Kenya’s economy and society after the independent After independence in 1963, Kenya promoted rapid economic growth through public investment, encouragement of smallholder agricultural production, and incentives for private (often foreign) industrial investment

Between 1974 and 1990, however, Kenya's economic performance declined

From 1991 to 1993, Kenya had its worst economic performance since independence.

In 1993, the Government of Kenya began a major programme of economic reform and liberalization.

In 2000, GDP growth was negative, but improved slightly in 2001 as rainfall returned closer to normal levels. Economic growth continued to improve slightly in 2002

GDP (Current Market price)

2005: Kshs1,415,724 2006: Kshs1,622,4342007: Kshs1,825,9602008: Kshs2,099,798There also exists a large, informal economy that is never counted as part of the official GDP figures.

Annual growth rate

2005: 5.9% - 2006: 6.3% - 2007: 7.1% - 2008: 1.7%

Per capita income (currentprice

2005: Kshs40,289 - 2006: Kshs44,894 - 2007: Ksh49,128 – 2008: Kshs54,957

Natural resources

Wildlife, land (5% arable)

Agricultural prod-uce

tea, coffee, sugarcane, horticultural products, corn, wheat, rice, sisal, pineapples, pyrethrum, dairy products, meat and meat products, hides, skins

Industrypetroleum products, grain and sugar milling, cement, beer, soft drinks, textiles, vehicle assembly, paper and light manufacturing, tourism

(Source: Kenya Central Bureau of Statistics)

Why we need Micro-finance?

Institutional framework that enables the poor to better manage their financial livesWhy borrow & what for?Mostly working capitalbuild assets – investmentstabilize consumption, and shield themselves against risks.Manage consumption budgets better, thus reducing the need to sell assets to meet basic needs

Can they afford it?Economically active poor can – it makes economic senseAlternative to MFIs – more costly funds from loan sharks.

Millennium Development Goals - KENYA

1995 2000 2007

Country profile

Fertility rate, total (births per woman) 5.2 5 5

GNI per capita, Atlas method (current US$) 270 420 640

GNI, Atlas method (current US$) (billions) 7.5 13.2 24

Gross capital formation (% of GDP) 21.8 17.4 20.2

Life expectancy at birth, total (years) 56 52 54

Literacy rate, adult total (% of people ages 15 and above) .. 74 ..

Population, total (millions) 27.4 31.3 37.5

Trade (% of GDP) 71.7 53.3 63.5

Goal 1: Eradicate extreme poverty and hunger

Employment to population ratio, 15+, total (%) 72 73 73

Employment to population ratio, ages 15-24, total (%) 60 61 59

GDP per person employed (annual % growth) 1 -3 4

Income share held by lowest 20% 5.6 .. 4.7

Malnutrition prevalence, weight for age (% of children under 5) 20.1 17.5 ..

Poverty gap at $1.25 a day (PPP) (%) 9 .. 6

Poverty headcount ratio at $1.25 a day (PPP) (% of population) 29 .. 20

Prevalence of undernourishment (% of population) .. .. 32

Goal 4: Reduce child mortality

Immunization, measles (% of children ages 12-23 months) 83 75 80

Mortality rate, infant (per 1,000 live births) 72 77 80

Mortality rate, under-5 (per 1,000) 111 117 121

Goal 5: Improve maternal health

Adolescent fertility rate (births per 1,000 women ages 15-19) .. 104 104

Births attended by skilled health staff (% of total) 45 44 ..

Contraceptive prevalence (% of women ages 15-49) 33 39 ..

Maternal mortality ratio (modeled estimate, per 100,000 live births) .. .. 560

Pregnant women receiving prenatal care (%) 95 76 ..

Unmet need for contraception (% of married women ages 15-49) 36 24 ..

Goal 6: Combat HIV/AIDS, malaria, and other diseases

Children with fever receiving antimalarial drugs (% of children under age 5 with fever) .. 65 ..

Condom use, population ages 15-24, female (% of females ages 15-24) .. 7 ..

Condom use, population ages 15-24, male (% of males ages 15-24) .. 39 ..

Incidence of tuberculosis (per 100,000 people) 224 405 353

Tuberculosis cases detected under DOTS (%) 58 53 72

(Source: World Development Indicators database)

The practice of lending to very small businesses & poor people is old. In its early stages the focus was on lending only – hence microcredit provided mainly by non profit MF institutions. Informal sector: the group based financial arrangements and moneylenders

EVOLUTION

Until the 90s microfinance provided mainly by NGOs & other non-profit programs. Transformation of NGO MFI is now the norm. Special regulations for MFIs. Commercial Banks now providing microfinance Initially DFIs & specialized funds dominated investors in transforming NGOs. Private capital increasingly becoming an important source of capital.Microfinance is profitable & also an important development tool. The poor need appropriate financial services & institutions.Microfinance is becoming an integral part of the financial system.

