Emerging trends in microfinance

Financial inclusion continues to be one of the key challenges in the microfinance sector today that would play an integral role in shaping its performance in the future. At the Mexico G20 summit last summer, 17 countries led by the Presidents of Chile, Indonesia, and Mexico publicly committed to advance financial inclusion. Although the term microfinance has been associated with the working methodologies of Muhammad Yunus of Grameen Bank and with organizations such as Opportunity International, Accion and ASA, its employment as a tool to fight against poverty has always been debated, since its usage still lacks a necessary component to creating successful entrepreneurship values.

The concentration of MFIs have been growing in the regions of Africa, Latin America and Asia over the years, and this trend is attributable to the increasing below-poverty line population in those regions alongside the proliferation of the urban poor. Primary sources of funds for early MFIs were generated from savings of clientele and venture capitalist funding. However, the scenario has been changing rapidly. Nowadays, Central Banks across the globe have been taking initiatives to allocate financial services to the poorest of the poor; this in turn, has enabled hundreds of MFIs around the globe to become profitable in the long run. Commercial banks have begun to acknowledge the profits they can achieve from the low end of the retail market and mobile phone operators continue to discover innovative methods of allowing the poor to access mobile-based banking services.

Over the past year, there have been various trends that have emerged in the microfinance sector as businesses and individuals continue to realize the benefits of microfinance. Some innovative trends that have been adopted by microfinance institutions as they try to make their solutions more sustainable are listed below-

•   Specialized Microfinance Institutions: Microfinance institutions are focusing on customer specific demands, which vary across a wide range of customers and according to the location. Last year saw an increasing progress in translating the needs of the poor into improved context-specific product offerings and policy approaches. A set of providers across the globe accelerated experimentation with innovative products that better match people’s savings needs and behaviors. For example, Jipange KuSave in Kenya tested the provision of interest-free loans with a third of the amount held back as savings. Opportunity Bank in Malawi has a commitment savings product for farmers that allow them to lock away their post-harvest payouts and distribute it over the year to smooth cash flows.

•   Diversification of Microfinance Institutions: Microfinance institutions believe in offering broad range of products and services under an umbrella of microfinance that previously started with small loans, now offers money transfer, insurance and savings services as well.

•    New channels: Branchless banking and franchisee-based services have become extremely effective and prevalent these days to approach potential clients who live in rural areas. One of the top developments in Kenya’s branchless banking industry was the launching of M-Shwari in Kenya, which provided access to savings and loans to M-Pesa customers. Through a partnership between Vodafone, Safaricom and the Commercial Bank of Africa, M-Pesa customers can now apply to CBA for a mini-loan and sign up for an interest bearing savings account, directly from their phones. Since its launch in November, M-Shwari now has 1million users.

•   Turnkey Solutions: Most of the microfinance institutions have started offering services to their clients that differ from traditional services like savings, insurance and loans. Some MFIs offer services such as supply chain management or assisting with marketing infrastructure to grow micro-businesses.

Achieving Literacy Through Technology in Africa

An update from one of our interns on the ground in Kenya:

Hello, my name is Dan Cembrola, one of Zidisha’s Kenya Client Relationship Managers. I am currently visiting Zidisha borrowers in Nakuru and its outskirts.

The town of Salgaa, located 30 kilometers west of Nakuru, would not be described as a technological hub. In fact, many of the homes here do not have access to electricity. Considering this, it is not hard to imagine that many residents of Salgaa are not overly familiar with the use of computers. Boaz aims to change this. 

Boaz opened his current store in July of this year but has been teaching computer literacy classes since 2010. He was previously conducting classes in his home. However, the genesis of Boaz’s passion and appreciation for computers dates back to 2008. Boaz was in the town center of Nakuru four years ago where he saw a young Kenyan student being instructed on how to use a computer by an older Indian gentleman. Boaz remembers thinking, “If this young boy can use a computer, why can’t I?” He promptly enrolled in a two month computer training course. 

Currently, Boaz has 20 students who attend his daily 2 hour classes. The students are taught to use Microsoft Office and various other computer programs. Upon completion of the course, each student receives a certificate verifying that they have a competent computer literacy. This certificate is now mandatory for many government jobs. Boaz says the course he offers would cost students 5,000 Kenyan Schillings in an urban center like Nakuru or Nairobi, but he is offering his course at 2,500 Kenyan Schillings to entice the technology wary citizens of Salgaa. 

With his first Zidisha loan, Boaz plans to buy a printer, scanner, and photocopier. In the longer term, he plans on expanding his current business which currently includes six computers. He envisions starting Salgaa’s first cyber café. He also wants to start working with some of the local schools to incorporate computer science into their curriculum. Boaz is passionate about helping members of his community enhance their level of computer literacy as he believes it is of the utmost importance when trying to secure a job in today’s economy. With the help of his loan from Zidisha, Boaz is spearheading the movement to educate his community. 

Technology Sets No Boundaries

Here is a great update from Traci in Kenya! She had the opportunity to meet with Duncan Chege earlier this month. Mr. Chege is a great example of the type of individual who is striving to make a real difference in his community. I hope you enjoy Traci's update! If you have any questions for Traci leave a comment below and I'll relay the message to her.

Hello, my name is Traci Yoshiyama, Zidisha’s Kenya Client Relationship Manager. I am currently visiting Zidisha borrowers in and around Nairobi.

Minds alike, Duncan Chege and Zidisha both envision a world where technology sets no boundaries, where opportunity is no longer stifled due to economic standings, and where geography plays no role in one’s level of success. Although late in the game, the technology industry in Kenya is growing at an overwhelming rate of 20% each year. With rapid growth comes rapid change, and a shortage in skills is a challenge that Kenya is currently facing. 

Seeing the way of the world and a need for technology education, Duncan Chege moved from his rural town of Rongai to Nairobi, the heart beat of Silicon Savannah. In 2009, with only one computer to furnish his shop, it was here that Duncan opened Vision Computers. Within its three years of operation, one computer quickly multiplied to eight, and upon receiving his first Zidisha loan in June, eight grew to ten. With more computers, students are now able to work independently without the fuss of sharing a screen or fighting over who gets to use the mouse. Duncan wishes to pay back his loan quickly, in hopes of being able to take out a larger loan, which would allow him to rent a bigger space. 

Providing internet services is only a fraction of what is offered at Vision Computers, for Duncan’s main objective is community development. Seeing technology as a tool for empowerment, he offers computer-training courses to youths. Many students coming from the surrounding areas, including a nearby slum, Duncan’s rates are much more reasonable than his competitors. In addition to training courses, he has also partnered with a local primary school. In small groups, children come to Vision Computers to receive informal lessons to acquire basic computer skills. As I speak with Duncan, eight children work together on a paint program, directing each other on what to draw and what colors to use. As I peek around the cubicle, I see a lime green house in the making. Children being sponges of knowledge, Duncan expresses the importance of exposing them to technology early on, in hopes of better serving their future. 

Before my visit with Duncan ends, he takes me to his partner school. Not having electricity, running water, and limited space due to other live-in tenants, I see how fortunate they are to have the resources that Duncan is providing. Wanting to spread the word about Zidisha, Duncan introduces me to the director of the school, hoping to extend his services in more ways than one. 

To view more pictures of Duncan and watch a short video of him and his students, visit talkingstory.posterous.com