Small lenders get big boost

President Mwai Kibaki has challenged micro-finance institutions to reduce the cost of credit and expand their services to meet the growing needs of low-income earners.

A vibrant micro-finance, which thrives on issuing tiny loans, the President said, would boost the country’s development.

“Due to the central role the micro-finance sector plays in national development, several challenges that stand in the way of achieving universal access to financial services among the poor need to be fully addressed,” he said on Wednesday when he officially opened the Africa-Middle East Regional Micro-Credit Summit at Kenyatta International Conference Centre, Nairobi.

The Head of State said there was urgent need to exploit the full potential of micro-finance in poverty reduction as various challenges facing the sector would be addressed.

He also called for the establishment of credit rating systems and credit referencing bureaux to ease business for micro-financiers.

MFIs in Kenya charge between 17 and 25 per cent interest on loans, which is way above mainstream banks that average 15 per cent.

“The sources of funds and the cost of providing financial services as well as the technology and infrastructure available to the sector remain real challenges,” said the President.

Micro-finance has reached most unbanked Kenyans and has an estimated membership of 6.5 million people in the country.

The four-day annual global summit, whose objective is to alleviate poverty in the continent, is being held in Africa for the first time.

Summit Campaign director Sam Daley said this year’s meeting was the most attended with more than 1,200 delegates from 75 countries across the world.

The President said it was micro and small businesses – and not large corporations – that drove employment and development in emerging markets.

The government would support micro-finance providers through improved regulation, he said.

“We have, for example, enacted the Micro-finance Act, 2006 to provide a more enabling environment for micro-finance institutions. In addition, we have enacted the Sacco Societies Act, 2008, which aims at improving the performance of a large number of cooperative micro-finance institutions.”

The Microcredit Summit Campaign has surpassed its original goal of reaching 100 million of the poorest people by 2007 and had now set a new target of 175 million families by 2015.

Deputy Prime Minister and minister for Finance Uhuru Kenyatta said appropriate reforms were being considered to enhance the effectiveness of micro-finance.

He said two micro-finance institutions had moved to depository financial services while eight applications were being considered by the Central Bank of Kenya.