Credit firms use social link to help poor access loans

According to FinAccess 2009, 39.3 per cent of women and 37.5 per cent of men accessed credit through informal sources against 14.3 per cent and 23.8 per cent who got loans from formal lenders respectively.

Women own less than four per cent of land titles—a popular form of security—- and this has been pointed out as the reason for their preference for small lenders who place lesser emphasis on security.

The infamous pyramid schemes that swallowed millions of Kenyans’ savings have shaken confidence in small credit firms.

“People are sensitive about new financial institutions that are coming up,” she said.

“Those already with us realise that at any one time, they have more of our money than we have theirs and it helps reassure them” .

WESO has invested several million shillings in capital which is provided by seven directors who hold shares based on their capital contributions.

Juster says that it will take at least two years before a positive return on investment can be seen.

MFI sector

“You have to be very patient in the MFI sector. You will fail if your overriding motive is to make a quick shilling. The business model has a social component to it. You help improve people’s lives as you make a profit—which is necessary to ensure sustainability of the business,” she said.

Increased demand for credit products has made the government to regulate financial institutions that are rising to fill the gap left by formal lenders.

Usage of credit products increased from 31 per cent in 2006 to 38 per cent in 2009.

Bank loans in 2009 increased by 0.8 per cent from 1.8 per cent in 2006 compared to one per cent increase from 0.8 per cent in MFI loans in the period under review.

The uptake of micro finance services is expected to expand with the enactment of a micro-finance law last year that empowers the Central Bank to licence, regulate, and supervise any deposit-taking micro-finance institutions.

Their inclusion in the deposit insurance scheme, Deposit Protection Fund Board, is also expected to increase the level of public confidence.

In June, Faulu Kenya became the first micro-finance institution in the country to start taking deposits from the public after receiving a licence from the Central Bank.