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Integrating Financial Services into Poverty Reduction Strategies; The Case of KADET Ltd Nairobi, Kenya. ECONOMY Economy on a recovery path since 2002 GDP expanded by 5.8 percent in 2005 compared to 2.8 percent in 2003 Total export earnings in 2004 recorded 17.3 per cent growth.

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slide1
Integrating Financial Services into Poverty Reduction Strategies;The Case of KADET LtdNairobi, Kenya
macro background
ECONOMY

Economy on a recovery path since 2002

GDP expanded by 5.8 percent in 2005 compared to 2.8 percent in 2003

Total export earnings in 2004 recorded 17.3 per cent growth.

Value of imports grew by 29.6 per cent.in 2005

Real GDP growth is forecast to accelerate to more than 6% in 2006

Macro Background
background
Kenya’s financial system can be argued to be composed of four “Sub – systems”:

a) The informal system, which is not regulated and not subsidized and driven social coping mechanism; limited economic empowerment possibilities.

b) The formal, previously subsidized system. The MFIs are under this category are mostly not regulated and have an emerging challenge in raising capital; limited outreach

c) Member based, with/without regulation; occasional management challenges ; SACCOs

d) The formal, non-subsidized system, regulated, big time business, but missing low income clients in rural agricultural countryside

Background
background and context
KADET A Financial Service firm owned by the World Vision in Kenya to enhance access to financial services to the economically marginalized in the rural Kenyan countryside

Operates as an MFI firm and is a wholly owned subsidiary of World Vision in Kenya

Incorporated in on June 2001:

Presently operates in 35 Sub Offices with a dominant rural an agricultural presence

Has seven Branches/Areas Rural Market Focus

Currently Serving 25,000 active clients

Background and Context
kadet s financial services focus on transformational development
KADET’s Financial Services focus on Transformational Development
  • To increase household resilience at the family level to contend with times of shock
  • To increase sustainability and care at the community level building back community based solution to society challenges
  • To increase educational opportunities at the child level through household economic empowerment
mission vision goal
MISSION,VISION & GOAL
  • VISION: “To become the leading institution in Kenya in financial services and enterprise development for an economically empowered society”
  • MISSION: "To professionally provide financial services to the low – income entrepreneurs thereby contributing to poverty reduction by supporting small and micro enterprises as a means to promote justice and the establishment of the Kingdom of God”.
  • GOAL: “To become the preferred financial partner that is dynamic and focused on customer satisfaction and innovation”
slide9

KADET IdentityKADET lending business is based on conventional best practice BUT innovative and pro poor lendingKADET has a strategic direction to lend to rural and agricultural \clientele a s a distinct business segmentKADET therefore uses group methodology as its means of outreach

kadet s financial services benefit
KADET’S Financial services benefit
  • Increased economic activity in a community that is building social cohesion
  • Rural households and communities increasingly using financial services to optimize their potential and manage external risks (e.g. Health Insurance)
  • The emerging Orphaned and Vulnerable Children (OVCs) being offered hope for the future and not just a solution for today.
  • Establishment of an endowment mechanism – a annual flow of money into a community because of re-emerging economic focus
kadet methodologies

KADET METHODOLOGIES

KADET uses group based methodology expressed in two branded methods:

Solidarity Group Methodology

Community “Banking” Methodology

solidarity lending
SOLIDARITY LENDING
  • KADET’s solidarity group lending methodology entails the formation of groups of people who have a common purpose to access financial services
  • This methodology derives from the meaning of the word ‘solidarity” where members unite under a common purpose and form a group.
cont d
Cont’d
  • It is a minimalist approach to providing credit and financial services to the small and micro entrepreneurs.
  • Upon establishing the possibility of working with the group, based on the set criteria, i.e. their cohesiveness, commitment to group rules and KADET rules, KADET proceeds to prepare the group over a period of between four to eight weeks before they can access the various financial services
community banking
COMMUNITY BANKING
  • The KADET’s community banking methodology derives from the conventional village banking model.
  • The groups use savings mobilization among themselves as part of their objective and thus are an effective vehicle for channeling credit to the low-income entrepreneurs.
community banking cont
COMMUNITY “BANKING” CONT.

The community banking product is designed to penetrate the rural agricultural countryside that have many infrastructural challenges. Its normally unreached with financial services and generally not attractive to formal financial services

1 health insurance uzima health scheme
1. Health Insurance – “Uzima Health Scheme”

The health insurance product is a package designed to enable individuals within the low income familles to access quality health care services, who own cannot afford conventional hospitalization insurance covers.

