MICROCAPITAL STORY: FinAccess 2009 Survey, Released by Financial Sector Deepening Kenya and Central Bank of Kenya, Shows African MFIs Fill Banking Void as New Laws Provide More Flexibility

The new FinAccess 2009 Survey, a report on credit access released by FinAccess in conjunction with Financial Sector Deepening Kenya (FSDK) and the Central Bank of Kenya, shows that the market share of microfinance institutions (MFIs) and Savings and Credit Cooperatives (Saccos), jumped from 7.5 percent three years ago to 20 percent by the end of last year. To read a brochure summarizing the results of the survey, click here.

The report finds that formal credit access to the low income segment of Kenyan society has been constrained by tedious requirements in accessing financial services, high fees in existing financial services, lack of trust in banks, limited income, and illiteracy, among other factors. MFIs on the other hand have embraced this segment by a suit-your-needs approach that overcomes many of these obstacles. 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 license, regulate, and supervise any deposit-taking micro-finance institutions. The inclusion of MFIs in the deposit insurance scheme, Deposit Protection Fund Board, is also expected to increase the level of public confidence.

Last week, as reported by MicroCapital, Faulu Kenya became the first MFI in Kenya to start taking deposits from the public. Kenya Women Finance Trust is expected to follow shortly. Previously Kenyan MFIs only offered credit services. Deposits will provide the institutions with a more stable, low cost source of funds.

Muhammad Yunus, the Nobel Laureate who made microfinance a success in Bangladesh, has expounded the virtues of deposit-taking by MFIs, suggesting that to avoid the dangers of foreign currency exposure, MFIs should make themselves into a bank and take deposits. However many regulatory environments prevent MFIs from taking deposits, and international best practices recommend that not all MFIs should be permitted to take deposits. Rather, deposit-taking should be allowed only for those MFIs that demonstrate the capacity to do so. When done well deposit-taking provides an essential service to the poor and provides funds for lending, when done unsuccessfully deposit-taking can subject a disadvantaged and vulnerable population to more risk.

A series of papers by the Consultative Group to Assist the Poor (CGAP) in 2006 explored the issue of deposit-taking by MFIs and found that over the course of seven years the seven deposit-taking MFIs that were studied experienced massive growth, strong profitability and improved efficiency.

Earlier this year the FDSK, in conjunction with Unitus, an international non-profit organization, opened the Africa Microfinance Growth Center to help CEOs and senior managers of early-stage microfinance organizations (MFIs) improve strategy, leadership, and execution in order to grow their organizations and expand microfinance services in East Africa. To read a MicroCapital story on the center click here.

The Financial Sector Deepening Trust was established in 2005 to support the development of financial markets in Kenya as a means to stimulate wealth creation and reduce poverty. The trust operates under the supervision of professional trustees with policy guidance from a program investment committee. Funds are provided by development partners working with the government of Kenya. Current donors include the UK’s Department for International Development (DFID) the Ministry of Trade & Industry at the World Bank and Swedish SIDA. The MIX Market has no information on FSDK. To view FSDK’s most recent annual report click here.

By Laura Anderson, Research Associate

Additional Resources:

Business Daily Africa: MFIs fill banking void as new laws provide more market flexibilty

Financial Sector Deepening Kenya: Home, 2007 Annual Report

FinAccess: Home

FinAccess 2009 Survey Results

FinAccess 2009 Survey Brochure

Central Bank of Kenya: Home, Microfinance Act, Deposit Protection Fund Board

Unitus: Home

MicroCapital Story: Unitus, in Partnership with Financial Sector Deepening (FSDK), Opens Africa Microfinance Growth Centre, a Leadership Development Program for Early-Stage Microfinance Institutions in East Africa

MicroCapital Story: Faulu Becomes First Microfinance Institution in Kenya Licensed to Take Deposits

Faulu Kenya: Home

Kenya Women Finance Trust: Home

SIDA: Home

Department for International Development: Home

CGAP: Savings Month, Article Four: Learning from the Progress of Seven Microfinance Deposit-Taking Institutions

Consultative Group to Assist the Poor: Home