Kenya: MFIs Still Reeling from the Effects of Post-Election Violence, Drought
Kenya, January, 31 2010 -
Microfinance institutions (MFIs) are emerging from one of their lowest business ebb in the last two years due to the 2008 post-election violence, a severe drought and dried fund taps from donors as a result of the global financial crisis.
According to the industry players, the last two years have been the toughest for their businesses.
“The last two years have been the toughest as we experienced a triple blow in the form of the post-election violence in 2008 a severe drought last year and dwindling funds from donors with most of our members the worse affected thereby resulting in the portfolio risk edging up”, said Lydiah Koros the chairperson of the Association of Microfinance Institutions (AMFI), the umbrella body for MFIs.
However, Ms Koros reckoned that the players are looking forward to better times as they put behind the past and focus on a brighter future.
“The return of the rains and ongoing economic recovery is good news to the industry as we expect to see a shift back to growth going forward”.
Ms Koros noted that the post election chaos caught most of their clients unaware, leading to losses of their farm produce and businesses consequently affecting their ability to service their loans.
Majority of the affected have not managed to go back to their previous homes and businesses affecting their ability to repay their loans.
“For some of our members who were adversely affected, and they have not managed to go back, we have been forced to write off their loans as they are unable to repay hence affecting our operations”, said Rose Wanjohi the chief executive officer of ECLOF Microfinance.
Ms Wanjohi indicated that ECLOF Microfinance with over 10,000 members spread across the country was forced to write off close to Sh60 million as most of its members were adversely affected by the clashes.
Even before the MFIs could recover their footing from the effects of the post election crisis, the onset of drought further weakened their operations.
“Most of MFIs members are in the rural areas where their main economic activity is farming which was hit hard by the drought”, said Ms Koros.
For MFIs, which largely lend on the basis of ‘social security’ where members guarantee each other, the inability to repay is worsened by the fact that all members are likely to be affected.
In addition, unlike commercial banks which take collateral such as land, motor vehicle and guarantors as security, MFIs mostly use household goods which may have little resale value. Majority of MFIs live within a common locality exposing the firms to mass default in the event of war or drought.
The global financial crisis has affected the flow of funds, forcing some MFIs which depend on such funds to turn to commercial banks to borrow normally at higher rates. “Some players have had to turn to commercial banks to borrow as donor funds which are offered at concessionary rates dwindle as a result of the tough economic and financial times”, said Ms. Wanjohi.
Given that some of the MFIs have relatively small capital base, they have had to obtain bank loans at higher cost.