For about 40 years, Margaret Mwelu Kamoli has earned her livelihood selling sukuma wiki (kale) and tomatoes at the heartland of Ukambani, earning Sh3,000 in a good month.
Now she is part owner of a “bank” worth Sh14 million in share capital. Located about two-hour drive from Nairobi, Nunguni Financial Services Association is one of the more than 80 such organisations operating in the country banking on the bottom of the low income earners.
“Someone coming to bank Sh20 in the morning and returning to withdraw it in the evening,” K-Rep Fedha Services Makueni Regional manager Jonathan Kioko says of their clientele. K-Rep Fedha Services, a subsidiary of K-Rep Bank, manages 56 of the 80 FSAs.
FSAs are village banks that are user-owned and managed, although Central Bank would sneer at the use of the bank terminology because, legally speaking, they do not meet the definition of a bank.
FSA being community-based organisations are licensed by the Ministry of Culture and Social Services, which restricts their operations.
“Not everybody wants to be a shareholder,” Mr Kioko says.
But extending the services to non-members would have FSAs run into trouble with CBK as they would be accepting deposits without complying with the Banking Act.
To become a member one needs to buy one share priced at Sh300 and pay Sh150 for the passbook.
“Our aim is to try as much as possible to make it relevant to the villagers,” K-Rep Development Agency Managing Director Aleke Dondo says.
Nunguni FSA has given out over Sh29 million in loans to its members, some of whom borrow as little as Sh1,000 and in some instances in hundreds.
The most successful FSA is said to be worth about Sh800 million in share capital, better capitalised than some of licensed commercial banks in Kenya.
“The model is unique in the aspect of the people it is targeting. People who are not considered bankable by other financial institutions,” Mr Augustine Daudi, the manager of Nunguni FSA says.
Commercial banks target the middle class defined by the government as those earning above Sh10,000 per month. Microfinance institutions serve earners on the upper category of the lower income, leaving those at the bottom unattended. Equity and Family banks are key players in the lower-income category.
“The model has helped mobilise capital and human resource in villages,” Mr Dondo says.
Majority of the FSAs are in Eastern and Western provinces where commercial banks are not widely spread and the incidence of poverty is high.
“Lack of financial services limits possibilities,” Mr Dondo says, adding that FSAs have changed economic prospects of the areas served.
Mobilising savings and lending it out has helped grow business and uplifted livelihoods.
An example of this progress is evident in the growth of Nunguni Supermarket from a small retail shop to the only supermarket in the town. Set up in 1983 as Nunguni General Store, Mr Samuel Kyalo Munyae has benefited from low-cost financing from the Nunguni FSA and converted it to supermarket in 2003.
“Competition among the retail shops and wholesales was very high. So we decided to go this way to set ourselves apart,” Mr Munyae says. The supermarket has three tellers with an average sale of Sh100,000 per day.
“With the bank near us we no longer have to travel to do banking,” he adds.
And for the members the increased borrowing can only be good for their investment as it guarantees dividend payout. Nunguni shareholders got a 24 per cent per share dividend payout, translating to Sh38 per share.
“The bank has changed our lifestyles. By borrowing at low rates and paying over a longer period, we are able to do much more than we could previously,” Mrs Kamoli.