CHAPTER 1. INTRODUCTION

Group-based lending was first attempted in Kenya by CID/Pride-Kenya with funding from the Kenya Rural Enterprise Programme (K-REP).

This report describes the experiences of pioneer group-based microenterprise credit programmes in Kenya. The aim of the study is to share with the world the Kenyan experience.

In 1990, K-REP, together with a group of Non Governmental Organisations (NGOs) involved in small enterprise lending, decided to adapt the group-based lending strategy in Kenya. They employed a modified version of a method developed by the Grameen Bank of Bangladesh. This marked a shift by the organisations from the traditional integrated lending strategy they had been using since 1987.

The transition was precipitated by hard evidence that providing credit linked to training had little impact on the beneficiaries and poor repayment rates. It was also expensive and reached very few entrepreneurs. The cost per loan in some programmes were over 100 per cent of the amount disbursed. Such programmes were unlikely to become self-sufficient.

K-REP made the first important process innovation in 1988, when it acknowledged these constraints and decided to identify a group-based lending system for use in Kenya.

In addition to leading the pioneers in diffusing the new microenterprise lending concept in the country, K-REP explored the possibility of financing Non-governmental organisations with a mixture of grants (30 per cent) and loans (70 per cent). Further innovative aspects of the transition was the decision by K-REP to test the potential of being both an intermediary (broker) and a direct lender (retailer). Even more remarkable was the decision made in June 1991 to lend through Chikolas. This particular system channels credit via indigenous groups already in existence.

After 12 months of operation it was evident that many more microenterprises could be reached cost-effectively. There were also good prospects for group-based lending schemes to becoming self-financing. Most of the programmes had each recruited about 1,000 clients and disbursed 680 to 1024 loans. Loan repayment among all the pioneers remained impressive (almost 100 per cent) over the first six months before crushing. By then the momentum in the number of delinquent loans had gathered a terrifying pace, without much hope that the group pressure-incentive system would work. That is when the real process innovations in group-based lending begun.

Today, some 48 months later, the original version of group lending has undergone remarkable changes. Looking at some of the output reported in the monthly monitoring reports and other financial statements prepared by these non-governmental organisations, one is likely to be either impressed or dismayed by what has been achieved by different organisations. Table 1 presents a one point comparative performance of the programmes.

Table 1: A one point comparative performance analysis by programme

Source: Monthly Monitoring of Reports

The information presented in table 1 raises several issues, some of which include the following:

· Why has Tototo, for example, disbursed fewer loans than PCEA Chogoria, yet they had almost the same resources and goals when they started?

· Why is KWFT, for example, able to finance almost 99.1 per cent of its costs while NCCK, which started two years earlier, is only able to cover 88.8 per cent of its costs?

· Why is the number of clients reached over the 48 months by scheme differ so much yet they all started at almost the same time and had similar objectives and targets?