Poor borrowers prefer Equity to micro-financiers

Latest from Microfinance in Kenya

The article below caught my attention.

 http://www.standardmedia.co.ke/business/article/2000164091/


There is definitely room for more debate.

Central Bank of Kenya Licenses Choice Microfinance Bank - Choice MFB

Latest from Microfinance in Kenya

The Central Bank of Kenya (CBK), has licensed the 11th Microfinance Bank in Kenya. Choice Microfinance Bank (Choice MFB) becomes the latest entrant to join the very competitive low end financial services sector. Choice MFB will be operating in Kajiado North and especially targeting the fast growing Rongai town and its environs.

As an industry and practitioners we welcome Choice MFB to the industry. Kenyans will be better and for sure they will have a " choice". For more please read below;

http://www.standardmedia.co.ke/business/article/2000163283/cbk-licenses-choice-microfinance-bank

MICROFINANCE SUMMIT IN KENYA- WHAT DOES IT MEAN FOR AFRICA?

MICROFINANCE SUMMIT IN KENYA- WHAT DOES IT MEAN FOR AFRICA?

April 7th to 10th, 2010, the microfinance player’s world over gather together in Nairobi for the Africa Middle East micro credit summit. The summit, first time to be held in Kenya will be a great honor to the country for its pioneering work in the microfinance sector in Africa. From the late 80s and early 90s, Kenya Rural Enterprise Program (now KREP bank) led the way in the provision of innovative financial services targeting the poor and the unbankable. In the late 90s, Equity bank, a Kenyan owned and managed financial institution sprung out to take a desired, rightful position in resuscitating micro and small entrepreneurs hitherto lacking access to finance. The bank downscaled and re-engineered a banking revolution that has energized the global microfinance sector and in particular Kenya. Equity bank has in the recent past been a recipient of many microfinance awards world over for its innovation and commitment to end poverty through provision of well designed and need based financial services.

In Kenya, the microfinance sector has evolved for the last 20 years, and has recorded notable gains. The sector has transformed itself from an insignificant player in the national and international psyche, to its current level of innovation, sophistication and acceptability. To tap the potential the industry has and extend the depth and breadth of outreach, the Government of Kenya mainstreamed and transformed the sector by setting aside funds to reach the marginalized youth and women through the Youth and the Women Enterprise funds respectively. The government has further enacted the microfinance act. The act brings on board a regulatory environment that hitherto has been missing in the past leading to collapse and defrauding of many Kenyans by these institutions.

The Micro credit summit therefore, will be held on a backdrop of many challenges that continue to trouble the sector in Africa. Key among the challenges include: conflicts in many parts of Africa, government policies that discourage entrepreneurship, corruption, poor infrastructure, unethical financial service providers, lack of innovation and creativity leading to one size fits all kind of financial products all in a sector that thrives in replication without putting into perspective a peoples culture. These among others, are the challenges the participants must face head-on.

The theme of the summit is “committed to ending poverty”. This is spot-on and especially in sub Saharan Africa, where poverty looms large. Research has now proved that microfinance when properly designed, innovatively delivered and target clientele properly defined has the potential of graduating so many out of poverty. This is what the delegates must crack in four days – failure to do this, would reduce the summit to just another outing and a holiday for some. It’s in the delegate’s interest therefore, to ensure the resolutions that come out of the meeting will help end extreme poverty that our people continue to live through.

Over 2500 delegates from over 40 countries are expected to attend the 2010 Africa Middle East micro credit summit in Nairobi. The four day event brings together government, regulators, investors, donors and microfinance practitioners to discuss the role of financial services in poverty alleviation. Among the Key participants are the great of the microfinance sector such as Muhammad Yunus founder and president of Grameen Bank who together with his institution (Grameen bank) were awarded the 2006 Nobel peace prize for their pioneering work on microcredit. He is also a recipient of the 2009 US presidential Medal of Freedom. This is the highest civilian honor in the United States. He, among others is the genius behind the innovative co-guarantee mechanism that has relegated traditional collaterals to the peripheral of lending. You no longer need land or any other collateral that the poor lack – but rather your social standing in the community is enough to secure the much needed capital. The lending innovation has drastically reduced the gap between the rich and the poor and deepened financial services access in the developing world.

With this, the organizers, Association for Microfinance Institutions (AMFI), the host of the summit must ensure we prove to the doubting world the Kenya is not about politics and impunity. We have more to offer the world than the violence we witnessed two years ago. For the 4 days, that the spotlight will be on Kenya, the organizers must ensure the world see the other side of Kenya, the beautiful Kenya with lovely people who no matter the hardships, drought and selfish politics, have hope, dream for a better tomorrow and work hard for it. That is the Kenya the world does not know, yet the microcredit summit organizers should make them see.