This is a product whose innovation is a major departure from the conventional practice in Kenya where insurance companies and ‘HMOs’ access health covers to the middle and higher tier of the society

The package is made possible by KADET’s partnership with CIC, an emerging e major player in insurance business in Kenya.

Group outreach methodology assures against ‘ adverse selection’

2 agricultural loan mkopo shambani
2. Agricultural Loan “Mkopo Shambani”

Mkopo Shambani is a loan product designed for for seasonal crop credit that is the mainstay of most rural Kenya. Aims to transform subsistence farming from a social activity into a ‘bankable’ business

The products anticipates a ‘ballooned’ repayment at the end of repayment period and with a distinct market arrangement. Uses farmer associations and groups as the marketing avenues

3 business assets financing facility jenga mali
3. Business Assets Financing Facility “Jenga Mali”

KADET recognizes the need amongst micro entrepreneurs to acquire business assets i.e. deep freezers, weighing machines, business pay-phones etc. The facility is instrumental to the ADP communities who needs to build their assets portfolio. With this product therefore, KADET offers an opportunity to the customers to acquire essential business assets in an easy way saving them the trouble of looking for other financiers

4 market led lending mkopo sokoni a partnership with a defined market
4. Market led Lending “Mkopo Sokoni”a partnership with a defined market“”

This product targets customers trading in agricultural produce but with very clear market linkages where their produce is for the market. KADET is partnering with the customers and marketing organizations/agencies for this product.

With this arrangement KADET funds the customers and recover the loan repayment from the customer’s sales proceeds through the marketing body

5 livestock trading product mkopo ngombe striking away the middleman
5. Livestock Trading Product“Mkopo Ngombe”“Striking away the middleman”

The livestock product is mainly targeted to the rural pastoralist communities in order to equip them with credit to enable them be cushioned against the middleman. It helps community banks amongst pastoralist to bulk livestock for better market

Embedded in the product is the opportunity to inculcate a culture of saving among the community as a way of equipping them for disaster preparedness

6 start up loan facility
6. Start Up Loan Facility
  • The Start up loan facility is designed as a mentorship into economic/business activities for community members who are not in business for lack of capital and have minimal experience on doing business.
  • Young school leavers and other potential entrepreneurs are facilitated by KADET in partnership/collaboration with other development agents to join groups of 25 to 35 people an intensive Business Start Up training. Guarantee and mentorship by existing clients is key.
  • The members then access small business starts up loan not exceeding of about US$ 100. A guarantee fund arrangement is then established by partnering a supporting agency/donor.
  • Follow up monitoring of business performance is undertaken and the successful clients are graduated into the mainstream solidarity and community ‘banks’ groups.
7 school fees loan
7. School Fees Loan

This is a new loan product designed mainly for KADET’s existing customers within the groups

It is meant to address the need prevalent for school fees. It is also meant to reduce loan diversion effects by enabling customers to pay their children school fees with ease, thereby not diverting their business loans to consumer needs

8 business loans ordinary generic
8. Business Loans; Ordinary generic

This is a loan product meant to help KADET customers to maximize on emerging opportunities in their business markets. It gives the customers an opportunity to refinancing before the completion of their previous loan

recommendations
RECOMMENDATIONS
  • Most of the microfinance institutions are smaller and with limited outreach. A great deal of capacity building is required to bring them to the level at which they can expand their outreach, provide quality service and operate profitably
  • The Governments major role in microfinance should be to create a supportive macroeconomic setting and a regulatory environment that allows sound financial institutions offering microfinance services to emerge
cont d1
Cont’d
  • Government should encourage and guide in the establishment of programmes to support pro poor financial services and institutions in building internal capacity, promote the adoption of best practices and standard by service providers and support capacity-building efforts
  • The Central Bank should have the overall responsibility of coordinating and implementing the innovative policy that promote financial inclusivity, particularly the micro finance laws
cont d2
Cont’d
  • The Government should encourage and provide support to financial institutions wishing to establish pro poor operations in difficult and neglected areas; for example by providing tax incentives
  • The Government should consider providing some funds (budgetary allocation) for capacity building for innovative pro poor financial services
cont d3
Cont’d

7. Long term commitment by any agency to poverty reduction in a systematic and inclusive manner direction than just return on investment must be the direction for any support