Jitegemee trust limited institutional experience in wholesale lending for microfinance operations
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Jitegemee Trust Limited. “Institutional experience in wholesale lending for Microfinance operations”. Presented at the AFRACA East Africa Sub- Regional Workshop 22-24 th July 2008. By Newton Nthiga. Overview of the Discussion. Define wholesale lender (Apex) Why apex institutions exist?

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Jitegemee trust limited institutional experience in wholesale lending for microfinance operations

Jitegemee Trust Limited.“Institutional experience in wholesale lending for Microfinance operations”

Presented at the AFRACA East Africa Sub- Regional Workshop

22-24th July 2008.

By Newton Nthiga

Overview of the discussion
Overview of the Discussion

  • Define wholesale lender (Apex)

  • Why apex institutions exist?

  • Overview of wholesale lending in Kenya

  • Background of Jitegemee Trust

  • Key successes for JTL

  • Challenges facing JTL in wholesale lending

  • Addressing these challenges

  • Action plans for JTL

Definition of wholesale lender apex
Definition of wholesale lender (Apex)

  • A second-tier Institution that channels funding to multiple MFIs in a country or a region (C-Gap)

  • Funding may be provided with or without technical support.

  • They operate under various legal structures (Banks, NGOs, Companies, Co-operatives etc)

Why do apex institutions exist
Why do Apex institutions exist?

  • To expand financial access particularly to smaller un-regulated MFIs( eg PKSF, JTL)

  • Stringent banking regulation limiting financial access to smaller or unregulated MFIs (lack of collateral)

  • Lack of appropriate products by commercial Banks to MFIs

  • Developmental aspects -Technical support to MFIs.

  • Source and support donor funding where MFIs are too small for direct funding (MESPT)

  • Directing resources to particular needy sectors (Youth &Women funds in kenya)

  • Oversight responsibilities un-regulated MFIs

  • As investment opportunities (Oiko Credit, Northern funds)

Wholesale lending in kenya
Wholesale lending in Kenya

  • Increasingly Competitive (for larger sustainable MFIs & Saccos) driven by strong interest by commercial banks in this segment.

  • Large un met Demand from smaller rural MFIs &Saccos

  • Pressure on interest rates (from commercial banks).

  • Diverse players including:

    • Non-banking financial institutions (4 major)

    • Direct Govt. lending through revolving funds

    • Several commercial & Development Banks

    • Traditional Cooperative Apex bodies(Kuscco, Nachu etc)

    • Foreign players(Hivos, Cordaid, etc)

Estimated statistics
Estimated statistics

  • Market size: 150 MFIs,(30 registered with AMFI)

  • About 5,000 Saccos( 230 with Front Office)

    Market served by 4 major Apex Inst.

  • Combined total Loan Fund (Oiko Credit, JTL, MESPT & Stromme- Kenya operations) USD.60 million.

  • Approximate total MFIs served - 85 ( Majority being Saccos)

  • Average loan size USD 300,000( for JTL).

  • Majority of Saccos are served by Co-operative Bank & Kuscco, while Commercial Banks & foreign players Serve MFIs

  • Huge Opportunities still exists for wholesale funding

Jitegemee trust background
Jitegemee Trust - Background

  • Inception: Registered as a Trust in 1997 & Incorporated as a Company limited by guarantee in 1998.

  • Funding: Initial fund provided by the Dutch Government.

  • Key Objective - Enhance financial services to low income individuals by strengthening institutions serving that market.

  • Governance: Run as a private sector entity by a local board (un-regulated)

Cont jitegemee trust background
(Cont…)Jitegemee Trust- Background

  • Mission: “To be a reliable wholesale provider of financial services to institutions that provide assistance relevant to low income individuals”.

  • Target market:

    • Legally registered lending institution (excludes CBOs SHG)

    • Proven delivery mechanism targeting low income individuals

    • Satisfy our set eligibility criteria( Min. operational period, No. of clients, governance etc.)

Cont jitegemee trust background1
(cont…) Jitegemee Trust-Background

  • Size: USD 11 million

  • Product offering

    • On lending Loans- Differentiated types

    • Subordinated debt

    • Capacity support.

  • Key collateral: Floating Debenture over MFI Assets particularly the loan book( other forms considered on a case basis)

Key successes for jtl
Key successes for JTL.

  • Market deepening-We have provided financing to rural MFis unable to access it from commercial banks

  • Institutional strengthening through capacity:

    • Quarterly partners forum

    • Exchange visits among partners

    • Diagnostic needs assessment through our capacity partners & funding.

  • Introduction of Best practices through financial reporting requirements.

  • Assisted in product development.

  • Lobbying and advocacy.

Mfi financing challenges facing jtl
MFI financing - Challenges facing JTL

  • Competitive environment driven by commercial banks- Mainly large and more sustainable institutions

  • Un met demand for the smaller rural MFis with weak financing fundamentals

  • Un-regulated MFI sector- Emergence of unscrupulous operators .

  • Development of the MFI sector- Lack of critical mass of sustainable traditional MFIs thus our shift to Saccos that are regulated and more sustainable

  • Pressure on pricing- from deposit taking inst.

  • Limited product offering

  • Addressing capacity needs.

Challenges facing jtl
…… Challenges facing JTL

  • High risks for smaller institutions-Low operational levels & weak institutional structures.

  • Challenges in client selection- High rejection rate common in all apex inst.

  • High monitoring costs- Mainly smaller MFIs in rural areas.

  • Access to funding - for on lending & capacity due to our low lending rates.

  • Limitation in the legal structure for Non- Banking & un regulated Inst. In attracting social investors

  • Market Positioning- We lack infrastructural presence.

Addressing these challenges
Addressing these challenges

  • Integrated financing Model-An inclusive financial needs assessment for MFIs

  • Establish quasi-debt/ Equity products-To support the smaller weaker institutions.

  • Enhance targeted capacity support

  • Promote and support development of commercial products (Saccos)

  • Review of the selection criteria and enhance monitoring (case of PKSF)

  • Establish financing conditions & incentives that promote adoption of Best practices.

Addressing challenges
……… addressing challenges

  • Lobbying and advocacy- To mainstream non banking apexes in the financial system.

  • Networking- For wholesale lenders to shares experiences

  • Advocating for regulation- Both MFIs & Apex institutions

  • Partnerships- Social investors, Capacity providers

  • Strengthen governance and institutional structures for Apex( Non banking & unregulated)

Action plans for jitegemee trust
Action plans for Jitegemee Trust

  • Transform into an appropriate legal structure.

  • Building Partnerships with :

    • Capacity building institutions for technical support

    • Development organizations providing capacity grants

  • Adopt a strategy of identifying, supporting & developing smaller institutions into sustainability

  • Equity investment in transforming MFIs

  • Improving Margins through product diversification & joint investments to serve particular needs.