Hi everyone,

Maria, thanks for the info on Posho mills and microfinance...some good stuff for Richard. Looking on google I can see the mills come in all shapes and sizes with a choice of electric or diesel so there will be decisions to make if this business option is chosen.
Ginger, yes safe and secure housing will be an important consideration; no point getting it if these costs are too high.

Richard, it will be interesting to hear about your enquiries on running costs etc. In this connection have you thought who will operate the machine and take responsibility for safety? Just additional thoughts but the more detailed and thought out your application is the more chance it has of success.
I have dealt with Kitchen Table before and ,quite rightly, they look into applications in great detail and careful consideration as funds are limited. Have you had the Patmos Junior School registration as a CBO certificate back yet? This is essential for this application, if it is not back try and chase it up.
I am sure we can all work together to get a good case put forward on the application.
In this connection, Maria asked the question if the corrugated building behind the teachers photo you submitted was the actual school ? It would be helpful if you could get some photos of the school entrance so we can understand the construction of the building. Also a photo of the food distribution point for the children would give valuable support to the application as it will highlight the need for a mill.

Cheers shaun

Hi Shaun and everyone,
To start with,I have managed to inquire in the Posho mill business from one man who runs it and this is what he told me.That there are those going at Kshs 100,000,150,000 and 250,000.He bought his at Kshs 250,000 and he pays his operator daily depending on the income of the day.He says that he make sell of maize within his premises while others come along with their maize.He says that on every sack of maize he makes a profit of between 500 and 600 shillings weekdays and this can be within one day.He says that on weekends his sells can go up to 800 because many families remain indoors and consuption goes up.His survey says that many families have turned to using direct ground floor than the packed one.He pays for eletricity at Kshs 2700 or at most 3000 in a month.According to him he has managed to buy two plots going at khs 250,000 each from this business.He says that we can even start with 1 or 2 sacks of maize to aleviate the proplem of customers who come to buy it from the premises.He said it is agood business if we can do it on the low rental shop
As for the front photo,It did not show the front part well since it is in a squeezed corridor but let me try taking another one and feature it.
With the registration of the CBO,it has to take me about two or three weeks because its registration has gone up from Ksks 1500 to 5000 which we were still soliciting from the members.Just towards the end of April,I hope it will be out and as we are going for first term vacations I will have time to follow it up.
Hope all is going to be well,
Thanks alot for all of you for the efforts you are making.
Nice weekend all,
Richard.

Hi Richard and everyone,

The mill business is looking encouraging from the figures .

Working for 20 days at 500 KSh = 10,000 KSh
Less electricity per month = 3,000 KSh
Net profit per month = 7,000 KSh ($91)

This is the same profit as buying and selling 20 sacks of maize and without the risk of market fluctuations which could result in a loss (see earlier figures).

These figures look even better if 30 days are worked each month giving a net profit of 12,000 KSh ($155) and better still if we use the higher profit figures of 600 KSh.($194)
However, we have to be prepared for other costs and variables.

1. What are the labour costs of running the mill? Is it manned all day or is it open just at specific times? Be realistic with these costs as it will be a responsible trusted position and the person will have to be paid. What percentage of the profit will the operator expect?

2.Are there rental costs of the place where the mill is located?

3.Are there storage costs for the couple of sacks of maize that will be kept for people wanting to buy ground maize?

4. Are there permit costs and how long does it take to get a permit?

5.A small percentage of the profit should be set aside for maintenance and repairs.

The main variables as I see it are to do with any new business. This is in a new location and you can never be certain of your customers or competition.

However, on the whole this business looks more sustainable and profitable than the maize selling especially if you can obtain a grant for the mill purchase.

In this connection we cannot put together an application until the CBO registration is obtained. Is the delay in registering due to slow paperwork or not having the funds? At this moment, how much have you managed to collect from the members towrds the registration fee? You mention the end of April you will follow up, is that when you will have the registration or be starting to try and get the registration process sorted?

Cheers Shaun

Hi Shaun,Carol and the rest.
It is good that you can find maize milling a better business.That has all along been my desire and it can be run without much strain.
Back to your question,I am yet to find more information regarding the permit and operators pay before I come to you however touching on the operational time,I know the milling machine remains open for the whole day because we have to serve customers from 9am to 8pm.This has to be done daily including weekends and public holidays,although peak hours for customers is always before noon and late hours shortly before sunset.
Labour cost has to be paid on the number of sales or service made in a day.With rental costs, In Mathare, most of the business operate from the corrugated iron structure you have seen in the photos but security is ensured by the community residents and this is not a big problem,however there is need for a watchman if the area doesn't seem secure enough.Payment for a watchman is sometimes done collectively by the rest of other business owners by employing one guard who can take care of several business premises and these cannot exceed Kshs 500 per month from every head.But if the area is open enough,there will be no need of a watchman.
As for the CBO I have finished with paper work and only awaiting money from the members which they have pledged to pass it in on 6th April.So far we have contributed Kshs 2000 so i need 3000 to submit the papers.The processing is likely to take two to three weeks,so Iam hopping that towards the end of April I should be ready with a certificate
Let me come bact to you with the information of the permit shortly.
Still feel free to find out more information that you need,
Thanks for now,
Richard.