Charles Njoroge

The next banking revolution - Commentary: Microfinance is not just about loans

LateBy Elisabeth Rhyne

WASHINGTON (MarketWatch) -- The world is in the midst of a banking revolution that has nothing to do with exotic financial engineering. It's in microfinance, or the provision of financial services to poor people worldwide.

Source:http://www.marketwatch.com/story/the-next-banking-revolution

To most people, microfinance means microcredit, or lending to the owners of very small businesses in the developing world. In recent years, though, efforts to extend a wider range of financial services to reach the nearly three-quarters of the world's population with per-capita incomes below $3,000 -- the so-called "base of the pyramid" -- have gained significant traction.
Since the first microloan was dispensed in Brazil in 1973, microlending pioneers such as Accion International and Grameen Bank -- the latter founded by Nobel laureate Muhammad Yunus -- have proven that the poor, served responsibly, are excellent credit risks and prudent users of financial services.

A surge of experimentation in the last five years, fueled by an influx of investment capital, has demonstrated an equally strong demand from the base for savings, insurance and tools such as bank cards and cell phones to facilitate payments.

New York Times columnist Paul Krugman has said that we should "make banking boring again." If "boring" means returning to the basics of relationship banking, strong underwriting and transparent products, he's right. But there is nothing boring about extending service based on those principles to the base.

$5 trillion in purchasing power

That's the long-term challenge for the financial industry, from multinational banks looking for new sources of sustainable growth to small microfinance organizations seeking to extend their reach and diversify their services. Statistics show the base's collective purchasing power currently stands at $5 trillion.

Scaling microfinance up presents daunting challenges. Chief among them are the high costs of reaching deep into rural backwaters and inner-city slums, and of servicing very small transactions. Meeting these challenges requires creative alliances and cultural insight as well as technical innovation.

Some recent successes:

-- Partnerships for last-mile delivery: In 2001, Brazilian banking authorities introduced the banking correspondent model, a regulatory innovation that has radically transformed access to financial services in Brazil and is being adopted, with regional variations, across Latin America and to a limited degree in India. Brazil allows any enterprise, including supermarkets, lottery kiosks, pharmacies and post offices to act as an agent to one or several banks.
In Brazil today, 95,000 agents are conduits for services such as new accounts, deposits, withdrawals and bill payments. Before the banking agent revolution, almost a third of Brazil's municipalities had no banking services; now they all do. At least 13 million new savings accounts have been opened.

The agent model may be the single most powerful means of localizing banking services. Banking authorities in Peru report that a bank branch costs about $200,000 to set up, while an agent costs just $5,000.

-- Technology: One engine of the agent model is the pre-paid bank card and the humble point-of-sale machine, the device that reads your card at the supermarket checkout counter. A point-of-sale machine typically costs less than $100 vs. thousands for an ATM. Customers can use cards at locations with the point-of-sale machine to make deposits, withdraw cash and pay bills as well as make purchases.

The pre-paid card model avoids risks of over-indebtedness and the problems of complex fees currently bedeviling the U.S. market. For poor people, liberation from the need to pay every bill in cash and in person at the bank branch saves a tremendous amount of time, cost and risk.
An even more flexible and user-centered payment device has taken off in parts of Africa and Asia: the cell phone. In Kenya, the Philippines and South Africa, millions of cell-phone customers use text messaging to withdraw and deposit cash at the same retail outlets where they buy airtime for their phones. They also use the phones to receive their salary, pay off loans and store money, as well as make retail purchases.

-- Product design: Microinsurance providers have proved especially creative in designing products tailored to specific cultural needs. In Latin America, many women balk at buying life insurance because they don't want to enrich their husband's imagined second wife. "Education life" policies therefore provide benefits in the form of school vouchers. Other policies pay out vouchers for food at large grocery chains.

Often, major insurers seeking to crack the low-income market rely on microfinance or microinsurance specialists to design and distribute products that they underwrite. Zurich Financial Services recently announced a partnership with microfinance group Women's World Banking to offer "caregiver insurance," covering a range of expenses arising from a woman's hospitalization.
Progress on all of these fronts is mutually reinforcing. New technologies help enable new kinds of partnerships, such as those between financial institutions and retailers, which in turn enable delivery of a wider range of services, spurring providers to get creative.

The core vision of microfinance pioneers -- to help the poor help themselves -- has broadened to the concept of inclusive finance: delivering to the world's poor the basic financial infrastructure that is a foundation of wealth development and risk management.

Elisabeth Rhyne is managing director of the Washington, D.C.-based Center for Financial Inclusion at Accion International. Portions of this article were adapted from her forthcoming book, "Microfinance for Bankers and Investors: Understanding the Opportunity at the Bottom of the Pyramid." st from Microfinance in Kenya

UNEP report reccommends Microfinance to address food crisi

The UN Environment Programme has unveiled an ambitious seven-point plan to feed the world without polluting it further by making better use of resources and cutting down on massive waste. This is contained in a survey document entitled 'The environmental food crisis: environment's role in averting future food crises' and can be accessed at www.unep.org or at www.grida.no.

