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How the Kenya Women Finance Trust became a model lender

©IFAD/Giacomo Pirozzi

Women receive checks during a Fuhenzane Women's Group Meeting in the village of Asena.

Sometimes, numbers speak louder than words. Six years ago, the Kenya Women Finance Trust (KWFT) was losing around US$290,000 a year. By 2006, it was posting annual profits of US$1.87 million and changing the lives of more than 100,000 poor women. By any standard, this is a remarkable turnaround. But behind the numbers lies an even more remarkable story.

The trust’s outstanding growth is testament to the importance of taking risks, and to not giving up on a good idea. There is nothing magical about what KWFT has done. Its growth and success are based on sound financial practices that can be replicated in other rural areas of Sub-Saharan Africa.

A troubled history

As its name suggests, the Kenya Women Finance Trust is a microfinance institution established by Kenyan women and offering services only to low-income Kenyan women. IFAD, in partnership with the Belgian Survival Fund, has been a major donor since 1992.

The early years of the KWFT were rocky. The group of Kenyan professional women who founded the trust in 1981 soon ran into problems. Management was weak and there were reports of widespread insider lending among the Board of Directors. By 1989, most of KWFT’s loans were non-performing and new lending had ground to a halt.

In 1991, the trust’s original donors – UNDP and the Ford Foundation – stepped in to help rehabilitate the trust. Thanks to their help, and that of other donors, including IFAD and the Belgian Survival Fund, KWFT was able to resume business in 1992 using sound financial practices .

By the end of the 1990s, the trust was the largest microfinance institution in Kenya. Its financing operations were running smoothly. Yet management knew that it could not continue indefinitely; operations were too dependent on grants from donors. In 2000, despite steady growth and a good loan recovery rate, KWFT was still posting annual losses and was far from being financially self-sufficient. Clearly, if KWFT was going to stay in business, something would have to be done.

A risky strategy pays off

Management had to decide between two basic development options. The first, and safest, was to consolidate operations in existing areas, slowly increasing the amount and number of average loans and focusing increasingly on easy-to-reach clients in urban areas. This was an almost guaranteed way of providing slow, sustainable growth.

The second, riskier, option was to aim for a bigger impact by expanding aggressively into rural areas, including the poorest parts of the country, to become a truly national institution. KWFT chose the second option. It paid off. By 2006, its financial self-sufficiency ratio had increased to 105 per cent; KWFT’s own income was more than enough to cover all its operating and financial expenses. This level of financial independence is rare for any microfinance institution, let alone one operating in rural areas of Sub-Saharan Africa.

The trust now has 46 rural branches in eight regions of Kenya, compared with 24 branches in four regions in 1998. More than 100,000 low-income Kenyan women are running small businesses with loans from KWFT, compared with just under 29,000 in 2000. The women report that their lives have improved as a result of their relationship with KWFT. It is not just the women who benefit, but their husbands, children and extended families.

The number of loans managed by each credit officer has grown to 404 from 287. Member savings have soared to US$16.8 million from US$2.2 million. IN 2006, KWFT disbursed US$52 million in loans to its clients. Clearly, in the past six years the trust has surpassed all of its development objectives by a significant margin.

Equally importantly, KWFT is still reaching its original target group of poor women. While some women have advanced through many loan cycles, creating bigger businesses and taking out larger loans, most of the trust’s borrowers are poor women. First loans for newcomers still start at US$100 to US$200. The fact that most of the trust’s clients continue to borrow, loan cycle after loan cycle, shows that they consider KWFT’s services beneficial for themselves and their households.

The foundations of success

One of the keys to KWFT’s success is its very clear message: all loans must be repaid on time. If any group member has an overdue balance, all new disbursements to everyone in the group stop immediately. However, if members of the group meet their repayment schedules, KWFT guarantees automatically bigger loans after the old credit is paid. This gives clients an opportunity to plan ahead for the development of their small businesses.

At head office, activities are now modernized and decentralized. New KWFT officers are recruited from top level college and university graduates and are paid competitive salaries. Computer and accounting systems have been modernised, and the Trust now has a well-operating internal audit function.

In the field, IFAD-commissioned experts have helped KWFT become more efficient. Previously, KWFT field officers met with client groups every week. Now, groups are given an initial intensive training period of 3-6 months. After that, they meet with KWFT field officers only once a month. This has allowed field officers to greatly expand the number of clients and outstanding loans they can handle. Field officers can reach large sections of rural Kenya by using motorbikes to cover a radius of 25 kilometres from each branch. Higher staff efficiency has made it possible to develop financially sustainable operations, even in rural areas.

KWFT has also improved its relationship with clients, intensifying its client training efforts and handing over more power to groups to manage their own affairs. Group leaders become, in effect, KWFT field managers, taking active care of the group’s loan application and repayments. KWFT’s own field staff take annual courses on customer care. As a result, relations between clients and staff tend to be very good.

At the same time that KWFT was expanding its rural operations, the trust began looking beyond donor grants for funding. In 2000, bank loans financed just 2 per cent of KWFT’s portfolio. At the end of 2006, this figure was about 50 per cent. The ability to co-operate and borrow from banks has been crucial for KWFT’s rapid growth.

Small business loans remain the focal point of the KWFT’s operation, but new products have also been developed based on requests from clients. These include loans for school fees, solar panels, water tanks, cooking gas equipment and community phone lines, as well as voluntary life insurance.

Looking to the future

Looking ahead, KWFT plans to expand into two new regions in the next year. It aims to reach about 250,000 members by 2011, with an outstanding portfolio in the region of US$120 to US$140 million. This would require the number of KWFT staff to grow to about 600 from 380 at present. KWFT also plans to transform itself into more of a full service financial institution, offering clients savings accounts, as well as loans.

The experience of KWFT shows that calculated risks can pay off when they are backed up by thorough planning. The remarkable success may well serve as a model for similar projects elsewhere in Africa.

IFAD, the Belgian Survival Fund (BSF) and KWFT

IFAD and BSF have a long history of working together to promote the economic empowerment of low-income women in East Africa. Funding for KWFT has come under four different phases.

The first BSF/IFAD grant was in 1993-1995 for US$210,000. It was designed to help KWFT establish operations in two districts in the Coast Province and provide credit through groups to rural women forming small-scale businesses. KWFT’s current substantial activity the Coast Province with around 15,000 active women clients is based on IFAD-BSF-supported operations in Kwale and Kilifi.

The second phase was a general institution development grant of US$630,000 issued for 1997-2002 and designed in-line with KWFT’s new policy requiring all donor grants to support its overall development plan, not separate donor-funded sub-projects within the institution.

The third support came from the Japanese government in collaboration with IFAD in the form of a US$200,000 grant to support KWFT staff and client training.

In 2001-2002, IFAD and BSF organized a comprehensive evaluation of KWFT. It found that there were significant improvements in the economic and social conditions in the households of KWFT clients. KWFT’s rural outreach was also clearly increasing. As a result, a fourth grant of EUR 1.29 million was approved for the 2004-2008 period to expand KWFT’s portfolio in rural areas.

The new grant includes an annual review and technical support missions by an IFAD-commissioned banking expert to support strategic planning by KWFT’s senior management. The BSF/IFAD–funded technical support has been provided by Jorma Ruotsi, a Senior Rural Finance and Banking Consultant, for the past five years.