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Micro-Credit Revolution key to alleviating poverty among Kenyan Poor Micro-Credit Revolution key to alleviating poverty among Kenyan Poor
by Hezron H.N Nyawachi
2010-04-21 07:48:19
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Kenya; it has been said, has the most vibrant micro-finance industry in Africa. The Africa-Middle East Regional Microcredit Summit closed last week with over 2,000 delegates, among them the ‘father of micro-finance’ Nobel Laureate Prof Muhammad Yunus attending the meeting hosted by the Association of Microfinance Institutions-Kenya.

Micro-lending-I will describe it as a business solution to poverty- is the process of advancing small loans to individuals who have traditionally been shunned by conventional banking as ‘too poor to bank’.

Lenders help the poor start-up or expand existing micro-enterprises, in such areas as Kibera, Mathare or Korogocho. Borrowers, mostly in women formations, will auto-insure one another, so that if one defaults, the group will have to bail out the affected borrowing hence turning the whole micro-borrowing and lending into ‘excellent risks’ with astonishing rates of repayment-2-3% of their loans go bad-, breaking 95% good record, and beating even conventional banks rates of default which are much higher.

For a long time, conventional baking has avoided the rural and urban poor in provision of basic financial services especially in their quest to access cheap credit for their micro and small and medium enterprises in the thinking that they are too risky to bank given their lack of collateral.
Now a land title deed is the most commonly used collateral, and some folks have been locked out not because they cannot brandish one, but because in some of our rural communities, land is communally owned.

The recently launched Banking on Change £10 million microfinance campaign by Barclays Bank, Care International and Plan aimed to reached half a million poor people in 10 countries in Africa, Asia and South America is a case in point. In Kenya alone, 100,000 people will be impacted in seven districts in Nyanza and Eastern provinces.

At the launch of the project, Helene D. Gayle, President and CEO of CARE International, said: “Access to even the most basic financial services can help households increase their incomes and reduce their vulnerability to emergencies such as illness and natural disaster. More specifically, successful microfinance projects generate an improved quality of life for people, enabling them to buy basic necessities and capital items, access health and education services, and invest in income generating activities.”

On his part, John Morris, Country Director, Plan Kenya added: “Community-based financial services tailored to the needs of poor and vulnerable households are already having a measurable impact in reducing poverty and improving general wellbeing and empowerment, particularly when offered to women.”

“Ensuring access to education for girls is one of the key fronts in the war against poverty and microfinance can play a big part in that. More than 90 per cent of people engaged in microfinance projects are women, and on the whole they are much more likely to plough their savings back into their families than men. With more money to spend, they can afford to keep their daughters in school, giving them the life chances they never had themselves and an opportunity to move up the social ladder,” said Mr. Morris.

Hence tiny loans lent out to the enterprising poor may mean improved prospects of education for a poor family or cementing of a home-grown business. It can help foster private enterprise in poor villages in Western Kenya for instance where basket and mart weavers could get the jumpstart. Access to credit for a rice farmer in Ahero or Mwea who would like to increase the expanse of land under the crop would make the whole difference in a season.

Our rural economies, for example mean that most folks practise farming not as a way of earning a living but more as a method to supply their family with subsistence. And in as long as no profit element is considered, there is no motivation for an improved farming enterprise.

For one the cost of farming inputs such as seeds, fertilizer, and pesticides has outpaced the proceeds therein. Unless the government comes in handy with much-needed subsidies pastoralists and farmers who miss out on the cushion of microfinance will continue to be the first victims every time famine, hunger or any other natural disaster strikes.

About 18% of rural folks enjoy access to loans from formal financial lenders while 21% miss out completely from any form of lending, experts have contended. Lending especially to women who constitute a bulk of our population will empower them have the financial tools to determine the path their households would take.

Of course there are arguments that run counter.  Not every ‘yellow-toothed peasant’ is an entrepreneur waiting to happen and entrepreneurs among the poor are not by choice but by necessity.

Still, illiteracy and ignorance among the poor tends to be high thus the possibility of exploitation by loan sharks is high. Borrowers are ill-informed and vulnerable to abuse.

Again, opponents add that the amount of loans advanced is insignificant that the overall impact on poverty reduction is minimal.
But one thing should be clear: when all is said and done, micro-lending acts as jumper in improving livelihoods and helps soften the pangs of poverty the world over. 

Micro credit, as experts agree is very close to the real economy, as opposed to conventional banking in the West that has gone back to creating a fantasy economy, hardly out of the financial crisis that was sparked by poor lending and greedy capitalism.

As President Mwai Kibaki has rightly quipped; ‘Due to the central role the micro finance sector plays in national development, several challenges that stand in the way of achieving universal access to financial services among the poor need to be fully addressed.’

Which brings us to the next point. A strong regime of regulation of  micro-finance should be enforced since opportunists have latched onto the concept of micro-finance pouncing on rural folks by overcharging interest, effecting poor recovery of bad loans just to name but a few.

Loan sharks have worn ‘sheep-skin’ under the cover of micro-finance and driven by the desire of giant profits, the original goal to fight poverty will be lost. Interest rates quoted cannot be guaranteed and some have ended up exploiting the poor for up to 100% on interest rates.

Private and public sector and non-government sectors should partner to create products that speak to the poor and install a regime of inculcating entrepreneurial skills and basic financial literacy like book keeping and cash-flow to prop up a mass explosion of rural enterprise.

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Hezron Nyawachi is research fellow at Institute for African Progress



   
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