LONG SERVICE: Caroline Karanja, CEO, AMFI-K.

As AMFI-K celebrates a key milestone, we take you through a journey that has transformed the microfinance landscape in Kenya

By George Gichuki

The longest journey, so goes a popular adage, starts with a single step. Way back in 1999, a foresighted and dedicated team of microfinance practitioners embarked on an audacious journey of strengthening the sector by registering and establishing the Association of Microfinance Institutions- Kenya (AMFI-K). From a very humble beginning, AMFI-K has grown into a strong organization that champions the interests of the local microfinance sector. It has also partnered with global microfinance networks, hence benefiting from best practices and knowledge in the field of microfinance.

The beginning

The need to fill the gap created by the failure of main stream banking institutions to finance customers in the low income bracket led to the entry of the microfinance model in the Kenyan market. It was very hard for these customers to be financed by the main stream banks since most of them did not have collateral like title deeds.

Most of them were women because traditionally, men are the custodians of title deeds among other assets. Against that background, the first microfinance institutions (MFIs) to be established in the country including Kenya Women Finance Trust (KWFT), Small and Micro Enterprise Programme (SMEP), Kenya Rural Enterprise Programme (K-REP) – today known as KWFT Microfinance bank, SMEP Microfinance bank and Sidian Bank respectively- mainly served women.

These MFIs used the group lending methodology (where group members co-guaranteed one another in order to access loans) as opposed to the traditional collateral demanded by the mainstream lenders. This model (borrowed from Grameen Bank) was very popular with women engaged in micro enterprises like selling foodstuff in the market. The group meetings were therefore conveniently set during the market days so that many of them would attend. To this date, at a ratio of sixty five to thirty five, MFIs still have more women customers compared to men.

The AMFI-K secretariat (from left): Paul Karanja, administration assistant, Nancy
Chotero, programmes manager, Shadrack Mithika, finance manager, Caroline Karanja,
CEO, Pauline Otieno administrative officer, Susan Njeri, programmes manager.

The early 80s (first phase)

In a nutshell, the microfinance sector in Kenya has gone through four phases. In the first phase (early 80s), majority of the pioneer MFIs in the country were credit projects of non-governmental organizations (NGOs). These NGOs ran the projects in order to enhance their sustainability. For instance, SMEP was a project of the National Council of Churches of Kenya (NCCK), SISDO was started as a project of OXFAM in partnership with the Government of Kenya, KADET was under World Vision, while Faulu Kenya was a project of Food for the Hungry International.

The late 90s (second phase)

Since these NGOs were mainly funded by grants from well-wishers, they found it uncomfortable to run projects that advanced money to members of the public at an interest. In essence, they argued that such a move amounted to generating profits using these grants, contrary to their mandate. To avoid this conflict of interest, the said projects were converted into MFIs by their sponsors, albeit with a clear mission – alleviating poverty among the economically disadvantaged people.

These new outfits were registered as companies limited by guarantee by the respective NGOs, but they remained under the control of the founders who continued to supervise and even fund some of them. During this phase, K-Rep converted into a commercial bank so that it could broadly provide more products and services to the larger society.

In the late 90s, mainstream banks in the country were not keen on lending to the micro, small and medium enterprises (MSMEs) since they viewed them as high risk. Consequently, MSMEs were mainly financed by MFIs, Saccos and through family savings.

The entry of commercial banks

After getting loans from MFIs, customers would open accounts with commercial banks. As these customers succeeded in their businesses, banks started offering them higher loans compared to the ones they were getting from MFIs. In the process, MFIs lost some of their successful customers. Spotting an opportunity to grow their businesses, commercial banks (especially Equity Bank and Co-operative Bank) scaled down by developing products for the MSMEs. They also started recruiting their own customers in this market segment, hence competing directly with the MFIs.

During this phase, MFIs started recruiting professional managers and the government developed a keen interest in the sector. There was tremendous growth in the sector with new players entering the market and the old ones developing more innovative products and increasing their outreach.

MFIs also increased loan amounts to successful customers, instead of referring them to commercial banks. As they became stable financially, MFIs started funding their operations from commercial loans as opposed to relying on grants.

Despite these developments, MFIs still continued to focus on the bottom of the pyramid. They did not drift in their mission to alleviate poverty. “Microfinance is not just about the disbursement of microloans,” says Caroline Karanja, chief executive officer, AMFI-K. “It entails provision of inclusive financial services that address the enterprise’s and entrepreneur’s unique situations,” she adds.

In realizing these unique features, MFIs in Kenya provide personalized financial solutions which focus on the individual customers in order to transform their lives. New entrants in the sector have therefore experienced challenges while executing this model. Most of them have therefore focused on check-off loans for the salaried employees in the formal sector; a model that is less tasking.

2000 to date (the third phase)

As the sector continued to grow, the leading MFIs were concerned that there was no legal framework to regulate it. Consequently, AMFI-K, the umbrella body, started lobbying the government for the legal framework to be put in place. Ultimately, the Microfinance Act was enacted in 2006 and later gazetted in 2007. In 2008, regulations were developed and the Act became operational.

This saw the birth of deposit taking microfinance institutions (renamed microfinance banks in 2014 after the amendment of the Microfinance Act) that were regulated by the Central Bank of Kenya. Nevertheless, the credit only microfinance institutions are not under this legal framework which is a major challenge in the sector.

Microfinance banks have been able to attract both local and international investors because of operating under a regulatory environment.

During this phase, a number of leading foreign MFIs have entered the Kenyan market including ASA of Bangladesh, Real People and Platinum Credit. The Government of Kenya has also initiated a number of funds (Uwezo, Youth Enterprise Development Fund and Women Enterprise Fund) to support the growth of MSMEs and to create employment among the youth and women.

MFIs and MFBs are also using mobile banking platforms to disburse and collect loans from their customers hence enhancing their efficiency and reducing the cost of doing business.

In order to meet the needs of their customers who are mainly concentrated in the rural and peri-urban areas, MFIs have developed an array of innovative products including: micro insurance, water and sanitation, agribusiness as well as green energy loans.


Despite experiencing tremendous growth over the years, MFIs and MFBs have grappled with some challenges. To start with, they lack adequate and affordable funds for on lending to their customers, forcing them to rely on commercial loans that attract high interest rates. This reduces their profits.

Secondly, since the credit only MFIs are not under any regulatory framework, their space has been invaded by shylocks and other unscrupulous lenders who overburden desperate customers with punitive interest rates in order to make quick money.

Thirdly, the infrastructure in most of the rural areas where MFIs and MFBs draw their clientele is poor and this raises the cost of doing business.

Finally, some MFIs have weak governance and management structures since they are run by owner managers as opposed to professionals. This adversely affects their stability and overall growth.



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