One Step Beyond? Tackling the “frontier” of microfinance provision in Kenya
As many microfinance experiences have demonstrated, they can be successful in reaching the urban areas and the urban poor, but the challenge is to expand the provision of financial services to more remote and isolated areas, thus, reaching the rural poor. How is it possible to cross a ‘frontier’ of outreach defined in terms of geography and clients’ poverty levels?
This working paper summarises a study that critically analyses the efforts of six Kenyan organisations in expanding that ‘frontier’. These organisations are:
- Equity Building Society mobile units
- Nyeri Farmers SACCO
- Women’s Enterprise Development Company (WEDCO)
- SAGA Thrift and Enterprise Promotion Ltd.
- Women’s Enterprise Development Institute (WEDI)
- Financial Service Associations
Equity’s mobile banks are adapted four wheel drive vehicles that are based at a branch and visit market centres on designated days. In May 2003, they had slightly over 10,000 clients attached to six mobile units serving 21 locations in 4 districts. They have only provided savings facilities through the mobile branches; customers must go to branches for a loan. The units have an operational self-sufficiency ratio of 102% but appear primarily to be reaching the better off rather than the poorest.. This is also true of Nyeri Farmers SACCO which uses mobile vans to bring savings services to remoter areas. WEDCO offers working capital loans to women using a standard group technology. Initially the staff travelled to groups in villages by motorbike but this proved too costly and now the approach is to provide services to clients in market centres on market days. This technique reduces the costs of delivery for the NGO but it increases the costs for clients who would not normally travel to the market, and hence is likely to reduce their access. WEDI provides management services to women’s groups for a fee. The women’s groups are operating as accumulating savings and credit associations (ASCAs) in which the members are the owners. Client profiles suggest that these models are reaching women in the poorest wealth strata. WEDI has an operational self sufficiency ratio of 113% which is a healthy position.
SAGA Thrift and Promotion Ltd. provides capacity building for ASCAs which, after receiving this support, qualify to become members of SAGA SACCOs which gives legality to their credit and savings activities. The principal users of SAGA services are engaged in small scale farming or run small businesses. The model was in an early stage of development at the time of the review and it was, thus, not possible to assess financial sustainability.
Financial Service Associations (FSAs) have been promoted by KREP Development Agency (KDA) as a means of reaching further into rural areas. In FSAs, members buy shares and the capital raised is used for on-lending to themselves. Some have been established in very remote areas. Unfortunately a number have loan recovery problems and KDA have realised that they cannot just set the FSAs up and then withdraw. On going support is needed.
The study concludes that decentralised user-owned organisations are more able to cross the ‘frontier’ than those which do not have that characteristic, but the former have more institutional and governance problems than the latter. Therefore, the authors recommend more support should be given by donors to build the capacity of user-owned organisations, due to their greater potential to reduce poverty in rural areas.