Portrait of a Boda Boda Driver
4 June 2010 at 11:07 Jeremy Gordon 15 comments
By Jeremy Gordon, KF11, Kenya
“People like us can’t get a loan. You have to be a member of a group with an influential person in it—we don’t know anyone like that.”
- Rama
The second day I passed him on my way to work, a man on a bright red and chrome boda boda (motorbike) befriended me. Rama is not a Kiva entrepreneur, and though he has been in this business for just over a year and a half, he rents his bike daily. He’ll spend the full retail price of a new motorbike every year in rental fees.
Before I left Mombasa, I asked Rama if I could take him to lunch, and ask him a few questions about his business. Over fries and cola, Rama and a fellow boda boda driver told me—in quite a bit of detail—about the financials of their work and lives. I’ve summarized most of what I learned in a balance sheet below, but if you’re interested in the specifics, please read on.
Background
Before he began driving his bike, Rama sold chips and fried eggs very near where I met him in Mombasa. He lives in town with 3 younger brothers (12, 15, and 18), all in school and none yet working.
The Business
Rama rents his bike from an owner for as much as 300 KSH per day, though sometimes the price falls to 200 or 250 due to rainy weather which is bad for business. If anything minor happens to the bike, it is Rama’s responsibility (a punctured tire will cost 50-70 KSH to repair.
Rama works every day of the week, usually starting at 5am and working through 8 or 9 at night. If there’s good business, he sometimes works all night.
Rama’s best days for business are Monday, Friday and Saturday. On an average day, Rama will make 1,000-1,200 KSH in revenue from short rides within town, and the odd longer trip up or down the coast. My commute from work to home is a typical job for Rama, and will earn him anywhere from 150 to 300 KSH.
Rama and his friend say they typically stop for petrol three times a day: once in the morning to buy 150 KSH of fuel, once at 11am to top up 100 KSH, and once at 3pm to top up another 100 KSH which will get them through the day. They’ll rarely spend more than 400 KSH on petrol in a day.
Business Challenges
Rama mentions dishonest clients as a large problem—he reports frequenty scams: a client will refuse to pay the prenegotiated price, call him a liar and complain to a nearby police officer, or will ask Rama to wait for him to be taken somewhere else, but then will never show up to pay his fare. These occurrences represent large costs of time, fuel, and money. Rama told me that the day before my conversation with him he was scammed by a client, and earned only earned 100 KSH after fuel and rent as a result.
Miscellaneous Costs
Rama has a Safaricom phone, chosen because most of his clients use this carrier, and he gets discounted rates in-network. He buys airtime in 25 KSH cards, and usually spends about 60 KSH a day. Most of his calls are to arrange pickups with customers, but he uses the phone for personal calls as well. He has an M-Pesa account but uses it very rarely, mostly in emergencies or for remittances to his mother who lives outside of Mombasa.
Food
Rama and his friend usually take tea and a mahamri (think fried donut, but less sweet) in the morning for 15 KSH total. Later in the morning, for breakfast, they’ll have beans and 2 chapati (tortilla-like flat-bread) for 40 KSH. Lunch is almost always a half-plate of pilau, rice with 2 chunks of meat for 30 KSH, and a water for an additional 5. For dinner, Rama usually buys ugali and sukuma wiki (maize porridge and greens) for 40 KSH.
Housing
Rama lives in government housing in town (as his home is a day’s drive away). His room costs 3,000 KSH a month, and rent is collected monthly. Electricity costs 800 KSH per month, though Rama mentioned this was from an illegal distributor. Water costs 30 KSH per day (he pays for his brothers as well).
Savings and Credit
Rama estimates that he saves around 3,000 KSH a month, or about 100 KSH a day. He and his friend agree that they typically store their savings daily in their house somewhere, and then take 3,000 to the bank monthly. Rama has an account with Family Bank, which required a 500 KSH minimum to open an account. His ATM card cost 300 KSH initially, and a 100 KSH per month fee is charged regardless of whether he withdraws or deposits money that month. His account pays no interest.
Among other things, Rama uses his savings for travel out of Mombasa to visit his family. Both he and his friend hope to save enough to buy their own bike at some point—the one’s they’d like to buy run, in total, between 90,000 and 100,000 KSH.
I asked Rama and his friend if they had ever heard of Yehu Microfinance, or other organizations that give small loans to entrepreneurs like him. The quote that began this post was his response. The fact is, however, that with a few assets to declare, Rama could form a solidarity group and apply for a loan to finance his bike. While he might be required to take a smaller loan first, in order to build a credit history with an organization like Yehu, an influential group member isn’t necessary.
Balance Sheet
According to my conversation with Rama, his daily and monthly cash-flow looks something like this:
Disclaimer on savings:
Not included here, is anything beyond the bare essentials of one man’s daily life. Rama also mentioned spending his savings to help pay for his brothers’ school fees, and to send remittances to his mother. These expenses come out of a slim margin.
I’d love to hear your thoughts in the comments.
Jeremy is a Kiva Fellow working with Juhudi Kilimo in Nairobi, and Yehu Microfinance in Mombasa. He writes from the Juhudi Kilimo branch office in Nkubu where he is discovering a deep fondness for dairy cows.
