ECLOF KENYA LTD ON WHY THE CREDIT ONLY MICROFINANCE INSTITUTIONS SHOULD BE REGULATED

Faithful to its vision of serving mankind with dignity and transforming their lives in the process, leading credit only microfinance institution is optimistic of achieving its noble goals once regulations are effected

By George Gichuki

ECLOF Kenya Ltd is one of the leading credit only microfinance institutions in the country.  Growing steadily over the years, the mid-tier lender has a presence in forty seven counties, a customer base of over 64,000 and a loan portfolio of Kshs.1.5 billion. Additionally, it has over three hundred employees serving nine regions countrywide as well as forty five offices.

Headquartered in Nairobi, ECLOF-Kenya Ltd was started as a loan programme for churches and Christian organizations before being incorporated as a microfinance company limited by guarantee in 1994. “After being incorporated as a company limited by guarantee, we were able to broaden our customer base and bring on board partners who would support us in serving our customers,” says Mrs. Mary Munyiri, chief executive officer, ECLOF-Kenya Ltd, adding that the support included loan facilities and working capital.

In 2019, ECLOF-Kenya Ltd was restructured. It became a company limited by shares. “This development was informed by the fact that we wanted to position ourselves in a way that we would serve our target market more effectively and attract a pool of partners who would support us with equity capital,” says Mrs. Munyiri. As a company limited by guarantee, ECLOF-Kenya Ltd would only attract debt financing.

Target market and product offering

The target market of ECLOF-Kenya Ltd is the economically active low income earners in both the rural and urban areas. Since most of the people in that income bracket do not own collaterals, they are unable to access credit from a good number of mainstream lenders. To overcome that hurdle, ECLOF-Kenya Ltd uses the group lending methodology. This method is also known as the Grameen model. It was popularized globally by Professor Mohammed Yunus, the founder of Grameen Bank in Bangladesh and a Noble laureate.  In that regard, ECLOF-Kenya’s customers form groups through which they co-guarantee each other in order to access loans. This is a cost-effective way of serving customers which also minimizes the risk of defaulting.  As a normal practice, customers closely monitor one another as they save and borrow through their groups. “The average size of our loans is very small and therefore serving a large number of customers at a go is advantageous to us,” says Mrs. Munyiri.  Another benefit is that ECLOF-Kenya Ltd  is able to offer non-financial services to group members conveniently and cost-effectively.  These services include training customers on financial literacy and business management.

Going by its current strategic plan, 60% of ECLOF Kenya’s Ltd customers are based in the rural areas, while 40% are urban residents. This is a conscious decision considering that most of the economically active low income earners (its target market) reside in the rural areas. In that regard, 26% of the lender’s loan portfolio is in agriculture, 10% is in social products, while general business takes the balance. The main goal of social products is to support the entrepreneur so that he does not use his working capital to pay for his personal needs like school fees and domestic items. Under this category is the wash (water, sanitation and hygiene) product. This product benefits the customers because they are able to purchase water tanks for harvesting rain water, sink shallow wells so that they can have water for domestic use and to give their livestock, irrigate their farms and to put up decent toilets and bathrooms. “The product is very popular among our rural customers who have benefited by roofing their houses, harvesting rain water and putting up modern sanitation facilities,” says Mrs. Munyiri.

Micro health insurance is another social product that is offered by ECLOF-Kenya Ltd. It enables customers to access affordable and quality healthcare. Additionally, as the world continues to seek solutions that are aimed at mitigating  the challenges related to climate change, ECLOF-Kenya Ltd has joined hands with several partners in developing a green energy product.  To that end, customers are financed to purchase and install solar panels as well as bio-gas systems.

With time, the enterprises of some customers operating in groups   grow, hence requiring more financing. Consequently, ECLOF-Kenya Ltd has created a window for such customers to access loans individually.  According to Mrs. Munyiri, by the time they graduate to borrow individually, these customers will have accumulated assets like land, stocks and big machinery which they can use as collateral.

