EMBU, KENYA // Ten years ago, Fredrick Njiru was working as a casual labourer digging ditches, hauling bags of cement and stacking bricks. For all his back-breaking work, he earned about US$2 per day, barely enough to rent a one-room concrete block apartment and feed himself with maize. Mr Njiru had loftier goals than merely surviving day to day. He wanted to open a barber shop. But with little savings, he lacked the start-up capital. Then he heard about Bimas, a microfinance institution working in the central Kenyan highlands. Bimas gave him a $150 (Dh550) loan, which he used to buy his first hair trimmer and rent a small shop.
Before long, Mr Njiru's business was successful. He paid off the original loan and has since secured almost $5,000 in additional loans, which he has used to expand his business, build a house and start a sewing company for his wife. "I started slowly by slowly," Mr Njiru, 33, said. "Having a business means a lot to me. Without that first loan I would have had nothing." Microfinance institutions such as Bimas are lifting people out of poverty across the developing world. Far from philanthropic, these microcredit banks are out to turn a profit while at the same time offering financial services to the world's poorest, who do not have access to mainstream banks.
In Kenya, there are about 1,000 microfinance institutions offering poor people loans sometimes as small as $100 or less. Jamii Bora, the largest such institution in Kenya, has 260,000 members and has lent a total of $43 million in 10 years. The company offers a wide range of financial products to the poor and uses innovative technology to provide better service. Microcredit was conceived in the 1970s by Muhammad Yunus, the Bangladeshi economist and Nobel laureate. His Grameen Bank is considered the world's first microfinance institution.
At Bimas, interest rates on microloans are a manageable 17 per cent. In the absence of microfinance institutions, the impoverished often turn to informal money lenders or loan sharks who charge crippling interest rates of up to 100 per cent or more. Repayment rates for microloans are around 90 per cent to 95 per cent. As a development tool, experts say microcredit is much more sustainable than handing out money or aid because it empowers people while giving them a sense of responsibility.
"People can rely on themselves if given a chance," said Nduati Mwangi, the director of Bimas. "We are giving people who have been shunned out of mainstream financial institutions access to capital and an opportunity to remove themselves from poverty." Borrowers form groups of about 10 to 20 members, reducing the risk for the lending institution. If a member defaults on a loan, they are beholden not just to the bank, but also to their peers. Loan officers trek deep into isolated rural areas to visit members and find new clients.
"You have to go out and do outreach," said Peter Ngugimuriu, a former loan officer and current supervisor with Bimas. "You have to spread the gospel of microfinance." Microfinance success stories are not hard to find in rural Kenya. Elizabeth Ndego, 43, joined a group of borrowers in her village and within two days, she received her first loan. In two years, she has borrowed $2,000, which she has used to plant fruit trees, pay her children's school fees and build a second house that she rents out.
"When I got that first loan, I thought it was like a miracle from above," she said. "I was only with my group for a few days and suddenly I had $300." Besides microloans, the institutions offer products such as savings accounts, mortgages and insurance to poor people. Jamii Bora, whose name means "good families" in Swahili, even issues debit cards, and uses mobile point-of-sale devices with fingerprint authentication to deliver cash to members.
Jamii Bora bankers travel around the country with the hand-held devices. Clients swipe their debit cards and press a fingertip on the device and can withdraw money or make a payment on a loan. "It's very convenient," said John Thuku, a Jamii Bora banker, demonstrating the device. "It reduces fraud and you can operate it from anywhere in Kenya." After the political violence that tore apart Kenya two years ago, microfinance institutions were instrumental in putting the country back together.
John Ouma, 27, was the leader of a street gang in the slum of Kibera that went on a rampage, killing people and looting during the post-election violence that lasted for two months and left 1,300 dead. Mr Ouma even ordered one of his men to kill the manager of Jamii Bora's Kibera branch, but the bank manager escaped. Within a few weeks, Jamii Bora offered to give him and his gang a loan to start rebuilding their lives. They used the loan to start a metal workshop, which gave jobs to disenfranchised youths in the slum. With the money from subsequent loans, they started a football club for young people.
"Jamii Bora came into our life when everyone left us," Mr Ouma said, inspecting rows of metal boxes and charcoal stoves that his workshop churns out. "Today, we are the people you can bank on to bring peace." firstname.lastname@example.org