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Entry filed under: blogsherpa, Kenya, KF11 (Kiva Fellows 11th Class). Tags: Balance Sheet, blogsherpa, Boda Boda, Financials, Jeremy Gordon, Kenya, KF11, Mombasa.
1. Andres Tellez | 17 July 2010 at 14:40
Hey Jeremy,
Great post! This guy’s story makes me think that you absolutely could implement some basic credit scoring to help folks like him. He has plenty of recordable financial transactions that could be aggregated over time to make a strong case for the motorcycle loan. Some predictive characteristics that are straightforward (though perhaps not easy) to capture- time at his present address, record of paying rent at that addr., record of paying utilities there, average account bank balance, record of cell phone payments, record of motorbike rentals and even record of regular petrol expenses. And if the MFI’s make any smaller loans to him, those repayment histories, ratios of loan amt to bank balance, etc. would obviously be part of it as well. I think if these could be reliably collected over time, you could do some great statistical learning on them and generate an objective ‘score’ that you could then take to the MFI’s and present a strong case for a loan that would circumvent the need to know someone influential. I think the MFI’s would dig it because it would quantify their risk management and create a lending environment that creates incentives for good credit practices.
Andres
2. Sarah | 21 June 2010 at 07:25
I was a bit confused when I started reading your post. I know the terms change quickly and throughout different regions but I’ve always heard a motorbike called a “Piki Piki” and a bicycle called a “Boda Boda” in Mombasa and along the coast. http://en.wikipedia.org/wiki/Boda_boda
On a somewhat related note, I thought I would share my story about a man I know in coastal Kenya who started a bicycle Boda Boda business. He was in need of a loan to pay his daughter’s school fees and while education is an important investment, its not one that provides quick financial returns. In search of a business with low start-up costs and immediate returns, together we considered a number of simple businesses. He brought up the idea of creating a juice selling business. It seemed simple enough as I remembered selling lemonade as a young child. However, after quickly adding up the costs of the fruit and equipment, we decided it would not be profitable for him, atleast in the short-term (after future consideration, I doubt my lemonade stand was either). After more discussion, I came to find out that he owned 3 bicycles, all in various states of disrepair. However, in his town the going rate for renting a boda boda bicycle was 100 ksh per day so with a small investment up front he could quickly recover his costs and start earning a profit. He started by fixing two bicycles and adding the obligatory back seat attachment and cushion. Adding a light to the bicycle so it could be ridden at night would increase the rental price to 150 ksh per day, but we decided to wait on that investment. The biggest challenge for him was finding reliable Boda Boda drivers. With a typical ride in town costing only 10 ksh, a Boda Boda driver needs to stay very busy making several trips each hour to earn a daily wage and pay the rental fee.
Last I checked, several drivers had run off with the bicycles without paying at various times but both the bicycles had eventually been recovered. Often the drivers couldn’t pay the owner so he was forced to accept lower or no payment for the rental or find a new driver. While the owner had recovered his initial investment, the rental fees/revenues were not as constant as he had planned. Nonetheless, he was happy with his new boda-boda rental business as he had turned his unrealized assets into addition income for his family. While his limited business acumen and elementary education made keeping records a challenge, with some more experience and building strong relationships with his drivers, he will soon have another reliable income stream and can make improvements such as lights to his bicycles.
3. Jenny | 7 June 2010 at 23:31
Great post! I posed Rama’s case to my microfinance institution, KADET, and they offered another solution to finance Rama:
Treat the bike as an asset loan and buy the bike, eventually transferring ownership to Rama after he pays off the loan.
KADET, like most other Kenyan MFI’s, normally gives first-time clients small loans to mitigate risk, but they make exceptions based on the business of a client. In this case of Rama, asset loans would be the preferred solution because KADET can fund a solid business and minimize their risk by having the ability to confiscate the bike in case the client defaults.
4. R Rye | 7 June 2010 at 19:54
Wow – thank you for posting this. Very insightful and gives us perspective. We are so blessed. We could be doing so much more. Thank you again.
5. Avani Parekh-Bhatt | 7 June 2010 at 18:53
Jeremy –
I loved your balance sheet breakdown and subsequent comments to the other posters on why Rama could or couldn’t enter a loan cycle to own his own boda-boda. After seeing the bigger picture with the boda-boda industry while in Kenya, I appreciated your deconstruction of his “life.” Kiva Love!
Avani
KF9/10 – Kenya
6. brittanygoesglobal | 7 June 2010 at 16:27
Awesome post Jeremy. You are really looking at micro-finance in an introspective way.
7. Portrait of a Boda Boda Driver (via Kiva Stories from the Field) « It's Just Life—Finding The Extraordinary in the Ordinary | 7 June 2010 at 15:24
[...] By Jeremy Gordon, KF11, Kenya “People like us can’t get a loan. You have to be a member of a group with an influential person in it—we don’t know anyone like that.” – Rama The second day I passed him on my way to work, a man on a bright red and chrome boda boda (motorbike) befriended me. Rama is not a Kiva entrepreneur, and though he has been in this business for just over a year and a half, he rents his bike daily. He’ll spend the full retail pr … Read More [...]
