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MESPT’S EXPERIENCE IN WHOLESALE FINANCING: PRESENTATION AT AFRACA WORKSHOP

This presentation highlights MESPT's experience in wholesale financing, providing credit, business development services, and capacity building for microfinance intermediaries in Kenya. It discusses the funding, legal status, loan criteria, types, terms, progress made, and challenges faced by the organization.

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MESPT’S EXPERIENCE IN WHOLESALE FINANCING: PRESENTATION AT AFRACA WORKSHOP

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  1. MESPT’S EXPERIENCE IN WHOLESALE FINANCING: PRESENTATION ATAFRACA WORKSHOP NAIROBI SAFARI CLUB 28/09/06 AFRACA Presentation 28/09/06

  2. ORIGIN • The European Union and GOK implemented the Micro Enterprises Support Programme between December 1997 to December 2002. • The programme had 3 components • Credit • BDS • Institutional Support and Capacity Building (ISCB) • BDS and ISCB were sinking funds (grants) while credit was a revolving fund. • To continue with activities of the credit component, EU and GOK agreed to form a public (not private or Government) Trust. AFRACA Presentation 28/09/06

  3. LEGAL STATUS • The Trust was notified under legal Notice Number 104 of 20th June 2001. • First set of Trustees signed the Trust Deed on 30/10/2002. • Trust deed registered on 12/11/2002. AFRACA Presentation 28/09/06

  4. FUNDING • The Trust received seed capital of Euros 4.4 million from the European Union. • Trust has also entered into a US$ 2.0 Million rural finance Project implementation MOU with Danida. • Trust currently negotiating funds for:- • Growth oriented enterprises (missing middle) with potential for employment creation. • Capacity building for microfinance intermediaries and Saccos. • Trust also discussing collaboration with development partners and other organizations interested in funding the micro finance and Sacco sectors. AFRACA Presentation 28/09/06

  5. MANDATE • Credit (Funds for on-lending) • Business Development Services (BDS). • Institutional Support and Capacity Building. • Equity Participation. • Initial operations of MESPT in the credit component. • The aim in credit is to “Establish a strong, stable, market-based micro finance sector in Kenya”. AFRACA Presentation 28/09/06

  6. LOAN CRITERIA • MESPT works with organizations that reach or have the potential to reach a large number of Micro Enterprises on a sustainable basis. • Preference given to rural areas. • Potential borrowers must have audited accounts for at least 3 years. • Potential borrowers must have a healthy loan portfolio and a profitable track record. • Potential borrowers must have a reasonable number of potential borrowers. AFRACA Presentation 28/09/06

  7. LOAN CRITERIA (CONT.) • Saccos must have a stand alone micro finance component or willing to start one. • Borrowers must demonstrate that they are legally registered under relevant laws of Kenya. • Many of the aspects on loan criteria are negotiable. AFRACA Presentation 28/09/06

  8. LOAN TYPES AND TERMS • Currently providing working capital loans of between 3 and 50 million. • Loan period is 36 months. • Base interest rate is between 10% and 12% per annum on reducing balance. • A loan application fee of KShs. 5,000 is charged. AFRACA Presentation 28/09/06

  9. LOAN TYPES AND TERMS (CONT.) • A 1% commitment (appraisal) and legal fee is also charged. • Grace period is currently 1 to 2 months on interest and 3 months on principal for normal loans and 3 months on interest and 6 months on the principal for agriculture loans . • MESPT carries out surveys on loan conditions and interest rates to ensure that we remain competitive and fair to clients. AFRACA Presentation 28/09/06

  10. PROGRESS MADE • The Trust has approved 30 loans totaling KShs. 600 million. • MESPT works with other wholesale lenders to develop the industry as follows:- • Stromme microfinance • Jitegemee Trust • Oiko Credit AFRACA Presentation 28/09/06

  11. PROGRESS MADE (CONT). • Cordaid • ICCO • Novib • Planet Finance • Trust will work towards development of MSME Sector by collaborating with the following:- • World Bank MSME project (FSD) • IFC – SMEs Solutions Centre AFRACA Presentation 28/09/06

  12. PROGRESS MADE (CONT). • French Development Agency • DFID Financial Deepening Trust • DFID BDS Project • Danida – ASPS AFRACA Presentation 28/09/06

  13. CHALLENGES • A. National Level • Delay in the enactment of the Microfinance Bill. • The return of the Shylocks and crooks who are fleecing members of the public and destroying the industry. • Un-coordinated donor interventions and competition (MSME project policy component while the MSE Sessional Paper was approved in parliament the day before). AFRACA Presentation 28/09/06

  14. CHALLENGES (CONT). • B. MESPT Challenges • Inadequate funds for on-lending. • Sustainability and fair rates of interest and other loan costs. • Absence of capacity building support mechanism – (Not just loans are needed). • Collateral arrangements (process is cumbersome). • Reaching the smaller MFIs as lending criteria restricts us to the larger ones. AFRACA Presentation 28/09/06

  15. CHALLENGES (CONT). • C. At Client level • Perpetuation of poverty (the debt trap) • Inability to pass benefits to end borrowers (interest rates). • Poor Governance Structures (mismanagement and diversion of funds). • Efforts concentrated on the group lending approach (missing middle holds the key to economic take-off). AFRACA Presentation 28/09/06

  16. THANK YOU AFRACA Presentation 28/09/06

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