Five success pillars that supported Faulu to become a modern lender

Established 25 years ago by Food for the Hungry, pioneer board was picked on basis of integrity and worked without allowances.

The year 1991 was hardly the ideal time to consider opening a bank or anything remotely related to a financial institution in Kenya.

A group of indigenous banks and financial institutions opened in succession in the previous decade were folding rapidly due to a variety of reasons, including mismanagement, under- capitalisation, insider loans and not least of all, political interference.

The financial market was volatile and interest rates were spiralling out of control fuelled, in no small way, by the emerging Goldenberg scandal. Tribal clashes were a worry.

In 1991, Darrow Miller and Ted Vale designed a microfinance project to transform the lives of women living in the slum areas of Nairobi.

Operating from a rented garage in Lavington and armed with a grant of $8,000 (Sh800,000 at current exchange rates), Ted Vale ventured into Mathare and Kawangware slums helping women with loans of as little as Sh500. Within no time the $8,000 was depleted, but the model proved it could work if properly organised.

Faulu Kenya was established in 1991 by Food for the Hungry (FH) as a micro-finance institution. The Swahili word “faulu” means “success.”
FH is a US-based international relief and development organisation founded in 1971 by Larry Ward on strong Christian principles.

Early projects included helping refugees in war-torn Bangladesh, victims of the 1972 Nicaragua earthquake, rescuing Vietnamese “boat people” in the South China Sea, and helping hungry and needy people in Haiti and West Africa. The first encounter with Kenya was in 1976 when FH provided drought relief. Today, FH operates in more than 20 countries.

During its work in Bangladesh, FH was greatly influenced by the Nobel Peace Prize-winning Grameen Bank, which pioneered giving small loans to the impoverished without collateral.

Based on the ‘table banking’ model (popularly known as ‘merry-go-round’ in Kenya) Faulu Kenya ventured into lending women groups in Mathare, Korogocho, Kibera and Kawangware, consisting mainly of “mama mbogas” (vegetable sellers).

Table banking is a group lending strategy where members meet regularly, place their savings, loan repayments and other contributions on the table and then borrow immediately either as long- or short-term loans to one or a number of their members.

The borrowers’ loans are guaranteed by other members of the group who are then able to apply peer pressure on the borrowers to repay on time.

The venture was extremely successful with a mere 2-3 per cent default rate. Within a short time Faulu Kenya was able to attract funding from DfID and USAid.

A Kenyan board of management was appointed in 1992 with members drawn from the private sector on the basis of technical know-how, integrity and Christian faith.

Board members did not earn allowances and gave their services free of charge. Day to day management was placed in the hands of indigenous persons recruited strictly on a faith basis.

Faulu grew over the years to a level of near financial self sufficiency and was acclaimed for achieving its stated goal of social transformation in the lower income households and micro-enterprises.

Faith-based mission

Through its “vision of community” Faulu ensured that no profit was booked before families were able to send their children to school and pay school fees on time, have food security with sufficient reserves to last two weeks, have resources to look after the sick, had acceptable housing and clothing, and households were able to give offertory in church, thus upholding their dignity within the community.

Faulu designed value-adding products such as life and medical cover to help their customers achieve these goals and ring-fence their primary loans and assets.

To access more commercial funding, Faulu Kenya was incorporated into a private company in 1999. The customer base had grown to include men and small to medium scale businesses.

FH disengaged from Faulu, leaving it as a purely Kenyan affair in 2003.

In 2005, Faulu issued a corporate bond on the Nairobi Stock (now Securities) Exchange which was snapped up in full by just nine firms even as lack of market depth continued to haunt the bourse liquidity.

Faulu Microfinance Bank became the first micro-finance institution to obtain a Deposit Taking Licence from the Central Bank Kenya in 2008.

By this time it had become clear that Faulu had grown way beyond its installed capacity and a paradigm shift was necessary not only in management tools but also in philosophy and mindset.

State-of-the-art ICT systems were installed and the board head-hunted in the secular corporate world to meet the new challenges brought about by growth.

There was real fear of drifting from the original faith-based mission but in the end a delicate balance was achieved and Faulu Microfinance Bank was already attracting large corporate suitors.

In the end Old Mutual, the global insurance and investment corporation, won the day completing the purchase of 67 per cent of Faulu Microfinance Bank in 2014, with a cash injection of Sh2.8 billion.

The acquisition gave Old Mutual greater market reach through Faulu’s 90 outlets countrywide and Faulu gained access to the deep pockets of Old Mutual.

From humble beginnings, through a journey spanning a quarter of a century, Faulu has succeeded in creating a platform aimed at banking the previously unbanked, in a modern environment.

The spirit of hard work and honesty among ordinary Kenyan borrowers, on the one hand, and the integrity and selflessness demonstrated by the board of management, on the other, drove this organisation to great heights.

By and large, I believe this same spirit lies in the heart of hearts of many Kenyans.

The author is a retired banker and motorcycle enthusiast. Email: [email protected]