Today microfinance

Modern microfinance is a relatively new phenomenon, as an industry evolved from development initiative - microenterprises for employment generation & poverty ‘alleviation’ tool. encompasses a broader range of services

Loans, savings, investment schemes, money transfer, Broader clients base –

households & consumer credit.More service delivery channels –

branches, traditional groups, ATMs, POS devices, Mobile phone banking (M-PESA)

Financial access and distributionIn 2009 19% of Kenyans have access to formal financial services through regulated institutions Close to three quarters (73%) of all adult Kenyans are excluded from formal financial services 8% of Kenyans are served by SACCOs and MFIs 35% of the population depends primarily on informal financial services such as ROSCAs and ASCAS 38% of Kenyans are classified as “financially excluded”, i.e. reported no usage of either formal or informal products.

18.9% 18.9%

32.0%23.8%

14.3%

7.5% 8.5%

3.5%

9.2%

5.9%

35.2%39.2% 22.8% 29.5%

40.5%

38.4%

37.4%

41.6%37.5% 39.3%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

Total Rural Urban Male Female

Financial Access Strand by region & gender (2006)

Excluded

Informal

Formal Other

Formal

TRENDS IN OUTSTANDING PORFOLIO OF FORMAL: MFIs AND SACCOS

MFIs SACCOS

Year Amount (Kshs Billions) Amount (Kshs Bilions)

1999 1.3 29.1

2000 2.3 38

2001 3.3 49

2002 5.1 60

2003 7.4 66

2005 16 84

Legal FrameworkKenyan microfinance institutions are registered under 9 different acts of Parliament: banking; companies; ngo cordination; building societies; cooperative; trustee; Kenya post office savings bank; Kenya industrial estates; societies

The Central Bank is empowered to license, regulate and supervise deposit-taking businesses under the Microfinance Act, 2006 (Act No. 19 of 2006) and Regulations issued thereunder.

Informal MFIs are also registered through the legal status is feeble e.g fsas, ascas and roscas are registered as self help groups not by the registrar’s office but by the ministry in charge of social services, currently ministry of gender sports and social services

Example: The Association of Microfinance Institutions of Kenya is a member Institution that was registered in 1999 under the societies Act by the leading Microfinance Institutions in Kenya to build capacity of the microfinance industry in Kenya. AMFI presently has 36 member institutions serving more than 2,000,000 poor and middle class families with financial services through out the country.

Main Providers

Informal SectorThe informal category.(i) accumulating savings about - 5,000and credit associations (Ascas)(ii) rotating savings credit -18,000 associations (Roscas)(iii) money lenders - 10,000

Formal Sector

SUBSIDISEDNON-

SUBSIDISED

SUBSIDISED•Microfinance NGOs - 56•Companies limited by shares - 4 (e.g. FauluKenya, Opportunity international, Wedco, Kwft, Micro Kenya)•Companies limited byguarantee -4 (e.gSmep, Jitegemea credit andKenya Eclof)•Parastatals -2 (KIE and AFC)•Financial services associations - 71

NON-SUBSIDISEDSavings Bank - 1(Post Bank)SACCOS - 3,500Commercial Banks - 4Downscaling(Co-operative, Barclays,KCB and Fina)Microfinance Banks - 3(K-Rep, Equity and Family)

14.2%

5.6%

13.1%

1.7%

5.9%

1.1%

50.6%

38.4%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Usage of different financial services

Bank

Post Bank

SACCO

MFI

Insurance

Miscellaneous

Informal Groups

Excluded

An Example: K-Rep Bank

K-Rep established in 1984, as a project supported SME development with grants & technical assistance. Dependent on donorsEstablished a bank that focuses in microfinance in 1990.Objectives:-Address ownership, governance, management & succession concernsInstill culture & discipline necessary for financial institutions.Remove microfinance from peripherals of the financial marketsEncourage entry of other players,Influence the creation of an institutional framework that serves to enable low-income & poor people, to better organize their financial lives.

