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Library » Microfinance Development in Kenya: K-Rep's Transition from NGO to Diversified Holding Company and Commercial Bank

Microfinance Development in Kenya: K-Rep's Transition from NGO to Diversified Holding Company and Commercial Bank
2000, Rosengard, J., Rai, A., Dondo, A. & Oketch, H.
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How can an MFI undergo a complex transition and what are the national and institutional implications?

This paper looks at the transition of KREP from a microfinance NGO into a commercial bank and a non-profit R&D and advisory organization. It questions:

KREP's ability to be commercially viable and institutionally self-sustaining while retaining its current microbanking mission and market niche;
The potential complementarities and contradictions in the missions of the two institutions K-Rep Bank and K-Rep Holdings Ltd.

It provides institutional recommendations for the way forward including:

SavingsTurn to non-borrowers as the source of voluntary savings because K-Rep market surveys confirm that the largest untapped source of microsavings is from the community at large. Also experiment with eliminating the mandatory savings while investigating savings tied to individual loans for microentrepreneurs who have "graduated" from group borrowing;
Efficiency and quality Continue to carefully monitor repayment performance of individual borrowers because good credit histories and strong incentives to repay for continued access to credit imply that loan quality will remain high. Take care not to destroy its groups by encouraging graduates to take on both small solidarity group loans and individual loans;
Sustainability Continue to charge its borrowers enough to cover its costs and generate a profit for its owners i.e. to see that product pricing still covers lender transaction costs, the cost of loanable funds, and provisions for bad debts. Reduce operational expenditure whiledeveloping back and front office and other suystems in conjunction with good credit risk management techniques.

The paper further looks at regulation and supervision in Kenya and sees that the central bank should:

Allow commercial banks to diversify their lending by going downmarket and providing banking services to microentrepreneurs and family savers, without any implicit or explicit regulatory or financial penalties or disincentives to engage in microfinance
Remove barriers to entry unrelated to prospective bank soundness for those who would like to create an entirely new microfinance bank, or for MFIs that would like either to transform themselves into microfinance banks;
Promote MFI self-regulation and help enforce compliance;
Establish an apex or a second-tier MFI as a conduit for financing first-tier MFIs.

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06 May 2010




Mary Otsyula Kenya

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Publisher(s):
Harvard University - Center for International Development