1 / 37

INTEGRATING FINANCIAL SERVICES INTO POVERTY REDUCTION STRATEGIES A CASE STUDY OF KENYA

INTEGRATING FINANCIAL SERVICES INTO POVERTY REDUCTION STRATEGIES A CASE STUDY OF KENYA. Prepared and Presented by: Edward K. Mudibo Managing Director, KUSCCO Limited Dar Es Salaam, Tanzania June 2006. Kenya's Economic, Social, Political and Demographic Environment. Economy

marcena
Download Presentation

INTEGRATING FINANCIAL SERVICES INTO POVERTY REDUCTION STRATEGIES A CASE STUDY OF KENYA

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. INTEGRATING FINANCIAL SERVICES INTO POVERTY REDUCTION STRATEGIESA CASE STUDY OF KENYA Prepared and Presented by: Edward K. Mudibo Managing Director, KUSCCO Limited Dar Es Salaam, Tanzania June 2006 AFRACA Sub Regional Workshop

  2. Kenya's Economic, Social, Political and Demographic Environment • Economy Poor economic growth coupled with an uneven distribution of wealth are the two principal reasons for Kenya’s dismal MDG record. Currently, the richest 10% of the population control almost half of the nation’s wealth, while the poorest 10% control only 1%. AFRACA Sub Regional Workshop

  3. Cont…. • The sharp deterioration in economic performance worsened the poverty situation. The number of people living in poverty is estimated to have risen from 11 million or 48 per cent of the population in 1990 to 17 million or 56 per cent of the population in 2001. AFRACA Sub Regional Workshop

  4. Social Services • The total Government expenditure on social services increased by 4.9 per cent in 2004/2005 financial years. • Total Primary school enrollment increased by 3.8 per cent, while Secondary School enrolment went up by 3.7 per cent. • The number of health Institutions increased by 4.4 per cent AFRACA Sub Regional Workshop

  5. Cont…… • Total expenditure on social services increased by 4.9 per cent from Kshs.106.1 billion in 2003/2004 to Kshs.111.3 in 2004/2005 financial year. AFRACA Sub Regional Workshop

  6. Political Environment • Mwai Kibaki of the National Rainbow Coalition (NARC) took over from Kenya’s historic ruling party -- the Kenya African National Union (KANU) -- to form the new government. • The new NARC government has promised to reduce corruption and has taken a number of positive steps in that direction: in addition to the Public Officer Ethics Act which is intended to provide a code of conduct for public officials. AFRACA Sub Regional Workshop

  7. Demographic Environment • The Kenyan population stands at 33.5 million within the total area of 582,646 Kms • 37% of the population is within the age bracket of 10 – 24 years. • The life expectancy is 44 years and adult literacy stands at 82%. • The GNI per capita is US$390. Seventy five (75%) of the labour force in involved in agriculture. AFRACA Sub Regional Workshop

  8. BACKGROUND ON POVERTY REDUCTION IMPACT STRATEGIES IN THE COUNTRY, CHALLENGES AND THE OF THESE STRATEGIES ON THE ECONOMIC DEVELOPMENT OF THE COUNTRY • Poverty remains an enormous challenge for Kenya. • In Kenya, the government has defined the poverty line as $17 per month in rural areas and $36 per month in urban areas. In 1994, 47 percent of Kenyans fell below this line; today that figure has grown to 56 percent. AFRACA Sub Regional Workshop

  9. Cont. • The major challenge facing the NARC Government is how to restore economic growth, generate employment opportunities to absorb the large army of the unemployed, particularly the youth, and reduce poverty levels. • The NARC Government is convinced that economic recovery is the primary vehicle through which it can achieve improved provision of education, health, better infrastructural services and gainful employment for Kenyans. • It is convinced that employment creation is the most effective strategy for halting the increasing poverty. AFRACA Sub Regional Workshop

  10. Policies for Poverty Eradication in Kenya • In response to rising levels of poverty and deteriorating social conditions, the Government reiterated its commitment to tackling this situation through the development of its Poverty Reduction strategy Paper (PRSP). AFRACA Sub Regional Workshop

  11. National Poverty Eradication Plan • The NPEP is a long term plan designed to fight poverty over a 15 year time frame, it was designed to be implemented in six years cycles and was launched in 1999. • Its main objectives are the reduction in the incidence of poverty in both rural and urban areas by 50 per cent by 2015 AFRACA Sub Regional Workshop

