Victorine Olwanda lives and works in the Siaya district of western Kenya. As a microfinance manager, it is her role to support enterprises for economic development through a Savings and Credit Cooperative (SACCO).
However, Victorine’s work is not simply about lending money. The cooperative works with self-help groups in the area, to train them in a range of skills. This training covers skills such as basic accounting as well as team-working, since money is borrowed from the cooperative with a group-guarantee.
The success of microfinance in the developing world is commonly traced back to the Grameen Bank, which started out in the Bangladeshi village of Jobra in 1976. Owned by those that borrow money from it, the Garmeen Bank is a cooperative. Furthermore, it does not require any collateral against its loans and it vows not to take any of its borrowers to court in the case of non-repayment.
The Grameen Bank and founder Muhammad Yunus jointly received the 2006 Nobel Peace Prize for "their efforts to create economic and social development from below. "Offering relatively small amounts of credit to people that would otherwise struggle to secure loans, microfinance cooperatives like the Grameen Bank and the Siaya SACCO are run for social means, rather than being driven by a desire for a profit. Their aim is to help close the development gap.
Why is microfinance so important in the developing world?
Microfinance is a response to the financial needs of the poor – those that have been locked out lending from commercial banks. Commercial banks tend to work with those in formal employment and the loans they offer are based on the financial security of the borrower.
People often need pay slips or land titles to borrow from commercial banks. But most women and youth in our community do not meet these requirements and therefore could not secure the loans they needed. Our microfinance cooperative requires another form of financial security – a group guarantee – and this has worked well.
So do people borrow as individuals or as a group?
People borrow money as individuals but their loan is guaranteed by the group members. The group offers social support and financial security for each member. Because the groups are composed of people that know each other well, they can ensure one another uses their loan sensibly.
Through the group guarantee, each person in that group is responsible to their peers. If one member in a group defaults on their loan, this can impact on the ability of other group members to receive loans, hence all members must ensure that everyone follows the loan repayment schedule.
What is the role of the Siaya SACCO, which you manage?
We have positioned ourselves as an appropriate financial institution that bridges the gap that between commercial banks and those that could not secure loans – the great unserved population of Siaya. We also work with a community resource centre in the area to ensure that our borrowers acquire skills.
Our role is to help our local community succeed in a range of different enterprises so that they can achieve economic development. Ultimately, we want people to put their potential to good use. All-in-all, we organise the community into groups (for the group guarantee), administer their savings accounts, provide loans for economic development and help to equip individuals with skills.
Why do people take out loans?
If people want a bigger return from their farming, loans can help purchase new machinery or to buy seeds. Group buying spreads these large set up costs and makes modern agricultural technology affordable. But these solutions do not have to be expensive or complicated.
For example, we are working with the community resource centre to encourage people to grow orange-flesh sweet potato, which is more nutritious and is worth more than normal potatoes. But people need the money to purchase seeds and the skills to grow this crop – that is where our support comes in.
We also give loans to youths to buy a motorbike so that they can set up a taxi service. Women are commonly given loans to invest in retail shops and farming. It is also common for people that take out a loan to invest in education for their children.
What are the benefits of microfinance loans over development aid?
Microfinance gives individuals a chance to grow their own ideas in a more sustainable way than development aid will allow. It allows people to provide for their family off of their own back. Most people also tend to be more careful in taking care of the things they have sweated for than things given free through aid. We therefore make sure that individuals have the skills to be self-reliant.
For example, the farmers planting sweat potato can sell to the market in bulk as a result of their access to credit. With loans, the same farmers may also be able to process their produce, adding value along the supply chain and increasing the value of their potatoes. This not only increases a farmer’s individual earnings but can also create additional employment in the community.
How much money do people typically borrow and how long for?
A number of different types of loans are offered and members always borrow according to their needs. Microfinance deals specifically with low-income borrowers and, to start with, most people will borrow between US$50 and US$375, which is payable in installments over 4 to 12 months.
After the first loan, people can continue to pay money into their savings account– a practice that we are trying to encourage. If people have their own savings then they can react to a poor harvest or a hospital bill. Savers also have the option to borrow more as their business grows and as their financial situation becomes more stable.
What relationship do you have with the recipients of your finance?
We try to develop a close relationship. We visit businesses and meet groups at a family home. Our main objectives are to ensure that all borrowers understand the nature of the loan that they are taking out.
But a large part of our work involves offering advice to help people invest their loans and develop their businesses and livelihoods effectively. To do this, we work with a community resource centre to ensure that the individuals accessing loans actually have the skills required to invest in the field of their interest.
If an individual is unable to repay their loan within the agreed period, they are issued with an extension. If this extension period lapses and the loan still has not been repaid, other members in their group are called upon to contribute towards the repaying of the loan.
Is it true that there can be no development without security?
This is true. People cannot develop if they are dependent on someone else to provide their basic needs – if they cannot afford to take their kids to school, for example. For development to be realised, everyone should be in a position to support all the needs of their family.
Working, being productive, earning for to support your family – these are all very important factors of development. Access to financial capital is key in achieving the development that our community needs. The services provided by the SACCO allow people to invest in enterprise, which allows them to be self-reliant and economically productive. This has to contribute to the development – and thus the security -of our region.
Can microfinance help in times of conflict?
We work with youth; it is so easy for them to get in conflict or cause havoc when they are not employed. Siaya SACCO has a specific product designed to offer motorbike taxis. This creates employment hence gives alternative source of income.
However, during the 2007-2008 post-election violence in Kenya, people feared travelling and there were little to no vehicles on the road. Since many young men rely on their motorbike taxis as a source of income, they were left without a job for this period. Some of those that struggled to make ends meets resorted to looting.
Siaya SACCA resolved to provide a loan directly targeting this group and helping them find an alternative source of income. It was agreed that they would start selling water, sweets and other snacks. This worked well and the group readily repaid their loan. Then they took out another loan – to invest in a cooler so that they could sell cold bottled water. All-in-all, this kept a group of young men economically productive during a period in which some of their peers were causing havoc.
What role, if any, does technology play in the microfinance project?
The microfinance project is aided by computers, which help with record keeping and service delivery. We also communicate with customers – especially the more remote ones - through mobile phones, which are now relatively widespread in our area of rural Kenya. This is mainly to organize meetings and follow up late payments.
Due to the widespread diffusion of mobile phones, many people now bank with M-Pesa, a mobile banking service provided by Safaricom phone network. Individuals can repay their loans through M-Pesa and we also use the service to bank their savings. Before mobile banking, people without access to commercial banking used to keep cash under their mattresses at home.
Victorine was interviewed in November 2012