JEFF NJAGI: A CALL TO DIGITIZE THE MICROFINANCE SECTOR

Jeff Njagi, veteran microfinance professional.
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Veteran microfinance professional sees a huge opportunity for microfinance institutions as digital lenders bite their cake

By George Gichuki

Mr. Jeff Njagi became the chairman of AMFI-K in May 2012. He served the association for a period of three years up to September 2015. “I have been associated with AMFI-K since its inception,” he says. “During its early days, the association did not have a permanent office and it used to be housed by the organizations that started it; mainly Kenya Rural Enterprise Programme (K-REP), Kenya Women Finance Trust (KWFT) as well as Small and Micro Enterprise Programme (SMEP).

According to Mr. Njagi, the decision to form AMFI-K was informed by the fact that various microfinance institutions in Kenya felt that there was a need to have an umbrella body that would look into their needs, besides lobbying the government and other stakeholders on issues affecting the sector. Moreover, the association would also serve as a forum through which the members would share their common values and aspirations, besides developing a code of conduct that would enhance self regulation. The ultimate goal was to strengthen the microfinance sector in Kenya.

Achievements

During his tenure as the chairman of AMFI-K, Mr. Njagi and other board members successfully lobbied the Central Bank of Kenya (CBK) and Parliament to amend the Microfinance Act. In that respect, deposit taking microfinance institutions were renamed microfinance banks. “ Initially, the proposed change faced some resistance from CBK and commercial banks who felt that it was erroneous to effect it because the deposit taking microfinance institutions were not licensed under the Banking Act, but ultimately, our efforts bore fruits,” says Mr. Njagi. The ammendments also opened a window for microfinance banks to start undertaking business activities like operating current accounts and foreign denominated accounts upon getting the greenlight from CBK.

Secondly, it was during Mr. Njagi’s tenure that microfinance regulations in the East African region started being harmonized. Under the leadership and guidance of the East Africa Community secretariat, microfinance institutions in the region together with the respective central banks and ministries of finance came together in Arusha to start preparing harmonized rules and regulations that would govern regional players in the sector. Such a development would enhance a regional presence for microfinanciers.

Finally in 2015, AMFI-K hosted the East African regional microfinance summit which was highly successful. Participants were drawn from all the countries in the region.

Hurdles

Some of the challenges that Mr. Njagi grappled with during his tenure was invasion of the microfinance space by pyramid schemes and digital lenders. “ Initially, there was fear that digital lenders would lead microfinance institutions to an early death because of the ease in which they would lend to their traditional clientele – micro, small and medium enterprises,” says Mr. Njagi. Nevertheless with time, many microfinance institutions have effectively responded to this disruption by developing digitally driven products and services.

According to Mr. Njagi, one of the major reasons behind the establishment of microfinance banks was to mobilize savings from their customers that they would in turn on lend. Nevertheless, during his tenure there were a number of commercial banks in the lower tiers which went under. Consequently, many customers started depositing their money in tier one commercial banks where they felt it was safer. “This unfortunate trend also affected microfinance banks and they had to rely on expensive sources of funds for on lending since they were not mobilizing sufficient deposits,” Mr. Njagi laments.

Thirdly, a new crop of lenders that was not keen on being faithful to the mission of alleviating poverty among the bottom of the pyramid that the microfinance sector advocates started entering the market in droves. “The new players did not care the least whether their customers were using loans for consumption or betting as opposed to transforming their lives, although they were calling themselves microfinance institutions,” Mr. Njagi observes.

A veteran microfinance professional, Mr. Njagi advises microfinance institutions to digitize their lending methodologies in view of the current trends in the market. “It is possible to digitize the group lending methodology that is very popular in the microfinance sector in order to meet the ever changing needs of the customers,” he ends.

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