Before Group Based Loans Compulsory deposits kept in other banks

After Group based loans (55%) Individual microfinance loans (5%) Personal loans (5%) SME loans (25%)Wholesale loans (10%) Voluntary deposits Current accountsMobile phone money transfers system (SokoTele) Health & life insurance loans. Collective Investment Scheme. Letters of credit. Bank Guarantees ATM SMS Banking

Financial Statements

2000 2001 2002 2003 2004 2005 2006

INTEREST INCOME 128,866,036 170,300,269 245,714,778 336,428,000 479,216,000 377,822,000 709,784,000

INTEREST EXPENSE -10,016,401 -20,460,582 -31,470,683 -45,001,000 -100,297,000 -46,152,000 -161,783,000

NET INTEREST INCOME 118,849,635 149,839,687 214,244,095 291,427,000 378,919,000 331,670,000 548,001,000

Fees and commissions income 7,873,080 22,265,339 40,329,259 49,511,000 92,409,000 65,386,000 212,779,000

Gains on foreign exchange dealings 601,547 311,085 1,228,901 2,153,000 2,726,000 471000 2,395,000

Other income 8,334,126 12,947,417 15,656,975 20,551,000 16,053,000 15,746,000 21,579,000

OPERATING INCOME 135,658,388 185,363,528 271,459,230 363,642,000 490,107,000 413,273,000 784,754,000

Operating expenses -96,344,340 -109,067,734 -174,163,159 -200,364,000 -426,346,000 -290,734,000 -610,349,000

General administration expenses -17,266,304 -17,447,210 - -11,221,000 - - -

OPERATING PROFIT BEFORE PROVISIONS AND EXCEPTIONAL ITEM 22,047,744 58,848,584 97,296,071 152,057,000 63,761,000 122,539,000 174,405,000

Provisions for bad and doubtful debts -4,856,342 -1,959,064 -11,010,286 -37,464,000 -15,641,000 -12,582,000 -22,437,000

Exceptional item -3,691,954 - - - - - -

PROFIT BEFORE TAXATION 13,499,448 56,889,520 86,285,785 114,593,000 48,120,000 109,957,000 151,968,000

Taxation -6,664,621 -14,696,497 -26,010,063 -35,007,000 -15,552,000 -34,020,000 -51,056,000

PROFIT FOR THE YEAR 6,834,827 42,193,023 60,275,722 79,586,000 32,568,000 75,937,000 100,912,000

(Source: K-Rep Bank Annual Reports)

0

100

200

300

400

500

600

700

800

2000 2001 2002 2003 2004 2005 2006

Mill

ion

s

INTEREST INCOME INTEREST EXPENSE Taxation PROFIT FOR THE YEAR

Strengths: Very competitive• Commercial banks: 3 banks focusing on microfinance & SME; 2 large banks coming into the sector• 5 strong MFIs at the verge of converting into regulated deposit taking MFIs• Alliances with mobile phone companies to access mobile banking; with big stores to provide POS – cash back & other services• New legislation for MFIs attracting new players• Learn fast• Poach staff from traditional• Likely to dominate microfinance sector • Have no baggage about mission drifts or social mission.

Weaknesses:• Not enough Microfinance experts (both in term of quality and quantity)• Corruption• not reaching the extreme poor/low income people.

Opportunities• In Kenya for example about 80% of bankable clients still have no access.• Conventional commercial banking will converge with microfinance• Technology will drive microfinance.• Competition will improve services & products• Capital flow will increase• Competition will bring mergers & buy-out• Traditional MFIs may be forced out of the market, unless they change dramatically.

Threats• Capacity to expand fast• Funding for traditional MFIs• Capacity of regulators to manage new institutions & products• Political unstable

SWOT Analysis

Success stories

List of referencesWebsite:• http://www.microfinancegateway.org• http://web.worldbank.org• http://www.cbs.go.ke/• http://www.cgap.org• http://www.microlinks.org• http://www.uncdf.org/• http://www.microcreditsummit.org• http://www.gdrc.org/icm

Papers:• The Case of K-Rep—Nairobi, Kenya by JOHN NYERERE with Kimanthi Mutua, William F. Steele, Aleke

Dondo, and John Kashangaki• Attracting Microfinance Investment Funds: Promoting Microfinance Growth Through Increased

Investments in Kenya by Jeffrey Ben Matu , Terry Sanford Institute of Public Policy, Duke University• Microfinance Institutions Microfinance Institutions – a Kenyan Example by Kimanthi MUTUA• An Evaluation of Micro-Finance Programmes in Kenya as Supported through the Dutch Co-Financing

Programme by Otto Hospes, Muli Musinga and Milcah Ong’ayo• Kenya microfinance capacity building program - Final report by USAID• Annual Report and Accounts 2001, 2002, 2003, 2004, 2005, 2006 of K-Rep Bank