  12. Poverty Reduction Strategy Paper Its five basic components were to: • Facilitate sustained and rapid economic growth • Improve governance and security increase the ability of the poor to raise their income • Improve the quality of life of the poor • Improve equity and participation AFRACA Sub Regional Workshop

  13. It was devised from the work of nine sectoral working groups which include: • Agriculture and Rural Development • Information and Technology • Human Resource Development • Public Administration • Public Safety, Law and Order • Physical Infrastructure • Trade, Tourism and Industry • National Security • Macro economic policy AFRACA Sub Regional Workshop

  14. Cont. In general, the MTEF is intended to indicate the size of the financial resources needed during a 3 – 5 year period for purposes of meeting the policy commitments and goals determined and approved by the Government and legislature. Its key components are; • Setting fiscal targets, either top down to allocate resources between sectors or bottom up to allocate resources within sectors • Forward estimates of the costs of existing policies • Enhanced predictability and transparency AFRACA Sub Regional Workshop

  15. BACKGROUND OF THE FINANCIAL SYSTEM IN KENYA • The sector has a total of 69 financial institutions, which operate under the supervision of the Central Bank of Kenya (CBK). These include 52 commercial banks with approximately 400 branches countrywide, 11 Non-Bank Financial Institutions (NBFIs), 4 building societies and 2 mortgage finance institutions. AFRACA Sub Regional Workshop

  16. Cont. • On the other hand, there are approximately 3,120 financial intermediaries countrywide, which operate outside the supervision of the CBK. These are widely represented in the rural areas. Of these, 2,700 or 82 percent are SACCOS (rural based as well as employee-based, also known in Kenya as urban SACCOS), 500 or 16 percent are post office branches that provide deposit services under the auspices of the Post Office Savings Bank. AFRACA Sub Regional Workshop

  17. Cont. • Lastly, there are approximately 50 Financial Non-Governmental Organizations (FINGOs), which provide savings and credit facilities mainly to the informal sector operators. • According to KUSCCO’s strategy paper for 2004 to 2008 dated December 2003; there were 5.7 million members of Co-operatives in Kenya in 2002. AFRACA Sub Regional Workshop

  18. Cont. • This represented more than 63 percent of the Kenyan population. • . There were 9,984 registered Co-operatives out of which 7,050 were active. about 46 percent were agricultural cooperatives, 38 percent or 2,680 were SACCOS and 16 percent comprised of other types of Co-operatives such as handicraft, housing, consumers and multi purpose cooperatives. AFRACA Sub Regional Workshop

  19. A SACCO as an MFI • The main feature of a SACCO is embodied in the co-operative principles, which in this case can be summarized as: user-owned financial services. The savers/borrowers own and govern their institution, which provides them with financial services that they need. AFRACA Sub Regional Workshop

  20. Cont. • Unlike many MFIs, SACCOS place the ultimate accountability for the governance of their organization and its services with the members. This practically places responsibility for development of the SACCO where it belongs i.e. in the hands of the owners/members/beneficiaries. AFRACA Sub Regional Workshop

  21. Outreach: A Need to Expand the SACCOS Breadth and Depth • Unlike traditional MFIs which often receive external funding to target only marginalized groups, SACCOS have not been quite successful in reaching the bottom 20 percent of the poorest and marginalized groups. It is well recognized that to reach out the poorest groups in society is costly and arduous. AFRACA Sub Regional Workshop

  22. POLICIES AND LEGAL FRAMEWORK FOR FINANCIAL SERVICES IN KENYA • The existing regulatory framework imposes significant costs on business and has been identified as a major hindrance to the development of Medium and Small Enterprises (MSEs), and the formalization of the informal sector. To ensure that the cost of regulation is minimized, the Government will establish a Commission to review all business-related regulations, covering both legal and institutional aspects. AFRACA Sub Regional Workshop

  23. POLICIES AND LEGAL FRAMEWORK FOR FINANCIAL SERVICES IN KENYA………… • •Microfinance bill is underway • Cooperatives are regulated by the Cooperative societies Act • SACCO bill is underway • Banking Act restricts SACCOs from using the word BANK and dealing with non members to attract taxation AFRACA Sub Regional Workshop

