The microfinance sector in
In the last 5 years, the sector has consolidated the gains of the 90s. The microfinance Act, a legislation envisaged to drive the sector to the next level of growth and development was debated in parliament and enacted. The Youth Enterprise Fund and Women Enterprise Fund were also established.
The sector may be a severe casualty of the post-election violence since its market has largely been the unbanked residing in the informal settlements of
The post-election violence in Kenya brings with it operational and financial risks and challenges hitherto unknown in the
The microfinance financial delivery is founded on group guarantee and peer pressure. Group lending and co-guarantee mechanism effectively makes one’s neighbor (business or house) a co-signer to loans. This drastically reduces problems created by information asymmetries between the institution and the borrower. The mechanism bars risky borrowers from participating thereby ensuring high loan repayment standards in the absence of tangible security.
Microfinance success is hinged on mutual trust. The clients self select themselves based on trust, and thereby co-guarantee each other in order to short circuit the collateral requirements. The microfinance institution trusts that the group will ensure the success of the co-guarantee mechanism by weaning out undesirable members and ensure peer pressure is upheld. With this the MFI entrusts the individual entrepreneur with funds usually with no collateral. Once the cycle of trust is broken down, the institution struggles to recover lent out funds and meet operational and financial costs. In
The post-election violence has deflated these mechanisms as neighbor turns against neighbor and a group member against another. Solidarity groups have disintegrated and trust eroded. While refinancing and rescheduling some loans would partially help, it is the tenacity and innovation that MFI managers bring on board that will determine the pace and level of institutional recovery and eventual progress.
Another probable occurrence may arise when the violence gets a life of its own and takes longer to quell than previously anticipated: the desire for humanitarian agencies to address the short term needs of the internally displaced persons (IDPs) and returnees. The transition period between relief and development brings with it an invasion of short term oriented micro-credit programs to manage the intricacies of conflict through entrepreneurship and economic empowerment. Although intervention is noble (clients require some “push” to get out of this quagmire), some coordinated approach by all players is a prerequisite to the eventual operation of microfinance activities in the affected areas, otherwise all the gains made maybe watered down.
The microfinance sector must however rise out of the ashes to meet its popular mandate - reducing poverty and providing innovative financial services for enterprise creation. It should develop strategies to get back into the affected regions as a catalyst to spur individual and community economic reconstruction. It should also ensure relative security for the staff, put institutional infrastructure in place, guarantee accessibility to clients, review financial products and delivery methodologies and set modest objectives. It’s only then that scale-up strategies could be adopted.
The sector requires leadership, management acumen, vision, skills and support. It definitely will not be easy, but it is time microfinance institutions and practitioners live to their mission and vision statements.
The potential of microfinance in restoring hope and eventual healing cannot be wished away, unless Kenyans live in denial. Doyle (1998) in the book Microfinance in the Wake of Conflict asserts that microfinance is a tool that can serve multiple goals. It is not only a tool for rebuilding and restarting local economies by providing needed financial services for enterprise creation but also an instrument of relief, survival in the wake of disaster, peace and reconciliation. Is the sector able to rise to the challenge? Time will tell.