The survey reccomends among many measures:

- "Reallocate cereals used in animal feed to human consumption by developing alternative feeds based on new technology, waste and discards. This could feed nearly the entire projected population growth" (to an estimated nine billion people overall by 2050).
- "Support small-scale farmers by a global fund for micro-finance in developing diversified and resilient ecoagriculture and intercropping systems.
- "Increase trade and market access by improving infrastructure, reducing trade barriers, enhancing government subsidies and safety nets, as well as reducing armed conflict and corruption."

The question remains:

Is Microfinance as implemented in Kenya able to respond to Agriculture?

Charles

Africa Microfinance Bank of the Year Award 2008

Equity Bank, the innovative Kenyan microfinance bank has been shortlisted for the African Microfinance bank of the year for this year's prestigious African Bankers Awards, 2008 to be held at Washington DC, USA.

Our dear Equity is currently the biggest bank in Kenya in terms of accounts-over 2.8 million accounting for over 48% percent of all bank accounts in Kenya. The bank infrustructure is supported by an 88 branch network, 350 VISA ATMs and 2500 Points of Sales. We at MicrofinanceKenya Blogspot wish them the best of luck.

Kenyans are not mediocre - we are olympic champions, our own has won Nobel prize etc - Equity keep the flag high. We are proud of how you have transformed microfinance landscape in Kenya.


Charles

Record bank expansion strikes chord with savers

Business Daily

http://www.bdafrica.com/index.php?option=com_content&task=view&id=9837&Itemid=5812 Written by Washington Gikunju

Graphic illustration: Conrad Karume September 5, 2008: In possibly the most rapid take-off in the provision of financial services the world has ever seen, the number of Kenyans with bank and savings accounts tripled last year, from 3.3 million to 10.1 million. Banking industry players attribute the growth, which took place in the last 18 months, to aggressive marketing of credit, greater availability of banking facilities and the introduction of a series of new products targeting low-income groups. As a result, 27 per cent of Kenyans now hold accounts compared with nine per cent a year ago, according to the Central Bank. Such growth has represented a windfall for the country’s financial institutions, attracting the attention of foreign banks shopping for acquisitions in the market. Last year, for instance, Barclays Plc reported that its Kenyan subsidiary had realised the greatest profit growth of all its international operations. On the homefront, rising interest in the formal financial services sector among Kenyans in the low income bracket has sent operators rushing to cash in on the growth. This battle for control of the market saw the total number of bank branches increase from 575 to 740 in just 12 months, creating more than 8,000 banking jobs last year. More critical to those hunting for possible avenues of entry into the Kenyan financial market is that this boom saw total banking assets increase by 26 per cent to 951.2 billion, while deposits rose by 18 per cent to 705.2 billion, riding on the wave of robust earnings from trade and tourism as well as external donor inflows to non-governmental organizations and the Government. Total profits in the sector rose to Sh35.6 billion from Sh27.1 billion in 2006 and Sh20.6 billion in 2005. The CBK says new university graduates as well as the more experienced management, supervisory and clerical staff benefited from this jobs market expansion representing a 39 per cent increase to the 21,675 jobs that the industry had in the previous year. Banking industry statistics also show that this growth is driving a quiet maturity revolution that has seen the number of support staff decline to 292 from 1,102 in 2006. Business Daily graphics Industry players say the decline is due to the growing popularity of outsourcing support services in the last four years and the adoption by most players of technology-based methods of doing business. Access to financial services is seen as a key catalyst to overall economic growth because of its role in facilitating business transactions. CBK says that a financial access survey conducted last year revealed that 38 per cent of the adult Kenyan population lacked access to financial services because of the high cost of maintaining savings accounts and other barriers to entry. Yet access to financial services is seen as key to the achievement of the Vision 2030 development agenda that aims at making Kenya a middle income country and a regional financial services hub. Read more on this story from Business Daily, Kenya http://www.bdafrica.com/index.php?option=com_content&task=view&id=9837&Itemid=5812

Nobel winner slams for-profit microfinance

July 28, 2008: 03:45 AM EST

NEW YORK (Associated Press)

When Nobel Peace Prize winner Muhammad Yunus began making $27 loans to women in Bangladesh three decades ago, he never dreamed of initial public offerings, return on equity and securitization. Those terms weigh heavily on his mind today, as the once-charitable field of microfinance has become increasingly commercialized.

"Poor people should not be considered an opportunity to make yourself rich," Yunus said by phone from Bali, Indonesia, where he is attending a microcredit conference, which opened Monday.

