4.2 intermediate to long term Sustainability

The lack of ability of the minimalist programmes to use the savings base to on lend to their clients, means that the programmes will remain dependent on donor funds for lending capital for any expansion and that local funds are not being effectively utilized within the local community. While the authorities have turned a blind eye to the deposit taking of group-based credit, these deposits remain within the banks and the programmes cannot get access to these (except where savings are surrendered against bad debt). Legislative arrangements are required to permit banks and NGOs to work out a system which safeguards depositors rights but allows some degree of on-lending of deposits. There seems to be an indirect transfer of financial resources from the informal to the formal sector through this savings mobilization strategy. For example, all the savings amounting to KShs. 14.9 million mobilized from members by the schemes are deposited with various formal financial institutions. The whole amount was never used to lend to the informal businesses by the NGOs.

Secondly intermediate to long term sustainability requires the building of a strong base of creditors/clients whose enterprises are growing, markets are expanding and diversification and employment generation taking place. The contention is that programmes designed to assist enterprise development will only be successful if enterprises are growing, reinvesting and innovating. This has been described as transformation lending, seeking to graduate larger micro enterprises from the micro sector by providing services to support the transformation of micro enterprises into small businesses.