Regulations

The move to develop regulations for the non-deposit taking microfinance institutions has been in the cards for quite some time.  It is spearheaded by the Association of Microfinance Institutions –Kenya (AMFI-K) in collaboration with non-deposit taking microfinance institutions who are its members. ECLOF-Kenya Ltd is one of them. “This is a very important development for the non-deposit taking microfinance institutions because we are expected to operate within some legal boundaries,” says Mrs. Munyiri. “Regulations will also level our playing field by spelling out the rules which every player in our field is expected to comply with, besides enhancing our reputation and enabling us to attract strategic partners,” she adds. She further says that once they are implemented, these regulations will help the non-deposit taking microfinance institutions in Kenya to develop best practices as they strive to be more attractive to their stakeholders – mainly the customers. Nevertheless, she cautions that these regulations should not stifle creativity and innovation among the players in this field. “There should be room for the individual players to exercise creativity while being guided by the best   practices that will evolve in the microfinance sector once the regulations are effected,” she observes.

Having been  in the lending  business for a long period of time, most of the non-deposit taking microfinance institutions already have models that are delivering the required results.  According to Mrs. Munyiri, the regulations will go a long way in strengthening these models. “It is all about strengthening our existing models, leveling the playing ground and weeding out the institutions or players which may be distorting the market,” she says.

Most importantly according to Mrs. Munyiri, the regulations will spell out ways and means of protecting the consumers   and ensuring that they are complied with.  “Currently, there is a good number of  players purporting to be non-deposit taking microfinance institutions   who are motivated by  profit maximization as opposed to addressing and protecting the needs  of consumers,” points out  Mrs. Munyiri adding that  the mission of credible non-deposit taking microfinance institutions is to  transform the lives of the economically active low income people. “The genuine non-deposit taking microfinance institutions   focus on breaking even and sustaining their businesses given their huge operational expenses as opposed to raking in huge profits,” she avers.

Mrs. Munyiri is also emphatic that once the regulations become effective, the lenders who are not within their ambit should avoid using the term microfinance, lest they are confused for genuine players by the target market. Currently, there are very many rogue players in the market that are branded as microfinance institutions, hence compromising the reputation of the key sector.

Commitment

As outlined in its current strategic plan, ECLOF-Kenya Ltd is focused on retaining its model as a non-deposit taking microfinance institution. “We are committed to serving our customers using our current model and we believe that we shall be more effective once regulations for non-deposit taking microfinance institutions are operationalized, just as it has been done for the microfinance banks and digital lenders,” Mrs. Munyiri avers. Further, Mrs. Munyiri is optimistic that  the non-deposit taking microfinance regulations will enable ECLOF-Kenya Ltd to attract more partners in the financial services space – debt and equity financing. As it strives to cement its relationship with customers, ECLOF-Kenya  Ltd will also continue training them in key areas like financial literacy and entrepreneurship according to Mrs. Munyiri.

Visionary

Under its agribusiness product offering, ECLOF-Kenya  is very strong in financing dairy farming. To that end, it has financed leading dairy farmers in Embu and Nyandarua counties to put up modern zero grazing units besides engaging a consultant to train them on how to boost milk production – for instance by  growing  nutritious animal feeds. Through the experiential learning model, these farmers have successfully trained other ECLOF-Kenya Ltd customers in their neighbourhood who are also engaged in the same business. “We are planning to roll out this winning model in other counties given its impact on transforming lives,” says Mrs. Munyiri.

Given its strong Christian foundation, ECLOF-Kenya’s vision is: ‘A world of human dignity and prosperity.’ “Underpinning this vision is the need to serve our customers with dignity so that they can achieve their dreams,” Mrs. Munyiri avers.

In view of the changing market trends, ECLOF-Kenya Ltd has embraced technology as one of its delivery channels. As a result, the lender has been able to serve its customers efficiently and effectively by minimizing the turnaround time. “Besides issuing cheques, we disburse our loans through the M-Pesa platform or electronic funds transfer (EFT),” says Mrs. Munyiri. “Our customers are also able to repay their loans through the M-Pesa platform,” she adds.

Microfinance is a model that has enabled many Kenyans in the rural and far flung areas to access innovative financial services and products. Its agenda to transform the lives of the low income (but economically active) population as opposed to profit maximization suits a developing country like Kenya. Time is therefore   ripe for non-deposit taking microfinance institutions to be regulated. It is a move that will make them solid, efficient and effective.