Magazine article UNESCO Courier

Enterprise in Africa

Magazine article UNESCO Courier

Enterprise in Africa

Article excerpt

Microfinance in Africa has grown out of the informal economy and social welfare programmes. The next step is to provide it with a legal framework.

The Kenya Rural Enterprise Programme (K-Rep) is one of the largest micro finance institutions (MFIs) in Africa. Since it was founded in 1984, it has made available over 50,000 loans worth $17 million and is now financially sustainable. It is currently transforming itself into a regulated financial institution, just as MFIs in other African countries are doing in order to tap their financial markets for funds, and thus minimize or eliminate dependency on donors.

A new strategy

At first microfinance in Africa was usually handled by institutions that ran social welfare projects, and little attention was paid to promoting financial sustainability. The projects did not reach large numbers of people and were criticized for not being cost effective. There was no clear strategy.

Next, many African MFIs looked to the experience of other continents, notably Asia and Latin America. There was a major change of method, whereby training and technical assistance were hired off from the delivery of financial services. This "financial systems approach" is now widely followed by MFIs in Africa, including K-Rep.

In its early years K-Rep supported credit programmes that were tacked on to social welfare programmes, providing them with grants, training and technical assistance. Over time it became clear that welfare and relief institutions found it difficult to adapt to the financial systems approach and that the mix of credit delivery and training of entrepreneurs was having a limited impact.

K-Rep therefore adopted a new strategy in 1989, notably by changing the form of its financial support from grants to loans. Finally it started its own direct lending scheme, Juhudi Chikola.

Abundant choice

When it decided to establish a bank, K-Rep considered the question of whether or not to continue with its other development activities, and whether these goals could be achieved by a bank. Its response was to go on with these activities because it believes that microfinance is not a panacea to development problems. …

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