Banks ‘poaching’ on microfinanciers’ turf as battle for small savers intensifies

With its head office in Nakuru, KEFESA is a relatively new body representing thousands of self-help groups.

While it has so far adopted a low-key approach to advocacy for the interests of low-income groups, Mr Karanja says it soon hopes to be operating its own credit reference bureau to monitor members’ loans repayment record and make information available to banks, MFIs and other lenders on the creditworthiness of member groups.

But this may yet prove a self-defeating strategy.

Some commercial banks appear to have been capitalising on the “insider” information they acquire as bankers of self-help groups, Saccos, CBOs and even merry go rounds.

“Banks have access to groups’ savings portfolio and use the information to determine the most bankable of the groups,” lamented Mr Karanja. However, Ms Gakuru flatly denied this; “I do not think any bank would do that,” she said.

As their operations stand today, MFIs do not have much room to manoeuvre.

They have to borrow most of their cash from the same banks and have to add a mark-up, making their loans necessarily more expensive than what banks offer. In addition, the amounts they offer are generally low, averaging Sh150,000.

Besides, banks are also able to offer credit on relatively easier terms and, depending on the nature of the loan, may offer repayment periods of up to 48 months.

But most importantly, they do not put what is seen as “undue stress” on the groups. “Banks do not have as many requirements like MFIs,” said Ms Manda. Moreover, MFIs require groups owing them cash to meet every week so they can collect weekly loan repayment instalments while ensuring that their cash is still safe.

“At stake here is an estimated Sh10 billion savings portfolio that the groups have built up over the years,” says Mr Karanja.

This portfolio got a boost of sorts when the government initiated the Youth Enterprise Fund and the Women Enterprise Fund, each of which now has an annual kitty of Sh1 billion.

“The biggest dilemma facing many of the groups is whether to stick with the MFIs who have been like mothers to them or to go for the credit inducements offered by banks,” said Mr Karanja.

KEFESA, he says, supports the continuation of the long-running business relationships between self-help groups and the MFIs.

“We do not think the ongoing enticement of self-help groups by banks is healthy, because they do not know the problems we have gone through.” Mr Karanja is also of the opinion that many of the MFIs have come of age and ought to be licensed by the Central Bank to operate banking services.

In some respects, the Microfinance Act, 2006 has already created a legal basis for the transformation of MFIs into deposit-keeping institutions.