  24. PROGRESS AND CHALLENGES EXPERIENCED IN MAINSTREAMING MICRO AND RURAL FINANCE INTO THE FINANCIAL SYSTEM Micro Finance Service Providers in Kenya During the 1990s, the institutions and organizations that provided micro finance and business advisory services to MSEs and the poor included the Government, banks, Savings and Credit Co-operative Societies, Kenya Post Office Savings Bank Ltd, rotating savings and credit associations, and non governmental organizations. AFRACA Sub Regional Workshop

  25. Cont. • The Government - There are 54 banking institutions nationwide and over 2,700 Savings and Credit Co-operative Societies. • Banking Institutions - Today, K-Rep Bank, the Co-operative Bank of Kenya, Equity Building Society and Family Finance Building Society have developed portfolios in micro finance on their own initiatives. AFRACA Sub Regional Workshop

  26. Cont. • Savings and Credit Co-operative Societies (SACCOs) - During 2001, the KPOSB had 16 full branches, 55 sub-branches and 450 outlets countrywide and over 2 million account holders. AFRACA Sub Regional Workshop

  27. Cont. • Rotating Savings and Credit Associations (ROSCAs) - There are numerous ROSCAs operating in Kenya with several of the smaller ROSCAs not even formally registered. AFRACA Sub Regional Workshop

  28. Cont. • Non- Governmental Organizations (NGOs) - Examples of some NGOS among others: • K-Rep Bank • Faulu Kenya, • Kenya Women Finance Trust, • Pride Ltd, Wedco Ltd, • Small and Medium Enterprise Programme (SMEP) • Kenya Small Traders and Entrepreneurs Society (KSTES) • Business Initiatives and Management Assistance Services (BIMAS) • Ecumenical Church Loans Fund (ECLOF) AFRACA Sub Regional Workshop

  29. Role of Microfinance in poverty Reduction – Demonstrated • Establishment of micro-business to raise standards of living • Provision of financial services to the women. • Capacity building for micro-entrepreneurs • Inculcating culture of savings in the lives of people • A source of employment both directly and indirectly AFRACA Sub Regional Workshop

  30. Cont. • Springing up of rural micro projects • Microfinance enhances capacity of the poor to dispose income • Micro-finance increases productivity in agricultural sector and enhance food security AFRACA Sub Regional Workshop

  31. Challenges in mainstreaming Micro and Rural Finance • Legal and Regulatory Framework • Reluctance by Commercial Banks to serve MSE Sector • Banking Institutions concentrate lending to large and medium scale farmers and business men, • Rising population and increasing unemployment hence migration, • high minimum balances • preference to invest in T.Bills, high interest rates • withdrawal from the rural areas • mobile bank units AFRACA Sub Regional Workshop

  32. Challenges in mainstreaming Micro and Rural Finance……. • Lack of Information on MSEs • Diversity in Institutional Form • Inadequate Governance and Management • Limited Outreach - There were a total of 117,647 active savers (voluntary and forced) with savings totaling Kshs 625 million at the end of 2001. • Limited Access to Funds - The shrinking donor funds AFRACA Sub Regional Workshop

  33. RECOMMENDATIONS ON MORE EFFECTIVE MAINSTREAMING OF MACRO AND RURAL FINANCE AND THE FINANCIAL SYSTEM • Changes in Policy Framework • Improving Networking, Co-ordination and Management of Micro Finance - a Micro Finance Division within the Central Bank AFRACA Sub Regional Workshop

  34. Options Available for Expanded Outreach by SACCOS • SACCOS to adjust to the greater autonomy from government controls • SACCOS to embrace the information communication and technology and to step-up education and training • SACCOS can learn a lot from the microfinance movement and vice versa • Government should provide an enabling environment AFRACA Sub Regional Workshop

  35. Cont. • A well thought out supervisory and regulatory framework • SACCOS must revise their By-laws to allow corporate membership • There is need for SACCOS to enter into partnership with MFIs, to establish links with informal groups AFRACA Sub Regional Workshop

  36. Commercial Banks Enhancing their Services • Establish a franchise system with the SACCOS with FOSA’s • Assist SACCOS to establish linkage banking with the informal groups • Reduce the minimum balances • Re-introduce the mobile services • Introduce a checking system for savings accounts • Introduce special products for SACCOS • Support the SACCOS with FOSA’s in technical training,. AFRACA Sub Regional Workshop

  37. THANK YOU! AFRACA Sub Regional Workshop

More Related