K-Rep Development Agency: Microfinancing for the Marginalized

The facts: I am an intern with K-Rep Development Agency (K-Rep or KDA). KDA is an NGO think tank - they creatively come up with pilot programs addressing the issues of providing savings and lending instruments to the poorest of the poor in Kenya, initiating these products, building them up and spinning them off into their own independently operating vehicles. The division of KDA that I am working with is called the FAHIDA project, which offers micro-credit to a target population that includes HIV/AIDs infected and affected persons (caregivers, community health workers, and orphans), commerical sex workers, persons with disabilities and the youth who are seeking to start up a micro enterprise or bolster an existing business, but who otherwise do not have the means to collateralize their loans through formal banking institutions. KDA is funded primarily through grants given by USAID, who helped found KDA’s parent organization in 1984 and has since generously funded this organization through a series of 5-year grants. There are three microfinance officers (MFOs) that work in the Kakamega office, 1 K-rep bank employee that works out of this office, an admin assistant and the Western Regional Manager, Stella. Collectively, this small team currently manages 1,589 clients, 912 of which are active savers (those contributing to their savings at least once a month) and a portfolio of 523 outstanding loans totaling 7.5 million Kenyan shillings (~$100k). There have been several successful interns at KDA in the recent past, a standard that puts pressure for my input / output during my time here (self-imposed, of course). I go to work every weekday from 8-5 and unlike most businesses in Kenya, Stella runs a very tight ship. She hopes that strict observance of time and company policies will disseminate down to the work ethic of our clients.

For those of you who have read Yunus’s ‘Banker to the Poor’, you may find the similarities of how we run our microfinance organization compared to the Grameen Bank interesting. Our clients are organized in groups of at least 20, further subdivided in groups of 5 (watano in swahili). Group lending is a common theme in microfinance, it encourages accountability, collective thinking, leadership and peer pressure to a) repay loans because defaulters are covered by the group savings (each member acts as a guarantor for each other member and when someone defaults, their own savings are at risk) and b) run effective businesses that bolster the strength of the team’s collective financial health. Each group meets either every week or every other week. Of the eight meetings I’ve been to, each one has been a different learning experience. We meet in a variety of locations – partially built and abandoned church structures, a member’s small shop, a bar, someone’s home … anywhere that is free and convenient. Every meeting, the watano leaders collect savings from each member of their 5-person group, and each member personally keeps track of their savings & loans in their own passbooks. They are supposed to save 50 ksh a week at a minimum (that’s less than a dollar) and pay back their loans (if applicable) in bi-monthly installments. The group treasurer collects all the money so that they can go into the city and deposit the savings and loan repayments in the bank. The MFO officer from then records the total amount saved and repaid in consolidated register. A client is eligible for a loan once they have consistently saved the minimum amount for eight weeks. A first time loan is capped at 15,000 ksh, about $200.

To date since 2005, KDA has disbursed roughly ~$800k in loans (that’s 59.2 shillings), 34% to HIV/AIDS positive clients, 17% to widows and orphans of HIV/AIDS and 34% to HIV/AIDs volunteers and community health workers. The FAHIDA project is the only program in Kakamega that targets only HIV/AIDs infected and affected persons as their primary client base. Their vision and purpose is tremendous. Unfortunately, their mission, in it of itself is laden with problems because the inherent risk of default in our clients is substantially higher compared to their healthy poor counterparts, who traditional microfinance groups target. The current repayment rate is only 55% and the percent of delinquent loans (over 30 days) in the portfolio is 23% of total outstanding loans. What is happening here? Well, in a lot of cases, the loans are not being applied to income generating mechanisms. For some, unexpected illnesses plague our clients and they have to use the loan that they had originally meant to start a business towards medical expenses. Some clients purposely lie to us saying they are going to start / improve their business but are really using the money to either pay of other microfinance loans given by another MFI (micro-credit hopping is a huge problem because they are caught in a vicious cycle of taking out loans to repay existing loans, causing compounding interest payments), pay for school expenses for their children, or simply to pay for their household expenses since their primary income generating member of their household is bedridden. The hardest thing I have had to witness is when an MFO has had to repossess a client’s business assets (second hand books that they sell on the street) because their loans are in default. My heart was crying out because I knew that we had just taken away their source of income generation. But I was reminded that we can not make excuses for people just because of their status. We give these people a chance to be active members of their village, in this economic community, and they are in turn, responsible for handling their finances and keeping their promises to repay their loans to us.

My ideas: (an excerpt- I currently have about three dozen ideas)

- Create a training of trainers seminar on Business Planning and Implementation from the Ground Up: I will train both the MFOs at KDA and group leaders how to a) pick a business idea that is economically feasible and financially sound given their talents, skills, resources, assets and inputs b) how to write a business plan c) to think critically about how to make this business successful. This idea is sustainable because I will train them on how to conduct this training as well, so that they can go back to their respective groups and conduct the training in the meetings.

- Create a policy test that new members will have to take and pass before they become an official client. This will weed out people who are not serious about saving, taking out loans and repaying them based on KDA’s policies.

- Require that clients have to submit a basic business budget when they are applying for their loans (believe it or not, they currently do not have to do this because a lot of our clients are illiterate).

- Create a survey to be completed by all KDA clients at their meetings to assess KDA’s current business services and conducts and ask them what THEY want from us, how can we BETTER serve them?

– Improve/strengthen the relationships we have with community health organizations and workers, expand our network of HIV/AIDS partners and make resources and information more readily available to our clients. Hopefully, the more knowledge about HIV/AIDS flowing to our clients will keep them from spending money in the wrong places, healthier, and paying their loans back longer!

– Have a K-Rep: FAHIDA sign created and hung outside of our building to generate new client traffic. Believe it or not, we don’t have anything resembling a sign right now.

– Help plan and coordinate a luncheon round table discussion for senior members of the MFI’s in Kakamega regarding the rampant issue of default. Currently, none of the MFIs are working together and leveraging each other to prevent this problem. The tangible product we want from this session is a google document of all current lenders (to prevent MFI hopping) and those that are in default (to curb giving out new loans to people that have a history of default at another institution.

– Creating excel templates for KDA so that they can quantify and perform analytical assessments on their own client load, historical trends and current portfolio to see where they are performing well and where there are inefficiencies. I will also train the employees on excel since there are only two computers for the six of them and none have been formally trained in Microsoft office.

- Conduct a training on grant writing so they can ensure the sustainability of their lending services if USAID were to someday pull the plug.

My thoughts (taken from a journal entry last week):

‘ I don’t want an ordinary life. It would be easier if I did. I need stimulation. I need my senses to be on overload. I want to fill up all the pages of this life, my life, with stories of incredible experiences, of incredible people. What a waste to spend this time unhappy, unsatisfied, uninvigorated (is that a word?)… waiting, waiting.. for what? Something to happen? I guess that’s how I justify my actions – just do it, dare to be different. Be strong enough to make mistakes. It’s so exciting to be at the beginning of something like this right now. I know I have an incredible journey ahead of me, and I am right there, right here. I am ready for this to take me, shake me, move me, take everything out of me and put it back in anew: different and fresh. I am ready for this to change me. Okay, let’s go.’

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