More on: http://money.cnn.com/news/newsfeeds/articles/apwire/722afa5689e6f4a87b804f72b8ae1e84.htm

Africa Needs Microfinance - Financial Services are Imperative for Progress

by Eric Thurman
June 09, 2008

Eric Thurman - is a professional advisor to donors and consultant for international NGOs. He has supervised grants in more than half of the nations of the world. He also has directed microlending programs in 30 countries when he was CEO of Opportunity International and later Hope International. In 2007, he and a client, Philip B. Smith, co-authored the book A Billion Bootstraps, a popular introduction to the microfinance movement.

Africa is a contradiction. It has so many assets, including vast riches in natural resources and some of the most exquisite scenery on Earth. Most Africans are extremely friendly, community-minded, and very hard-working people. At the same time it is a sad continent, home to hundreds of millions of people for whom survival is a daily struggle. The United Nations Human Development Index ranks 177 nations annually according to health, literacy, and income. This year, African nations occupy all of the lowest 24 places on the list. This group represents half of the countries on the continent. Arguably, Africa is the poorest region of the world.
Without doubt, it is time to maximize the abundant resources of Africa, especially the human assets. Microfinance is an excellent tool to achieve this goal. A close look at the realities of Africa reveals factors which must be taken into consideration as part of any effort in development. Economic patterns here are different from other parts of the world. First, few people have wage-paying jobs. Self-employment dominates the labor force. Also, people are more dispersed than in most other parts of the world. In a situation where the population is geographically scattered and self-employment is the norm, microfinance is a proven, practical way to boost personal income. Large public works projects or signs of industrial development are rare. Foreign direct investment and job creation in any form should be encouraged wherever possible, but no one is suggesting that these will produce large scale employment for Africans anytime soon.

The Importance of Finance in Africa

From my observations while working in economic development across the continent, a speedy and cost-efficient way to stimulate economic activity among Africans is to bolster the kinds of income-generating activities they already practice. If an individual is selling retail goods, as many are, it is most helpful to make certain he or she has an adequate inventory and a large enough variety of products to meet his or her customers’ demands. For those involved in animal husbandry or agriculture, it is most helpful to assure them that they have enough financing to weather seasonal fluctuations in income. Basic finance of this kind is currently in very short supply. Though most Africans deal with small sums of money regularly, they may never come into contact with a bank throughout their entire lifetimes. Complete lack of access to financial services for so many people stunts development, which is why few people who live in cash-only economies ever progress beyond bare subsistence. Most of these people are extremely vulnerable and cannot maximize the value of the few resources they have.

Read more from: Harvard review - http://www.harvardir.org/articles/1722/

Loan borrowers feel the heat as banks tighten noose

Story by EDWARD WANGILA KOLLA

Source - Daily Nation, Kenya

Publication Date: 5/31/2008

The rush for easy credit in the form of loans and credit cards from banks and micro-finance institutions is causing untold financial and emotional misery to many Kenyans.
Unlike in the past when getting a loan required lengthy procedures, when borrowers had to produce security in the form of land, vehicles and other assets, lately the only security required is a payslip.

More on this interesting story from:

http://www.nationmedia.com/dailynation/nmgcontententry.asp?category_id=1&newsid=124406

Many Africans Count on Community Savings Groups

by Cynthia English

WASHINGTON, D.C. -- As microfinancing continues to grow in popularity as a method of financially empowering the poor, Gallup Polls in sub-Saharan Africa reveal that a sizable minority in the region depend to some extent on community savings groups to make a living. Across 31 countries surveyed, a median of 20% of respondents say they depend "a little" on community savings programs, and a median of 5% say they depend "a lot" on these programs, representing more than 80 million people in sub-Saharan Africa.

Read more of this interesting poll from the follwing site:

Source - http://www.gallup.com/poll/107650/Many-Africans-Count-Community-Savings-Groups.aspx

When Small Loans Make A Big Difference

Article from : http://www.forbes.com/entrepreneursfinance/2008/06/03/kiva-microfinance-uganda-ent-fin-cx_0603whartonkiva.html

.... That decision proved prescient. Today, the Web site the Flannerys created-- Kiva.org--is one of the hottest and hippest on the Web. One online commentator compared it to an online dating service, and even former U.S. president Bill Clinton has praised its virtues. Kiva's 270,000 lenders--people who typically hand over their money, via credit card, in $25 increments--have funded borrowers in places as far flung as Tanzania and Tajikistan.

So far, they have assisted about 40,000 borrowers in 40 countries and provided a total of about $27 million in funding. A wave of international attention came to the practice of micro lending when Muhammad Yunus and his Grameen Bank won the 2006 Nobel Peace Prize for pioneering work in the field.

Kiva, founded in 2005, has been so successful that it has already spawned imitators: Last year, eBay (nasdaq: EBAY - news - people ) launched a lending site called MicroPlace. Flannery, Kiva's chief executive, and Premal Shah, its president, spoke about the business and its evolution at the University of Pennsylvania Microfinance Conference.