Hi Shaun and everyone,
I have been informed of the permit charges which goes at Kshs 8500 for a full year.Operator's payment depends on the day's sales and my friend who runs this business has told me that he pays his operator 100 or 150 shillings aday depending on the sales.
With mantainance,he has informed me that posho mills as they are called in Kenya have no much repairs apart from replacing the sieve and this can be after two to three months.Again as I said the single premises will handle both the machine and the stocked maize or ground floor to reduce storage costs unless we have plenty to be stored.
I have these information now.
Best wishes,
Richard.

Hi Richard and everyone,

Putting these final figures in:

Working mill for 30 days at 500 KSh = 15,000 KSh

Less electricity per month = 3,000 KSh
Less operator costs at 150 KSh per day = 4,500 KSh
Less watchman per month. = 500 KSh
Less permit cost per month. = 708 KSh
Less cost replacement sieve / maintenance = 500 KSh
Less cost of rental of building. = ZERO

Total costs per month = 9,208 KSh

NET PROFIT PER MONTH = 5,792 KSh ($75)

I have to put a figure for sieve replacement/ maintenance above as this is a piece of electrical machinery that will undergo wear and tear and so we must expect this.

I have put zero cost for the storage building; is this correct?

You have been told that the net profit can be increased by as much as 50% if you achieve the higher daily rate of 600 KSh or 800 KSh at weekends, but I think we have to realistically look at the lower figure for a new business.

Please consider any other costs now (for example if we need to pay for storage / building rent, or if you have to buy additional wiring to set up mill, protective clothing for operator, paper bags for selling with maize etc).
It is better to anticipate now as it will help our application for a grant if the business plan is carefully thought out.

Please feel free to change any of the figures which you consider not correct ( I am not an accountant!!)

Cheers Shaun

From what was discussed earlier in another thread at this village, my general impression is that the focal project is the school. Since the school has not been found to be a generator of net profits, so the village would like to operate other businesses, such that the profits from these other businesses can be pumped into the school. The school will ultimately benefit the local children, and hence the focus on the school.

From the figures of net profit from the maize mill, will an amount of 5000 KSh per month make any impact on the profitability of the school if the whole amount is pumped into the school, even if no amount is used by the owners for personal expenses? I have had detailed interactions with Richard in another thread a few months back to determine the profitability of the school, and I concluded that despite all the factors, the school cannot be expected to generate profits at any stage. In addition to the maize mill, the village will need to operate other businesses too, and the net profits from all these businesses will need to be pumped into the school so that the school is able to function without regular donations.

Vijai

Hi Shaun,
To this time , I have inquired into other costs but found that the ones already discussed are the basic ones.Others may come as miscelenous cost which are just irregular.May be I can say about the rent and the dust coat.On rent I have seen that we cannot determine the exactness now not untill the machine is ready or nearly ready for us is when we can lay hands on one vacant room and start talking the rental charges with the owner.As for now we can assume that we can get aroom at not more than Ksks2000 becuase this is the rate at which most people running bussiness in this estate are paying for.This is a room big enough to still serve as storage only that most of such types are build of corrugated ironsheets.
On the dustcoat,one is going at Kshs 600 and we shall need two for change in case one is washed or so.
The good news that I have gathered from another source is that,we can grind up to more than 10 sacks on some accassions.This demand arises from the local brew made from maize floor and is common with the M athare residents.I hope this has to boost our profit margin as seen ealier.Let us assume that this bulk grinding can be done at least twice a week.
That is all for now,
Best wishes,
Richard

Hi Vijai,

The way I see it is the maize mill will be a genuine start to raising some funds for the school project. We have to make a start somewhere and the 5000KSh ($65) will pay for at least 4 desks to be made (see desk project discussion). Equally important it will support the school feeding programme at the same time. As this type of business is well proven locally I shouild think it has every chance of success.
I think the school project needs a starting point to get that first $100 into the bank so that further support can be encouraged to help the local initiative being shown.

Cheers Shaun

Hi Richard and everyone,

Thanks for the final figures.

Working the mill for 30 days at 500 KSh = 15,000 KSh

Less electricity per month = 3,000 KSh
Less operator costs at 150 KSh per day = 4,500 KSh
Less watchman per month. = 500 KSh
Less permit cost per month. = 708 KSh
Less cost replacement sieve / maintenance = 500 KSh
Less cost of rental of building. = 2,000KSh
Less dust coat x 2 = 1,200KSh

Total costs for first month = 12,408 KSh

NET PROFIT PER MONTH = 2,592 KSh ($34)

As no new dust coats are needed in the second month the net profit will go up to 3,792 KSh ($49).

