General Information
The population of Kenya is 37.9 million (2007), with an adult literacy rate of 74% and a life expectancy rate of 55.3 years (2007). Kenya is ranked at position 8 in the largest economies in Africa in terms of GDP category out of 48 countries that participated in International Comparison Programme (ICP). The country is ranked 25th in terms of richest and poorest countries; 13th as least expensive country to live in and 22nd as the most expensive country to invest in. 46% of the population lives below the poverty line (<1US$ a day). The work force comprises 1.95 million formal sector wage earners (30% in the public sector, 70% in the private sector), while 6.4 million workers are in the informal sector. The contribution of services to the economy is 58.2%, industry and commerce—19%; agriculture—2%.
Economic Situation
Kenya has had a long history of economic leadership in East Africa and is one of the largest and most advanced economies in the region. The economic growth of the country experienced an upward trend from about 0.4% in 2002 to about 7% by end of 2007, before it got adversely affected by the violence resulting from 2007 general elections, which were marred with irregularities. In this violence, one million people were displaced with close to 500,000 losing homes and property worth millions of Kenyan shillings. This situation, coupled with rising international oil prices and increasing food shortage in 2008, had a direct impact on the economy and the microfinance sector. However, with dropping international prices of crude oil and political stability coupled with economic recovery plans for major sectors like tourism, growth is expected to be back on track in 2009. On the other hand, this growth is expected to be still slow due to low farm output in 2008, corruption scandals and declining overall business optimism.
Agriculture and tourism has been the two major sectors contributing the highest percentage to GDP growth. The Micro Small Medium Enterprise sector also plays a crucial role in stimulation economic growth with the informal sector employing about 6.4 million people. These sectors were however adversely affected by the post election violence.
Investment Climate in the country is relatively favourable, since all investors receive equal treatment and their investment activities are governed under the Investment Promotion Act 2004. The law provides the administrative and legal procedures to achieve a more effective investment climate, and sets foreign investment requirements. There are no restrictions on exit procedures for a branch of a non-resident company except that a branch must be registered.
Microfinance Market Information
As of 2007, the Central Bank of Kenya (BoK) reported the existence of 5122 registered savings and credit co-operatives (SACCOs), 45 banking institutions, 42 of which were commercial banks, 2 mortgage finance companies and 1 non-banking financial institution. A more comprehensive study dated June 2003 estimated at 3,460 the number of legally constituted microfinance service providers in Kenya, including 3,397 SACCOs and co-operative-like community-based intermediaries, 56 microfinance institutions (MFIs), four commercial banks, two building societies, and the Kenya Post Office Savings Bank. Another finding of this study, was the lists of 17,305 rotating savings and credit associations (ROSCAs), 115,884 registered women groups’, and 1,342 primary agricultural producer and marketing cooperative societies, also involved in providing credit countrywide and which are not registered to the BoK.
According to the Microfinance Act (2006), MFIs in Kenya are classified and registered into three different tiers: deposit-taking institutions such as banks (Tier 1), credit only non deposit taking institutions (Tier 2), and informal organizations supervised by an external agency other than the government (Tier 3). The last category involves Rotating Savings Societies (ROSCAS), club pools and financial services associations (FSAs). These distinct classifications have led to some of the MFIs specializing in certain niche markets, which have contributed to their growth and sustainability in delivering microfinance.
The Association of Microfinance Institutions (AMFI) was registered in 1999 under the societies Act as an umbrella organization to represent the Microfinance institutions operating in Kenya. AMFI has been playing a vital role in promoting the growth of microfinance in Kenya in addition to supporting MFIs to build capacity in order to overcome some of the challenges facing the sector.
Despite the enactment of the Microfinance Act (2006) and the rapid growth of Microfinance, of about 40 commercial banks and hundreds of SACCOs, 35.2 % of Kenyans are in need of financial services (unable to access the formal financial services), and another 30.2 % are entirely excluded from accessing any financial services. It is estimated that there are 3.8 million Kenyans depending entirely on NGOs, cooperatives, and the Kenya Post Office Savings Bank for financial service services, while another estimated 1.1 million depend on informal associations and groups for similar services countrywide.
The violence caused by the 2007 elections affected the clients of MFIs in Kenya, with some MFIs losing half their portfolios, which has resulted in a higher Portfolio at Risk (PAR) rate over thirty days (PAR > 30) in Kenya, when compared to other countries in the region. The MIX market reports an East African average of 3.7%, while in 2009 some MFIs in Kenya recorded PAR > 30 days at over 70% a few months after the clashes.
Nevertheless, recent favourable trends have been observed in the microfinance market. First, commercial banks are downscaling and some are reopening branches in the rural areas that they had closed down in the 90s and again in early 2008. Also according to the Central Bank of Kenya, a number of Tier 2 and Tier 3 Microfinance Institutions and SACCOS are in the process of transforming to deposit taking institutions-Tier 1.
Sources for funding
Many MFIs access commercial borrowing to fund their portfolio.Other sources of funds for operational and financial activities are International NGOs and Aid Agencies including; USAID, IFC, UNDP, HIVOS, DANIDA, European Commission, OIKO Credit, World Vision, Churches and individual donors among other.
Some commercial banks have also invested in microfinance institutions
MFI Members’ shares have also been a source for funds for the MFIs
Donors
Donors in Kenya (such as USAID, IFC, UNDP, HIVOS, DANIDA, European Commission, Oikocredit, World Vision etc.) are active not only in funding MFIs but also in providing capacity building services.
Challenges
Limited capacity of the Microfinance Institutions in terms of staffing, management and other resourcesInefficient delivery of products and services by the Microfinance Institutions
Financial gap in the funding, needed to meet the growing demand, due to the continued success and rapid growth of microfinance
Inappropriate or no GovernanceNon-standardized performa
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