Starting small as a ‘chama’ for women, credit only microfinance institution now has a loan portfolio of over one billion Kenya Shillings and a strong presence in the Coast region
By George Gichuki
Kenya’s microfinance sector is among the most developed in Africa. Its landscape has evolved over the years , especially due to technological disruption and customer preferences. As many players in the sector embrace technology as a delivery channel and to develop products, the sector has become very competitive. Renowned for their group lending methodology and a one-on-one relationship with customers, many players in the vibrant sector are now offering loans to individuals and businesses, accepting collaterals like title deeds and log books in the process. It is a new ball game altogether as they strive to become agile and cut down on operational costs, given the changing market trends.
Started in 2000 by a group of three hundred women from Kikoneni, a small village in Kwale, Yehu Microfinance Services Limited has also undergone a lot of transformation over the years in view of the changes in the microfinance landscape. Yehu roots are humble. The fast growing credit only microfinance institution was started as an intervention to address the needs of rural women in the coast region of Kenya. “ Due to cultural barriers and historical reasons, these women were unable to access financial services and products from the mainstream lenders,” says Mr. Adet N. Kachi, chief executive officer ( CEO) , Yehu. “Our goal was to create a vehicle through which women would mobilize savings; we never thought that we would morph into a big financial institution,” he adds. The pioneer members were only three hundred.
The vision bearer of Yehu was Dr. Rita Lugogo. She was then working with the Kenyan chapter of Choice Humanitarian – an international non- governmental organization (NGO) headquartered in Utah – USA. Choice has a presence across many continents – but its dominance is in Latin America. Dr. Lugogo has a very strong development orientation. This motivated her to find a financial solution for the needy rural woman that was simple and accessible. To start with, she encouraged the three hundred women to save twenty shillings per week. With time, the savings grew. The members therefore decided to start borrowing from their savings, especially during needy times like planting seasons. The idea was a game changer in the women’s lives. At last they had a platform through which they would save and access credit with ease. Dr. Lugogo is still serving Yehu as the board’s chair.
The success of this simple savings and credit platform informed Dr. Lugogo’s decision to look for seed capital from Choice Humanitarian that would be used in a setting up a savings and credit programme. She succeeded. Yehu (which means ‘ours’ in Mijikenda) Enterprise Support Service was therefore established in 2002. Within a short period of time, it started attracting customers beyond the original group of three hundred women.
As the programme continued to grow, a need to put up the necessary systems and structures to support its new status arose. It therefore started hiring qualified and experienced members of staff. That is how Mr. Kachi came on board as the CEO. “I was working in Botswana but towards the end of 2006, I came back to Kenya to serve Yehu,” Mr. Kachi recalls. “I was driven by Dr. Lugogo’s vision of transforming the lives of needy women residing in the rural areas,” he adds.
The first thing that Mr. Kachi noticed as the CEO was that Yehu was not getting sufficient attention from the board of Choice Humanitarian since the latter had other competing programmes to handle. Consequently, he spearheaded the creation of an independent institution with its own board of directors. This development led to the birth of Yehu Microfinance Services Limited in 2007 with its own board of trustees. “This independence helped in strengthening the policy and direction of Yehu, unlocking its huge potential and ultimately contributing to its immense growth,” says Mr. Kachi.
From a loan portfolio of only Kshs. 25 million in 2007, Yehu currently has a loan portfolio of over Kshs. 1.1 billion. That is significant growth by any standards. Additionally, it serves the entire Coast region (Kwale, Mombasa, Kilifi, Tana River, Lamu and Taita Taveta counties) where it has sixteen outlets. It has further expanded beyond the Coast region by opening branches in Makueni and Meru counties.
Mr. Kachi attributes Yehu’s growth to its strong rural presence. “We have curved a market niche deep in the rural areas, a segment that is shunned by many financial institutions due to the huge operational costs,” he says. “Most lenders prefer to operate in the urban areas,” he adds. He further says that as an institution, Yehu is friendly and responsive to its customers’ needs. It is also keen on strengthening, empowering and enlightening them as opposed to handling them aggressively.
Most importantly, the Coast communities where the lender has a major presence identify with the Yehu brand. Going by its name, they feel that it is their baby. “We offer solutions to the challenges facing our customers on a daily basis and we have therefore created a strong bond with them,” Mr. Kachi avers. “We are an intervention whose goal is to uplift the livelihood of our customers,” he adds.
Yehu offers an array of innovative products that are aligned to the needs of its customers. These products are competitively priced and their mode of delivery is moderated. A good example to this end is a product dubbed sikuku. It is meant to meet the needs of customers during festive days like Ramadhan, Christmas and Easter. “The Coast region residents (our dominant market) love celebrating holidays in great style and they are the ones who requested us to develop this product,” affirms Mr. Kachi. Another product on offer by Yehu enables customers to purchase goats at fairly low prices during the dry season. Then they fatten and sell these goats at a profit. The product has a flexible grace period and it is very popular with customers residing in semi – arid areas. Yehu’s school fees product is also unique since part of it is paid directly to the learning institutions as tuition, while the rest is advanced to the parents so that they can purchase learning materials, uniforms and personal items for their children. The turn-around time for these loans is one to two days. “This is one of the major strengths of our brand given that processing loans within such a short period of time in the rural areas where we mainly operate is no mean achievement,” avers Mr. Kachi.
Mr. Kachi also attributes the phenomenal growth of Yehu to its strong corporate governance. “We have a strong board that drives our strategy and an equally strong management team to execute the same,” he says. Most members of the management team have served Yehu for eight to fifteen years on average and they have a solid institutional memory, besides being very loyal.
Mr. Kachi laments that the microfinance business (mainly the credit only players) barrier to entry is very low in Kenya. This is mainly because the business is not regulated and even money lenders operating in the backstreets and who charge exorbitant interest rates call themselves microfinance institutions. The unorthodox practices of these rogue lenders end up tainting the image of the microfinance sector.
Secondly the entry of digital players to the lending business has heightened competition, eroded customer loyalty and compromised financial discipline among many customers targeted by microfinance institutions. This development has also led to multiple borrowing hence raising the credit risk level in the microfinance sector. “Microfinance institutions use digital platforms to offer services but that does not define us,” says Mr. Kachi. “We are not digital lenders and therefore we should not be subjected to the same regulations with the former,” he adds. Many mainstream lenders ( especially commercial banks) have also developed products for the bottom of the pyramid market segment hence eating into the market of microfinance institutions like Yehu and heightening competition.
Mr. Kachi is optimistic that once the credit only microfinance regulations are made operational by the government, the sector’s reputation will be enhanced and more customers as well as investors will come on board. “This will be a game changer,” he hopefully ends.