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MESPT’S EXPERIENCE IN WHOLESALE FINANCING: PRESENTATION AT AFRACA WORKSHOP

MESPT’S EXPERIENCE IN WHOLESALE FINANCING: PRESENTATION AT AFRACA WORKSHOP. NAIROBI SAFARI CLUB 28/09/06. ORIGIN. The European Union and GOK implemented the Micro Enterprises Support Programme between December 1997 to December 2002. The programme had 3 components Credit BDS

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MESPT’S EXPERIENCE IN WHOLESALE FINANCING: PRESENTATION AT AFRACA WORKSHOP

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  1. MESPT’S EXPERIENCE IN WHOLESALE FINANCING: PRESENTATION ATAFRACA WORKSHOP NAIROBI SAFARI CLUB 28/09/06 AFRACA Presentation 28/09/06

  2. ORIGIN • The European Union and GOK implemented the Micro Enterprises Support Programme between December 1997 to December 2002. • The programme had 3 components • Credit • BDS • Institutional Support and Capacity Building (ISCB) • BDS and ISCB were sinking funds (grants) while credit was a revolving fund. • To continue with activities of the credit component, EU and GOK agreed to form a public (not private or Government) Trust. AFRACA Presentation 28/09/06

  3. LEGAL STATUS • The Trust was notified under legal Notice Number 104 of 20th June 2001. • First set of Trustees signed the Trust Deed on 30/10/2002. • Trust deed registered on 12/11/2002. AFRACA Presentation 28/09/06

  4. FUNDING • The Trust received seed capital of Euros 4.4 million from the European Union. • Trust has also entered into a US$ 2.0 Million rural finance Project implementation MOU with Danida. • Trust currently negotiating funds for:- • Growth oriented enterprises (missing middle) with potential for employment creation. • Capacity building for microfinance intermediaries and Saccos. • Trust also discussing collaboration with development partners and other organizations interested in funding the micro finance and Sacco sectors. AFRACA Presentation 28/09/06

  5. MANDATE • Credit (Funds for on-lending) • Business Development Services (BDS). • Institutional Support and Capacity Building. • Equity Participation. • Initial operations of MESPT in the credit component. • The aim in credit is to “Establish a strong, stable, market-based micro finance sector in Kenya”. AFRACA Presentation 28/09/06

  6. LOAN CRITERIA • MESPT works with organizations that reach or have the potential to reach a large number of Micro Enterprises on a sustainable basis. • Preference given to rural areas. • Potential borrowers must have audited accounts for at least 3 years. • Potential borrowers must have a healthy loan portfolio and a profitable track record. • Potential borrowers must have a reasonable number of potential borrowers. AFRACA Presentation 28/09/06

  7. LOAN CRITERIA (CONT.) • Saccos must have a stand alone micro finance component or willing to start one. • Borrowers must demonstrate that they are legally registered under relevant laws of Kenya. • Many of the aspects on loan criteria are negotiable. AFRACA Presentation 28/09/06

  8. LOAN TYPES AND TERMS • Currently providing working capital loans of between 3 and 50 million. • Loan period is 36 months. • Base interest rate is between 10% and 12% per annum on reducing balance. • A loan application fee of KShs. 5,000 is charged. AFRACA Presentation 28/09/06

  9. LOAN TYPES AND TERMS (CONT.) • A 1% commitment (appraisal) and legal fee is also charged. • Grace period is currently 1 to 2 months on interest and 3 months on principal for normal loans and 3 months on interest and 6 months on the principal for agriculture loans . • MESPT carries out surveys on loan conditions and interest rates to ensure that we remain competitive and fair to clients. AFRACA Presentation 28/09/06

  10. PROGRESS MADE • The Trust has approved 30 loans totaling KShs. 600 million. • MESPT works with other wholesale lenders to develop the industry as follows:- • Stromme microfinance • Jitegemee Trust • Oiko Credit AFRACA Presentation 28/09/06

  11. PROGRESS MADE (CONT). • Cordaid • ICCO • Novib • Planet Finance • Trust will work towards development of MSME Sector by collaborating with the following:- • World Bank MSME project (FSD) • IFC – SMEs Solutions Centre AFRACA Presentation 28/09/06

  12. PROGRESS MADE (CONT). • French Development Agency • DFID Financial Deepening Trust • DFID BDS Project • Danida – ASPS AFRACA Presentation 28/09/06

  13. CHALLENGES • A. National Level • Delay in the enactment of the Microfinance Bill. • The return of the Shylocks and crooks who are fleecing members of the public and destroying the industry. • Un-coordinated donor interventions and competition (MSME project policy component while the MSE Sessional Paper was approved in parliament the day before). AFRACA Presentation 28/09/06

  14. CHALLENGES (CONT). • B. MESPT Challenges • Inadequate funds for on-lending. • Sustainability and fair rates of interest and other loan costs. • Absence of capacity building support mechanism – (Not just loans are needed). • Collateral arrangements (process is cumbersome). • Reaching the smaller MFIs as lending criteria restricts us to the larger ones. AFRACA Presentation 28/09/06

  15. CHALLENGES (CONT). • C. At Client level • Perpetuation of poverty (the debt trap) • Inability to pass benefits to end borrowers (interest rates). • Poor Governance Structures (mismanagement and diversion of funds). • Efforts concentrated on the group lending approach (missing middle holds the key to economic take-off). AFRACA Presentation 28/09/06

  16. THANK YOU AFRACA Presentation 28/09/06

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