Read more from: http://www.forbes.com/entrepreneursfinance/2008/06/03/kiva-microfinance-uganda-ent-fin-cx_0603whartonkiva.html

Micro-insurance - Addressing issues of Insurance Access

Author - Charles Njoroge - Blog moderator
Source - http://www.africanexecutive.com/modules/magazine/articles.php?article=3166&magazine=178
While launching the Insurance Regulatory Authority (IRA) recently, Kenya's Finance minister, Amos Kimunya advised the regulator to enforce good corporate governance, early warning systems and protection of policyholders. Granted this is fundamental, the regulator still has a major role and responsibility to not only break barriers of insurance access but also deepen its breadth and depth of outreach in the country. The penetration of insurance in Kenya according to Association of Kenya Insurers (AKI) 2006 report stands a paltry 2.54 per cent compared to South Africa's 16 per cent.

The importance of access to financial services such as credit, savings, insurance and many others in any country cannot be gainsaid. Financial services oil the national and international economic systems. While the myth on banking and credit access to the low income who are economically active has been debunked, demystified and incorporated into the common man’s mindset, the insurance industry is yet to innovatively unpack its services to the low income.

The next fontier in the battle for financial services is the insurance industry. This is where the future of the industry is: working with the low income by providing innovative, affordable, efficient and effective insurance services with (very) few exclusions.

Jacinta Mwatela, DeputyGovernor - Central Bank of Kenya: Regulation of microfinance in Kenya

Speech by Mrs Jacinta Mwatela, Deputy Governor of the Central Bank of Kenya, at the Stakeholders Forum on the Deposit-Taking Microfinance Regulations issued under the Microfinance Act, Kenya School of Monetary Studies, Nairobi, 12 May 2008.

Source http://www.bis.org/review/r080515d.pdf

* * *
The Chairperson, the Association of Microfinance Institutions (AMFI); The Chief Executive Officer, AMFI; Microfinance Practitioners; Development Partners; Distinguished Guests and Participants; Ladies and Gentlemen;

It gives me great pleasure to be with you this morning during this important stakeholders’ forum on the Deposit-Taking Microfinance Regulations, 2008 issued under the Microfinance Act, 2006 (Act No. 19 of 2006). These Regulations set the stage for the implementation of the Microfinance Act and are expected to usher in a new dawn in the development of the microfinance industry in Kenya as an integral part of the financial system.

Let me also take this opportunity to thank the Association of Microfinance Institutions (AMFI), all industry players and stakeholders for their collaboration, input and patience. I am aware that the delay in the completion of the drafting of the regulations and the appointment of the commencement date of the Microfinance Act has caused concern in the industry. The work on the regulations has been a considerable one and the challenges mammoth. However, good things, they say, come to those who wait. I therefore congratulate AMFI and the entire microfinance fraternity for keeping the faith and staying the course and urge them to continue to be patient as the appointment of the commencement date and regulations are with the Attorney General’s Chambers for gazettement. This will be out shortly.

Ladies and Gentlemen; as you are aware the legal, regulatory and supervisory regime, spelt out under the Act and Regulations, will allow regulated deposit-taking microfinance institutions to offer a variety of financial services and products including savings mobilization, credit facilities and domestic money transfer, among others to Kenyans. I expect that many microfinance institutions and potential investors will take the opportunity to establish deposit-taking business in order to enhance access to financial services and products by Kenyans. According to the Finaccess study conducted in 2006, about 38 per cent of adult Kenyans are un-served by our financial system indicating a huge market potential for the microfinance industry. The study shows that only 19 per cent of Kenyans are served by formal financial sector, namely commercial banks and the Kenya Post Office Savings Bank, while 8 per cent are served by semi-formal financial service providers such as microfinance institutions (MFIs) and Savings and Credit Co-operatives societies (SACCOs) and the remaining 35 per cent are served by informal financial service providers ranging from Accumulating and Rotating Savings and Credit Associations (ASCAs and ROSCAs) to shopkeepers and money lenders. This indicates a big gap in access to financial services by Kenyans that I expect deposit-taking microfinance institutions (MFIs) to play a major role in filling it by expanding access. Given this scenario the microfinance deposit taking institutions will be playing a major role in narrowing the service gap.

Ladies and Gentlemen, the former UN Secretary-General, Kofi Annan stated that "Sustainable access to microfinance helps alleviate poverty by generating income and wealth, creating jobs, allowing children to go to school, enabling families to obtain health care and empowering people to make the choices that best serve their needs. …The great challenge before us is to address the constraints that exclude people from full participation in the financial sector."

