Friday, July 17, 2009

Burkina Has Talent #2

I ran into a really creative financing idea this week! A Kusassi friend of mine who is a student at the University of Ouagadougou came to tell me about it. There is an association in Ouaga that will give students grants of 100,000 francs (about $250) per month for a two-year period. How does one qualify for such a grant? It’s easy.

First, you register. This costs 70,000 francs (just under $200). And where do you get this kind of money since the reason you’re applying for a grant in the first place is because you don’t have any? Once again, this part is easy. You find someone who is already registered to pay for you. Why would they do that? Because that’s a condition for keeping their name on the list of people in line for the grant. They have to get another person signed up to get a grant within 45 days of being registered themselves. If they don’t, their name gets dropped off the list and they have to start all over again.

So once you are registered by having a previous applicant pay the fee for you, your name gets put on the list of people in line for a grant. However, to keep your place on the list, you have 45 days to find someone else to register for a grant, and you have to pay the 70,000 francs to register them. Where will you get that kind of money? This is the only really tough part. Basically, you get it wherever you can! Beg, borrow, or steal it. Why would you make such an effort? Because in about six months, you will begin receiving grant money and can pay back the money to whoever you begged, borrowed, or stole it from!

As long as you can pay to register someone else, your place on the list of those in line for a grant is safe. And if the person you registered fails to register someone else? You’re still safe, because it’s their name that is dropped from the list, not yours. And the association keeps the money you paid to have them registered. Either way, whether someone stays on the list or not, the association gets the money paid to put them there. This means that they have a steady source of income, but don’t have to end up giving grants to everyone that registers because not everyone will manage to stay on the list. However, the association will have to prime the pump from time to time as people fall off the list because they failed to register someone else in time.

I thought this was creative for several reasons. First, there’s a huge potential market: poor students looking for money. Secondly, the association uses the clients who are applying for a grant to recruit other clients. In other words, the students do virtually all the work of recruiting more applicants. Thirdly, the association uses its clients (the students) to generate a continual flow of grant money by making them pay a hefty fee for someone else to register. And fourthly, students do this willingly because they know that they will eventually get their 70,000 franc fee back when they begin receiving their monthly grant payments. Don’t you think that’s creative financing?

Now guess why my Kusassi friend came to tell me about this? :P

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