed costs regardless of their sales level, such as rent, equipment, employee wages, taxes, etc. I suspect though that even if they think of these expenses and include them in their calculation of “profit,” they are probably still leaving out their own compensation. Profit to them is probably what’s left over after they’ve paid all the bills, and which they can use to put food on the table and clothe their family. So part of the confusion may be that they don’t really have any cash left over to reinvest in the business, by the time they’ve paid their own wages. They would need to increase their prices to generate enough “profit” to pay their bills and pay themselves and then have money left over to invest in the business. And that may not be a luxury they can even think about.
Great topic for discussion!
2. silvia | 22 February 2009 at 02:51
Hi I have been living between tanzania and Kenya for the last five years and an half, working on microfinance for the last 2 years in the nairobi’s slums,there are terms to explain what you want to ask.
Hope this helps. If you need some more let me know.
Silvia
profit: faida or mapato
kupata is to get ot to earn, mapato is the noun.
3. Unilove | 20 February 2009 at 18:53
A great post. As a lender, we love to learn more, then lend more…
Thank you!
4. Neil | 20 February 2009 at 13:02
I’m glad to see that someone can keep books. I’m always a little concerned about that aspect of microfinance. I figure that without bookkeeping skills, many business owners may have a hard time predicting where to most effectively invest the money. This particularly bothers me when I see people requesting 18 month loans to purchase perishable merchandise. I have no doubt that Aimable’s skill is giving him a leg up on the competition.
5. Bill Brick, KF6 | 20 February 2009 at 09:50
Great post Julie! Thanks for clarifying the chasms created by dialect, training and technology. Way to go Aimable!
6. Profit: A Tricky Subject « Julie’s Kiva Fellowship | 20 February 2009 at 06:19
[...] Profit: A Tricky Subject Jump to Comments Today I made a post on the general Kiva Fellows’ blog. I’ll spare you from a re-post here so that those of you less interested in the professional aspect of my life don’t feel forced to read it. For those of you who want to know why the word “profit” is so often lost in translation, check it out here (http://fellowsblog.kiva.org/2009/02/20/what-do-you-mean-by-profit/). [...]
7. GuideMeGreen | 20 February 2009 at 06:18
Hi,
Rwanda is in the Lonely Planets Top 10 places to go. Ive been next door to Uganda – you should go and see the Mountain Gorillas if you get chance.
Is the tourism sector picking up now and are the facilities there getting better?
The government is doing a good job by all accounts and microfinance is playing its important part also
Cheers
Dave