Speech from - http://www.bis.org/review/r080515d.pdf

I couldn’t agree more and this is the challenge before us. A financial system that serves only a minority of a country’s people is biased and unacceptable. All inclusive financial system that provides access for the majority is the central goal of the development of our financial system as envisaged by Vision 2030. The government, as envisaged in Vision 2030, will strengthen alternative financial service providers including MFIs and SACCOs, among others, to play a major role in savings mobilization and wealth creation, thus contributing to poverty reduction and economic growth.

Ladies and Gentlemen, we expect that when the Act and Regulations are fully implemented, it will bring, in the not too distant future, a new breed of microfinance institutions, the deposit-taking MFIs, which will enable these institutions to mobilise savings from the general public. Thus, the Act and Regulations will set in a new era in the growth and development of the microfinance industry by integrating the industry to the formal financial sector, thereby promoting competition, efficiency and access. Through this, we expect the microfinance industry to play a pivotal role in deepening financial markets by expanding access of affordable, appropriate and innovative financial services and products to majority of Kenyans. These include cellular phone banking, alternative, low cost outlets e.g. agencies, and mobile banking, among others.

Ladies and Gentlemen, once the Act is fully implemented, it will promote an orderly growth and development of a sound and stable microfinance industry. The regime will also embrace microfinance industry corporate governance, accountability and transparency, performance standards and benchmarking, deposit protection, efficiency and effectiveness, among others.

As you are aware that the policy underpinning the regime is based on a three tiered approach to regulation and supervision of the microfinance industry, with the deposit-taking MFIs and non-deposit taking MFIs falling under the Act. Informal microfinance institutions will remain unregulated. The deposit-taking MFIs are categorized into two: the community MFIs and the nationwide MFIs with a minimum capital requirement of KSh.20 and KSh.60 million, respectively. The nationwide MFIs will operate countrywide, while the community MFIs will operate with one Government Administrative District or Division if operating in a City.

Ladies and Gentlemen, let me also urge the industry to move fast and develop a self-regulatory mechanism in addition to the current regime provided under the Act and Regulations to provide for a self-regulating mechanism including a code of conduct, oversight, disciplinary and dispute resolution mechanism, and minimum reporting and performance standards. This should cover all practicing microfinance practitioners – ranging from deposit-taking MFIs, non-deposit taking MFIs and informal microfinance entities.

You will note that in the recent past, the Central Bank of Kenya made press statements in the print media warning the public on the illegal operations of pyramid schemes in Kenya. The building of an all inclusive financial system including the strengthening of alternative financial service providers and public education and awareness campaign is expected to stem off the mushrooming of pyramid schemes and similar schemes.

The Central Bank of Kenya will continue to educate the public and will publish licensed deposit-taking MFIs in the Kenya Gazette and once in a year print media with national circulation. Anyone taking deposit from the public without a license from the Central Bank will be committing an offence under the Banking Act and Microfinance Act except those exempted under the respective legislations. I, therefore, strongly advise the general public not to risk losing money by depositing or placing the same in unregulated institutions like the pyramid schemes.

Ladies and Gentlemen, let me highlight some key silent regulatory and supervisory requirements for deposit-taking MFIs which include licensing requirements; corporate governance; performance and accounting standards; accountability and transparency; deposit protection; dissolution mechanisms and supervision by the Central Bank. The legislation further specifies limits on lending to ensure that MFIs retain their core business of extending services to the poor, low-income households and SMEs as their core market segments and minimize dealings with insiders.

Ladies and Gentlemen, I expect institutions to use innovative delivery channels and methodologies and reduce entry barriers resulting in increased efficiency and competition, hence reduction in costs and increased access in the near future. The ability to create new innovations and harness their potential will directly impact our market share and prosperity. Through new ideas, best practices, innovative delivery channels and approaches, we can stimulate new thinking and, critically, new action. Unleashing home-grown capital can create a pool of resources for local entrepreneurs to set up small business and diversify their economic base. Microfinance, a new pillar of development, is yet another instrument to unleash the ideas and energies of local entrepreneurs with a potential to grow, to forge linkages with other businesses that will drive national savings and investments.

Ladies and Gentlemen, the Central Bank, on its part, will continue to ensure macroeconomic stability and to provide an enabling regulatory environment for the financial sector growth and development. The supervisory and regulatory capacity of the Central Bank of Kenya is strong and is continually being enhanced to cope with market dynamics and new skills and knowledge. We continue to be grateful to the development partners who have collaborated with us in building adequate skills and capacity in the field of microfinance. We shall also continue to work closely with the Government ministries and microfinance practitioners in the development of the industry.

Ladies and Gentlemen, we all would like to thank the Attorney General’s Chambers and the Treasury who have tirelessly worked hard hand in hand with the Central Bank team in the preparation of the Regulations and look forward to a speedy gazettement of the same to effect the Act into operation.