These are realistic figures based on what we have been supplied with.

When you have obtained registration as a CBO and set up a bank account we can put forward an application to Kitchen Table.
In the meantime please consider the type of Posho mill you will need and its exact cost (including extras such as sieve and dust coats). I note the mills come in different sizes and horsepower / wattage so it is important that it is up to the job ( is 10 sacks the maximum amount to grind on one occassion?) while not being too expensive. It may be a good idea to get a quote for two types of mill and indicate which is your preferred option and the reasons why (to help your application).

I would appreciate other Neighbours comments or criticism on this initiative.

Cheers Shaun

Hi Shaun,

You are right about making a start somewhere. However, the big picture for the maize mill is something like this:

From the figures in your post above, operation for all 30 days each month might generate sales of 15,000 KSh and net profit of 2,592 to 3,792 KSh. This is a net profit margin of 17-25%.

From the above, it can logically be assumed that if the mill operates only 20 days in a month, sales will drop to 10,000 KSh. This translates into a 'net loss' of 1208 to 2408 KSh each month.

Similar losses will happen if the actual amounts for any other item of expenditure increase.

It might be worth noting that operation of all 30 days a month usually happens in only fully-automatic plants which work with negligible human intervention. In all other cases, operation of any plant for all 30 days a month is usually not possible. The reasons could also be external to the plant, like no electricity supply, or no diesel, or no spares, or transportation of maintenance teams taking longer etc etc.

When losses occur during any month, the mill will be shut down from that point on, since there will never be any reserves to keep the mill working even under losses. The reason is that the meagre reserves generated by the mill will be regularly pumped into the school, and hence the first 1 KSh loss will be enough to make the mill go into shutdown. The next logical step of course will be to seek donations to keep the mill working.

Planning for any project must always see the 'worst' possible conditions, as you have rightly mentioned in one of your earlier posts here. Seeking donations may by itself be a harmless activity, but if the children are found sitting hungry just because the mill did not generate enough profits, and enough donations did not flow in, then this whole issue probably needs a different approach.

Vijai

Hi Shaun,
I can say that it is good if we can make a start from some where beacause to this juncture we have discussed alot and we cannot say that every thing is proving failing and yet I have seen grinding mills in the city estates and survey has prooved to me that it is a worthwhile bussiness.Iam sure that our estimates are on the lower side but the real massage Iam getting from the those in this business tells me that we can make more than what we are anticipating for.So let us take courage and expect the best rathar than the worst as Vijai anticipates.Of course once we enter into the business is when we can realise where looses are coming from and find ways to curb against them.Remember that maize mill has about two business in one,that is grinding and selling maize to the customers of which majority don't come carrying their own maize.So I am very optimistic.
Thanks.

Hi Vijai,
Thank you for your appraisal; it is much appreciated as it gives a viewpoint which needs to be considered carefully. As you say, the narrow profit margins of only 20% are vulnerable to small changes in costs and can be wiped out completely if any "income generating days" are lost in a single month.

However in this particular case I think this business is in more control of these external factors than you indicate. Unlike rural villages which have a low priority electric supply and are vulnerable to long period power cuts, Mathare is in the heart of Nairobi and power cuts are of short duration. Furthermore, as the commodity produced is an essential local foodstuff then lost time can be made up at all times of the day or night as demand from customers will always exist.
I think the point of breakdown and spares is important but from what I uderstand the machinery is produced to be reliable with a proven local record. There are diesel mills which are more serviceable than an electric motor (and probably more powerful) however they bring their own operating problems.(starting and stopping / producing fumes if undercover etc). This is a consideration for Richard when making the final decision on the type of mill.

I agree we must look at the "worst possible conditions" you mention but disagree that once set up it will be drain on more funds.Many of the more usual businesses which can be micro financed and which we discussed earlier on Nabuur are just not possible due to the situation of residents in Mathare. If the mill can be kept secure and provided a reserve fund is kept to offset maintenance costs then I see no reason why it should not succeed.

Like you I would like certain assurances to be in place (such as insurance of the mill) but this is not practical so we have to work with what we have.

Thank you again for your valuable comments.

Cheers Shaun

Hi Shaun,

It was good to read your views above. The following media release from the recent past (Dec 2008) perhaps describes the 'worst' possible conditions facing the small-scale Posho maize millers in this region, and you will notice that Mathare is also mentioned therein. The situation is not expected to have improved during the past 15 months after release of this news item. I hope this helps.

Cheers

Vijai
--------------------------------

http://www.marsgroupkenya.org/multimedia/?StoryID=239985&storydate=2008-...

