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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

MESPT’S EXPERIENCE IN WHOLESALE FINANCING: PRESENTATION ATAFRACA WORKSHOP

NAIROBI SAFARI CLUB

28/09/06

AFRACA Presentation 28/09/06


Origin
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


Legal status
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


Funding
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


Mandate
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


Loan criteria
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


Loan criteria cont
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


Loan types and terms
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


Loan types and terms cont
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


Progress made
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


Progress made cont
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


    Progress made cont1
    PROGRESS MADE (CONT).

    • French Development Agency

    • DFID Financial Deepening Trust

    • DFID BDS Project

    • Danida – ASPS

    AFRACA Presentation 28/09/06


    Challenges
    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


    Challenges cont
    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


    Challenges cont1
    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


    Thank you
    THANK YOU

    AFRACA Presentation 28/09/06


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