Before I conclude, Ladies and Gentlemen, let me once again take this opportunity to assure the AMFI, microfinance industry players and key stakeholders of the Central Bank’s continued commitment, collaboration and partnership in the development of the industry.
Finally, it is my pleasure to now declare the Forum on the Deposit-taking Microfinance Regulations 2008 officially opened and wish you fruitful deliberations.

Thank you.

Is microfinance opening itself up to scrutiny?

Author - Charles Njoroge, Blog moderator

Source - Business Daily -

Original article from - http://www.bdafrica.com/index.php?option=com_content&task=view&id=7489&Itemid=5848

May 9, 2008:

A news item in the print media drew my attention last week – “Faulu Kenya’s profits hit Sh103 million”. Faulu is a microfinance institution and one of the big three unregulated microfinance companies in Kenya. It made a pre-tax profit of Sh103.7 million in the financial year ending December 31, 2007. Faulu joins Equity Bank in Kenya and Compartamos in Mexico and many other institutions across the globe in confirming that microfinance is a good business proposition.

It is socially paying and profitable. Working with the low income but active Kenyans in both urban and rural areas, partnering with them as they fight their poverty through entrepreneurship, and making money with them and from them creates value for microfinance lenders. Microfinance is about reaching the unbanked with financial services.

Unfortunately, these target clients for microfinance lack credit history making lending to this group risky. To circumvent all these financial access hurdles to the active poor, Microfinance institutions innovatively embrace non traditional collateral such as group guarantees and peer pressure.Further, microfinance business model is expensive and labour intensive.

But these institutions need to get a return commensurate to the hassles and risks involved in lending small loans to the active poor, mostly with no credit history of their own. Unfortunately, the profits these microfinance institution and banks serving small and microbusinesses are making is confounding. It is possible they could be enjoying some economies of scale for operating in the market for sometime now. They could also have become efficient and effective in operations over time.

However, it is good and legitimate for the microfinance industry to make profits, but its equally legitimate to pass the gains and efficiencies to the customers . Access of financial services to the active poor is important, but affordability is important too. With the level of profitability these institutions are rolling out, the question of how affordable their services are may start cropping up sooner than later.

Further the chairman of Faulu was quoted as saying the institution is willing to divest by selling part of the equity to a group of “like-minded people”. Like-minded is a broad term, but Faulu has a golden advantage to tap on the “first mover advantage”. Faulu is an innovative institution. It was the first microfinance institution in Africa to seek long term funding from the capital market. It is this innovative adventure that Faulu should borrow in selling part of its equity.Njoroge is a BDS consultant and microfinance trainer.

cgnjoro@gmail.com

Is microfinance failing agriculture?

Source - Business Daily, Kenya

Written by Charles Njoroge - Blog moderator

April 30, 2008:

The food crisis is visiting the world. Hunger is looming and the world is in need of more food everyday. Food riots due to ever increasing prices for basic foods have been reported. Some governments have been forced to step in and artificially control the cost and export of basic food items. In Kenya, the Ministry of Agriculture says all is well, at least we have four more months before we run out of the country food reserves.

Scientists and social commentators world over attribute the food crisis to a host of reasons: high oil prices, substitution of oil with biofuel crops, ever growing population, extreme weather and ecological stress. The effect is, with increase in the price of oil, inputs such as fertilizers become unaffordable; transport and tractor hire per acre more expensive. With the increase in oil prices it consequently becomes profitable to grow more biofuel crops. The cycle goes on.

For Kenya, the post election violence that affected mostly the food producing areas of the country complicates the problem further. The settling of the internally displaced persons (IDPs) and the bloated grand coalition cabinet further puts strains on the scarce government resources that could otherwise help respond to the looming danger. Further, lack of access to innovative rural financial services and over reliance on microfinance to rejuvenate agriculture in rural Kenya compounds the problem.

Read More at :http://www.bdafrica.com/index.php?option=com_content&task=view&id=7300&Itemid=5848

Mr Njoroge is a consultant and microfinance Trainer.

Email: cgnjoro@gmail.com

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Kenya: Faulu Unveils Plans for Banking

The Nation (Nairobi)
25 April 2008Posted to the web 25 April 2008
Nation Reporter

Nairobi

Faulu Kenya, a local microfinance institution, has unveiled Sh460 million expansion plan, as it prepares to change into a microfinance bank, and grow its customer base aboveone million.
Currently, the 17 year-old organisation's customer base is slightly over 100,000, and it holds over Sh1.5 billion in loans and advances. To mark its new look, Faulu Kenya rebranded, changing its corporate colours and logo.

