Kenyan diaspora backed Fountain Enterprise Programme (FEP) Group has been denied license by the Central Bank of Kenya to conduct microfinance banking operations in Kenya. FEP Group will now make their microfinance lending operations into an investment vehicle to profit from lending of loans under the new plan.
Co-founder and chief executive of FEP, Dr. John Kithaka in a note to the shareholders said, “Following notification from the regulator in March 2016 that our license was not approved as anticipated due to a stricter regulatory environment, the board of Fountain Microfinance explored other options for the company.” He had already issued a memorandum on July 1, 2016, stating “The shareholders approved the transition of the company to Fountain Global Investors Plc. The shareholders further approved the change of the objects of the company from banking to carrying on the business of an investment company.”
Patrick Njoroge, the governor of CBK declined to comment on the reasons behind the denial, despite approving the license on interim basis before. FEP had already suffered staffing costs of over Sh25.5 million last year.
Famed industrialist Ratan Tata the chairman emeritus of Tata Sons, Vijay Kelkar the former finance secretary and chairman of the National Institute of Public Finance and Policy, and Nandan Nilekani the co-founder of Infosys Ltd and the architect of Aadhaar, will join forces to start a microfinance institution (MFI) named Avanti Finance. This “technology-enabled financial inclusion vehicle”, will help “delivering affordable and prompt credit to under-served and un-served segments in India.”
Avanti may start operations by the end of this financial year after it received approval from the Reserve Bank of India. All gains received from this new philanthropic initiative will be reinvested by the partners back in the business. In a statement issued by the Tata Trust, “the aim is to leverage on the social sector presence of Tata Trusts and other like-minded partners and the rapidly evolving India Stack (Jan Dhan–Aadhar-Mobile), UPI (unified payments interface) and payments bank ecosystem. Avanti would use this ecosystem and will innovate on product design in consonance with the indigenous needs, to deliver seamlessly for the end consumer.”
It is important in India for the microfinance industry to become mainstream, allowing banks to leverage the knowledge generated to reduce their non-performing loans. The Microfinance Institutions Network (MFIN) said that there has been an increase of 84 percent in the loan portfolio of major Microfinance Institutions in India. Many are using technology to venture into new initiatives to connect billions to easy credit facilities. Many believe that investments by famed business will help increase awareness and reach of microfinance in India.
Poverty has been present even in the most successful countries and states around the world. IMF in a recent interview with Professor of Economics at the Massachusetts Institute of Technology (MIT), Abhijit Banerjee, discussed how poverty could be reduced and what measures can help forward resources to those who are dire need of it. His book, Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty can also serve as a potential blueprint.
While being asked why do we know so little about the more than one billion poor people in the world, Professor Banerjee said that first it is highly expensive to collect data on a billion people, and because we do not encounter them in our daily lives, we in general have no idea where are they or who are they. Moreover, many people are not known until they themselves come up to tell a story of their success and failures. Professor Banerjee’s book’s Foreword is also an interesting read as it tells about how poverty happens to be the biggest problem in the world. While commenting on poverty traps, Professor Banerjee thinks they do exist. For an instance, one can think that if the poor are lazy and unskilled, they may never progress they need to have skills to work. Second, if there are traps like these, then people should be given education and an opportunity to excel, which may get them the skills to do or find a job.
Professor Banerjee also thinks it is not money or aid that eventually helps the poor. Real money as per him, is the provision of microcredit, education, and more assets for the poor, deducted to help them strive towards a better quality of life. Unless money or aid is spent in this manner, efforts can never be sustainable. He thinks, maybe not providing any form of government subsidy to the rich can help solve the problem that involves more prudent rotation of money to the poor and needy.
At the end, Professor Banaue said that working with bureaucrats in the government can be hard, which eventually affects the poor. Although the resources are being provided, everyone has their own opinion on how they need to be spent and on whom they are to be spent. A uniform policy can help everyone, but can be hard to find.
Phra Subin Paneeto is a Buddhist monk and will provide you with smalls loans if you have the potential for good karma. His micro-lending schemes are now growing in popularity across Asia.
It is not unusual in Thailand for the locals to go to monks for small loans if they cannot go to a bank, but Phra Subin Paneeto takes it to the next level by believing in the rule of karma while providing locals with loans. Phra Subin Paneeto has witnessed poverty in Thailand when he embarked on a countrywide pilgrimage in the 1980s. By 1992, he was able to gather enough support to start his own micro-credit operations, which could help locals in southern province of Trad to get loans. The network uses Buddhist teachings and community management system to become one of the prime lenders, with over $63 million in loans and deposits. Local members usually contribute a small amount every month in Sajja Sasom Sab scheme, while borrowers borrow for medicine, education, clothing, and even building houses.
However, borrowers need up to three guarantees before they are provided with loans, while there is little to no interest on the loans provided. Phra Subin Paneeto warns them saying, “I’d say to them the money in the community must not be lost; so people need to solve the problem together with the community, by the community and for the community. They can’t take out the loan and not pay it back. So, anyone who is not honest, there won’t be anyone willing to be his guarantor.” This, in turn, is the rule of karma where the community needs to come out with its own solutions. Phra Subin Paneeto believes focusing on the welfare of people is more important than focusing on profits.
There are more than 21.3 million refugees, whoa re striving hard to rebuild their lives, after fleeing conflict zones across the globe. Apart from the refugees who live in camps, there are those who live in cities and are known as urban refugees. These refugees are in no need to receive aid from UNHRC or any NGO but need microfinance and small loans to rebuild their lives.
Although there is no shortage of financial capital to lend, many lenders took at refugees as “high-risk” group and think many would not repay their loans and flee back to their countries. Many refugees lack a residential address in host countries, making it even harder for them to open a bank account or receive loans. Many researches have proved that if microfinance is provided to those refugees who are stable in their countries and have experience in running businesses, it can be more beneficial. However, research also points out to the fact that the poorest of people are always not the biggest beneficiaries of loans. The International Rescue Committee (IRC) failed in 2000 to run an effective microfinance program in the Kakuma refugee camp in Kenya. They focused on poorest of the poor, particularly females, the results were worse than expected, and the fund closed.
However, one model known as the Graduation Model can help find refugees who are well suited to be part of a microfinance program. The model was recently promoted for refugees by the UNHCR. While working with an international development organization based in Bangladesh known as BRAC, it was piloted in 2013 first in Cairo, Egypt, and then in Costa Rica. This multi-tiered support approach aims to reach the urban poor refugees who earn $1.25 a day, allowing them to create livelihoods and elevate self-reliance, by skills and training, rather than savings.
Hence, looking at the need to ensure that refugees across various countries are allowed to foster through microlending, many can change their lives and support their communities and families in a more prudent manner.