8. Louis | 5 June 2010 at 11:20
You are doing better than me. I just need $15,000. – $20,000. to get 3 businesses going that will help 1000s of seniors and families or 3 generations. You got your Boda-Boda and I am looking to get an invention packaged, patented, prototyped, and licensed into production that will create job and brin in million$ of Dollar$ for me so I can help my fmaily, friends and other seniors that are living a dispicable poverty driven existance. I am will to loan money once my invention is producing 5000 units a month or more. The non-profit will help 1000s of seniors to get a better quality of life.
9. Julia | 5 June 2010 at 12:05
Louis, I assume you live in the US. Did you already apply for a loan at http://www.accionusa.org and http://www.opportunityfund.org, Kiva´s US field partners?
Jeremy, thank you so much for your reply. I hope you write another post once you have looked into the asset policy concerning people like Rama. I would also like to know what kind of licence the MFI needs to offer saving accounts and how it can obtain one. I think it is a shame that people like Rama do not get any interest on their savings.
10. Ron | 5 June 2010 at 05:15
Very well done piece. Nice case study. Hope you are checking back on comments as I would also be interested in the answers to the questions Julia has asked.
11. Julia | 5 June 2010 at 04:26
Hi Jeremy!
I find your post really really interesting! Unfortunately I do not understand what exactly are “Fares and sub-rental” costs?
Could you please evaluate why Rama cannot form a solidarity group with, say, nine friends without owning any belongings the MFI might take away if he does not pay back.
Lets say he really can work every day, does not get ill or anything and earns 3.57 Dollar a day, that makes about 1300 Dollar and as you said that would buy him his own Boda Boda. As he can save 440 Dollars a year if everything goes right a group of ten would be able to save 4400 Dollars and could guarantee for one loan of 1300 Dollars. After ten loan cycles every member of his group would have his own Boda Boda.
So why not? I don´t understand.
Thank you for being so thorough and writing this interesting post.
Greetings
12. Jeremy Gordon | 5 June 2010 at 10:58
Hi Julia,
Great points, and thanks for your comment.
I should clarify that by “fares and sub-rental” i’m referring to all sources of revenue that Rama generates from the bike he rents. The majority of his income is from passenger fares (e.g. taking someone from town to their home in north coast, Mombasa), but he mentioned he is sometimes able to sub-rent out his bike to a fellow driver for as much as 500 KSH for an hour. I included this in the estimate of his daily income.
You have a great question about receiving a loan without any assets to declare to the MFI. Last week I asked a credit officer about this, and was informed that they cannot issue a loan without appraising some minimum value of assets under the client’s ownership. I’m going to look into this further to understand the specific asset requirements at Juhudi. My guess is that some MFIs are able to issue loans after several months of accrued savings, in addition to a solidarity group’s guarantee, even without any declared collateral.
Your numbers make perfect sense to me (assuming of course that Rama is not spending his savings on anything else for the entire year). The only thing I would add is that 100,000 KSH is a large loan in the microfinance industry, and many MFIs require clients to build a basic credit history with smaller loan cycles before issuing loans of this size. I think as lenders we’d all like to give Rama and his compatriots the capital to own their bikes today. It’s important to understand, though, that good microfinance organizations rely on the relationships they build with their clients over time.
Thanks,
Jeremy
13. Susan | 4 June 2010 at 18:00
I guess I want to know if Rama’s comment rings true. Does he, and others in his situation, feel that there is little or no chance of receiving financial help? Is there an “inside track”, does he need a “friend of a friend?” Obviously he is hardworking, dedicated to his family and his work. So why isn’t he being helped by Kiva?
Well-writen post, thought provoking.
14. Jeremy Gordon | 5 June 2010 at 07:26
Hi Susan,
Thanks for your comment and question. For the most part, I believe Rama’s access to financial services is limited by understanding. While he doesn’t need a friend of a friend to find his way into the microfinance system, that is in fact a common channel through which Kiva’a partners find new clientele. Just yesterday I was sitting in a branch office in Nkubu when a group of 6 women walked in wondering how they could form a group. They had heard from friends in another group who were benefiting from Juhudi loans.
One might see Rama’s misperception about the need for an “influential” group-member as a failure of MFI outreach, but for small organizations like Juhudi Kilimo and Yehu, demand for loans exceeds available funding, so expenditures on marketing and education is somewhat limited.
Thanks to organizations like Kiva, and lenders such as yourself, however, these organizations are expanding. I’m certainly optimistic about a world in which any entrepreneur with a business and a need for credit will have the knowledge and access necessary to receive a loan.
You wont be surprised to know that I was quick to tell Rama about Yehu’s work, and that they frequently fund loans for group-members much like him.
Cheers,
Jeremy
15. mraimondi | 4 June 2010 at 14:42
Great post! Really puts things into perspective and provides a lot of insight into financial reality of someone living in Kenya. As a finance guy I really enjoyed the balance sheet analysis.