Headquartered in Embu, Bimas Kenya is one of the leading credit only microfinance institutions in the country. It has a very strong presence in the rural areas where it mainly serves the economically active low income earners. To that end, agribusiness is one of its most outstanding products. Bimas Kenya is one of the players that has been championing the unveiling of regulations for the credit only microfinance institutions in Kenya. Bimas Kenya Chief Executive Officer, Dr. Patrick Gathondu (pictured) recently spoke to Biashara Leo on the pivotal role that is played by credit only microfinance institutions (also known as non-deposit taking microfinance institutions) and the benefits of regulating them. Excerpts:
WHAT ARE THE MAJOR CONTRIBUTIONS OF NON DEPOSIT TAKING MICROFINANCE INSTITUTIONS TO THE SOCIO-ECONOMIC DEVELOPMENT OF KENYA?
In the last few decades, credit only microfinance institutions have had enormous impact on the rural areas. They have contributed immensely to the socio-economic development of the rural areas where they are mainly the only known form of organized credit. Were it not for the presence of these institutions, the rural folks would be left at the mercy of shylocks who take advantage of them. If the growth of these institutions is anything to go by, then the demand for their products and services is very high. Microfinance has helped the marginalized to access finance and take their children to school, hence breaking the vicious cycle of poverty. Some local value chains can only be developed through microfinance where organizations (through donor support) have engaged agronomists and played a great role in market linkages. These are not things we have seen commercial banks or digital lenders do.It is therefore important to create an environment where they can thrive and create wealth.
WHAT MAKES THE BUSINESS MODEL OF NON-DEPOSIT TAKING MICROFINANCE INSTITUTIONS UNIQUE?
Our main delivery method is through group lending. We send credit officers who bring clients from communities together. They then form groups that are registered by the ministry in charge of social services. These clients are taken through a mandatory training where they are equipped with financial skills, made aware of the lending policies and get an opportunity to build trust with one another. After the training, they are appraised by our credit officers together with the group officials and then credit is administered on a gradual basis.
Data is collected through the use of physical loan forms and then keyed into the systems. Collection is done through group officials during weekly or monthly meetings that are attended by our credit officers. Money is either be banked or sent through M-Pesa by the group officials.
WHY IS IT IMPORTANT TO DEVELOP REGULATIONS FOR NON-DEPOSIT TAKING MICROFINANCE INSTITUTIONS?
Credit only microfinance institutions have always envisioned regulations through the already existing Microfinance Act that recognizes their existence. There is no other law that would fit the Microfinance Act. The key element is customer protection. We need to clearly distinguish between microfinance that is out to sustainably conduct financial inclusion and community development from the many money lenders that exist in the market. These are totally different models with different missions.
IN YOUR VIEW, SHOULD NON-DEPOSIT TAKING MICROFINANCE INSTITUTIONS DEVELOP DIGITAL PRODUCTS?
Yes they should because mobile lending has grown to reach the rural poor. Microfinance needs to develop efficient delivery channels that will help in better outreach and good turnaround time. It will also increase effectiveness and saving within the institutions and a likelihood to transfer the efficiency through friendly terms such as reduced interest rates. Digital channels will also increase the know your customer (KYC) systems.
DO YOU HAVE ANY OTHER PERTINENT ISSUES?
The government needs to really distinguish the credit only institutions from digital lenders and give support to the microfinance sector since it has helped many poor people throughout the decades. Indeed, their innovativeness has given birth to digital lenders.