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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 background9
(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.