"To finance our aggressive growth plan, last year Faulu obtained a Euro 5 million term loan from Deutsch Bank," said chief executive officer, Lydiah Koros. She was speaking after signing a currency swap agreement between her institution and Standard Chatered Bank, Kenya.
Relevant Links

The agreement will see Standard Chartered take over Faulu's Euro denominated loan, in return for an equivalent facility in Kenya shilling (Sh460 million under current exchange rates). Under the arrangement, StanChart will assume Faulu Kenya's obligations under the Euro loan to repay Deutsch Bank in Euros while Faulu Kenya will repay StanChart in shillings. "As our business is shilling-based, it became necessary to hedge the foreign currency risk," added Ms Koros. The money will be used to restructure its offices to meet Central Bank of Kenya requirements, as it seeks to turn itself into a deposit taking micro finance institution.

Established by Food for the Hungry, an international non-governmental organisation in 1991, has 60 offices in the country. "We are currently in the process of preparing to transform into a deposit taking microfinance institution, in line with the recently enacted Microfinance Act," said Faulu Kenya chairman, Ken Wathome.

The Act was passed last year. It is also in the process of acquiring a new banking system, T24, from Temonos Limited, joining five local banks that are already using the system in Kenya.

Source - http://allafrica.com/stories/200804250042.html

Microfinance sector under siege from banks

Written by Charles Njoroge - Blog author

Source - Business Daily

http://www.bdafrica.com/index.php?option=com_content&task=view&id=7170&Itemid=5848

Commercial banks are on an expansion spree, which will rub MFIs the wrong way.April 24, 2008: The Kenyan media has recently been awash with branch expansion news from the banking sector. Some of the eye grabbing headlines include: “Equity Bank set to open 18 branches across Kenya, Barclays Bank rolls out seven branches in a period of one year, KCB will open 60 branches across the region- 30 of the branches will be in Kenya, Family Bank to roll out six branches, Co-operative Bank to open 20 more branches.”

This is real! and shows the level of enthusiasm and confidence the financial services sector has in the Kenyan economy. The “open new branch” obsession is informed by “the catch-up” strategy, enactment of the Microfinance Bill and the business realities of our times. Globally, research suggest working with the economically active low income persons and giving them a hand as they fight their poverty, is profitable.

The strategy is confirmed by Compartamos (albeit pricing issues) bank in Mexico and our very own Equity Bank. The bank, has within a short time joined the big boys or the “ billion club” of banking in Kenya with its unique downscaling business model that caters for the low end, making money with them and from them.

Read more at:

http://www.bdafrica.com/index.php?option=com_content&task=view&id=7170&Itemid=5848

Saccos need urgent facelift

Written by Charles Njoroge - Blo moderator

Source: Business Daily

The membership numbers are dwindling, yet Savings and Credit Co-operatives (Saccos) have been a force for good in a financial services sector characterised by competition, greed and loan “sharking”.

The rationale behind the formation of Saccos is simple — unity in diversity. The strength in numbers as constituted in Saccos has led to personal economic empowerment and financial freedom to many Kenyans. Individual employees or producers band together due to their common bond with several hundreds or thousands of others to mobilise savings, thereby forming a powerful economic movement.

This powerful weapon of solidarity ideally keeps loan sharks away while ensuring sound personal economic planning. Saccos philosophy hinges on the fact that well ordered economic life entails a balance between savings and spending. It involves doing away with desires and passions that conspire to advise — spend today, rather than save today. This movement is therefore a response to tying-up tomorrow to today.....................

Read more at

http://www.bdafrica.com/index.php?ption=com_content&task=view&id=6969&Itemid=5821

Njoroge is a Business Development and Microfinance Trainer.

Micro insurance firms to cater for violence claims

Source : Business Daily
Written by Steve Mbogo

Article in:

Michael Owino used to run a phone shop in Kisumu City. However, it was vandalized during the post-election violence and he lost stock worth about Sh300,000. He lost his livelihood. Mr James Kamau, a pharmacist in Busia, lost his entire stock worth Sh800,000. He and his family of five sought refuge in Uganda. Estimates put the losses within the small and medium enterprises sector at about Sh4 billion.This would have been doom and gloom for the business owners, where a majority of Kenya entrepreneurs fall, if a new concept of insurance, known as micro insurance, had not landed in Kenya.

Micro insurance is essentially insuring low income households by enabling them to pool together small amounts of money, which is then used as a premium to cover their specific risks.Unlike the conventional insurance, micro insurance requires clients to pay low premiums and is generally targeted at people working in the informal sector.In countries like India and South Africa, micro insurance has been used to empower the poor, ensuring that as many people as possible access related financial and medical services in addition to having ‘shock absorbers’ for such risks.Statistics indicate that of the four billion people worldwide who live on less than two dollars a day, less than 10 million have access to any form of insurance.

In Kenya, the concept was initiated by the Co-operative Insurance Company (CIC) and the United Nations Development Programme. ...................................................

Read more at

http://www.bdafrica.com/index.php?option=com_content&task=view&id=5959&Itemid=5812