Posho Millers Appeal For Subsidised Maize
Date: Tue 16th December 2008
Mediahouse: East African Standard
Page: Web Edition

BY Jackson Okoth

Private millers operating within the low-income areas of Nairobi have appealed to the Government to consider selling them grain at subsidised prices.

This is to enable them compete with the Sh52 per 2Kg Government branded maize meal, currently distributed by National Cereals and Produce Board (NCPB). " We have been denied the opportunity to purchase maize from the cereals board. This is unfair to other players in the milling business," Michael Onyuowre, a miller told The Standard on Monday.

The tribulations of the posho millers stem from the fact that they cannot compete with the subsidised flour sold by NCPB stockists. " Investors in the small and medium milling industry would like to appeal to the Agriculture ministry and the Prime Minister's office to apply fair trade practice for all players in the milling business, says Onyuowre. While the large cereal manufacturers are purchasing maize from the NCPB at Sh1750 per 90 kg bag, posho millers get their supplies from the open market at a price of Sh2650 per 90 kg bag.

"We sell the 2kg tin of maize at between Sh70-80, making a margin of Sh1.25 per tin after milling. We cannot therefore compete and may be forced to shut down", warns Onyuowre. Since the subsidised flour hit the market, consumers have cut back on supermarket purchases and flour from private posho millers, in favour of the cheaper flour.
Investors

" In the past, I used to mill an average of 10 bags per day. This has now reduced to two bags, including the Sunday peak period, said Onyuowre.

Posho millers in Mathare, Kibera, Kariobangi and Eastlands are warning that they may closed down due to unfair competition. " We pay taxes and are investors like any other groups. We should therefore be protected", said Onyuowre. A move by the Government to intervene in the cereals market has been necessitated by escalation in maize flour prices in recent weeks.

Analysts attribute the market distortation in the maize sector to speculative activities, and a refusal by farmers to sell to NCPB due to low prices. Concerns had been raised over use of the subsidised flour by unsrupulous traders to rip off consumers.Posho millers argue that as local investors, they pay taxes and therefore deserve fair treatment to safeguard their capital and provide employmnent.NCPB has been urged to allow posho millers in the ditribution of flour due to their wider grassroots network.

Supply constraints in the grain sector are expected to ease once maize from South Africa is offloaded at the Mombasa port. Operational problems at the Grain Bulk Ltd have disrupted the maize supply.

Hi Vijai,

This is really helpful as it raises issues that need to be addressed.
Fifteen months ago it looks like the posho mills are a very poor business to be in. They are saying that they cannot compete with the NCPB price of 52Ksh for a 2kgm tin of maize meal and that the profit is only 1.2 KSh per tin after milling. If this is the same market situation now then we had better not be starting this business as the profit per 90 Kg sack would only be 54KSh ( a lot of work for less than 1 dollar profit!!).

However I think close inspection of the figures gives some hope.

The millers say they sell ground maize at 70 to 80 KSh per 2kg but only make 1.2 KSh profit after milling. As they are buying maize at 2650 KSh for 90 Kg (59 KSh for 2 Kg) this gives a gross profit of 11 to 21 KSh per 2kg.
If the figures are correct it means that the millers have costs of 10 to 20 Ksh per 2kg to actually grind the maize.

Going back to our figures, once the mill is running the operating costs for each month are 12,408 less 1 dust coat at 1,200 = 11,808 KSh (see below)

Operating costs;

Less electricity per month = 3,000 KSh
Less operator costs at 150 KSh per day = 4,500 KSh
Less watchman per month. = 500 KSh
Less permit cost per month. = 708 KSh
Less cost replacement sieve / maintenance = 500 KSh
Less cost of rental of building. = 2,000KSh
Less dust coat x 1 = 600KSh

Operating costs per month = 11,808 KSh

Operating costs per day = 393 KSh (to grind one 90 Kg sack maize)

operating costs per 2kg maize = 8.73 KSh (say 9 KSh).

This is considerably less than the 11 to 21 KSh costs of the millers.

On the basis of these figures if we had been selling ground maize 15 months ago we would have made a net profit of 3,210 ($41) to 16,710 KSh ($217) per month as the following figures show.

Maize cost 2650KSh per 90Kg sack at that time and selling at the agreed (other millers) rate of 70 to 80 KSh per 2Kg ground maize this will have given a gross profit of 500 or 950 KSh.

As our costs are only 393 KSh our net profit would have been between 107 and 557 KSh daily, or 3,210 ($41) to 16,710Ksh ($217) per month.

This profit is even higher than our original projection so either;

1. My calculations are wrong.
2. Our costs are too low.
2. The other millers costs are exceptionally high .
3. The figures in the article are incorrect or inflated.

Richard, can you tell us what is correct?

Cheers Shaun