Microcredit borrowers need more than cash

When a microcredit loan is made, sometimes more than money is needed by the borrower to make the loan successful. Some entrepreneurial training, some discipline and a fair re-payment schedule are also needed for the borrower.

From this IRIN story, we read about a couple of microcredit successes and failures that took place in Kenya.

Two years ago, fed up with a husband who drank too much and provided too little, Julie Amunga, who lives in the sprawling Mathare slum in the capital, Nairobi, decided to start a business that would enable her to support her family.

“My friends and I all had husbands who drank too much and beat us at home and yet they were not providing anything for the home,” she told IRIN/PlusNews. “We would sleep with other men secretly to provide for our children but we realized we were not helping our children because prostituting would only make us acquire HIV and die early.”

Amunga and five friends decided to pool their savings and use them to start small businesses; they also got a microfinance loan from the Jamii Bora Trust, which works to empower youth and women in Nairobi’s slums.

While she and another woman have managed to sustain successful small businesses – she grows and sells vegetables and fresh fruit juice in the local market – the other three found it much harder to make the loans work for them.

“Their husbands cheated them and took all the money yet we were supposed to pay back the loan,” she said. “Others took the money without knowing which business they want to start, so … they ended up spending the money.”

According to Joseph Kwaka, executive director of Community Aid International (CAI), an NGO that runs a micro-credit programme in Nyanza and Nairobi provinces, making micro-credit available to women - and especially widows - helps cushion them from poverty, but without proper preparation and training, can just as easily backfire.

“Our experience with offering credit facilities to women is that many take the money and end up using it to buy family needs like food, clothes, without even starting a business for which you gave them the money,” he told IRIN/PlusNews. “Others will tell you the husband took all the money and used it for drinking or maintaining another woman, forgetting that this money should be repaid and the only way you can repay it is by starting a business enterprise.

“The family sinks deeper into poverty because the family property against which the credit was advanced is carted away by the lending organization,” he added. “Micro-credit then ends up as bitter pill for many women to swallow.”

Training key

Consefta Kimundu, who is raising eight children alone after her husband passed away five years ago from HIV-related complications, joined a group of widows to form a farming cooperative four years ago. The group, based in the Rift Valley's Transmara District, combined their contributions and approached a local bank for a small loan to lease land and buy seeds and fertilizer.

They had the benefit, however, of training from the UN World Food Programme (WFP), teaching them to measure the moisture content of the maize and how to clean the maize according to WFP standards.

“We meet weekly to encourage each other to repay the loan because we will need it again,” said Christine Nyongi, the group’s chairwoman. “We are now better farmers because we were trained by WFP in farming skills and how to keep our grains clean.”

Earlier this year, WFP’s Purchase for Progress initiative gave the group a contract to supply 250MT of maize.

“Now my children can go to school - I can buy their uniforms, buy them shoes and clothes and they are happy like other children,” Kimundu said. “I can buy food for my family and I can buy something for myself too.”

According to Kimathi Mutua, managing director of K-Rep Bank, which, with USAID, runs a programme to provide microfinance to people living with HIV, it needs to be about more than just providing money.

“A programme like ours helps to reduce stigma that women face because it gives them hope and protects them against the negative economic impact HIV might have on their lives, but it is not enough to give them money,” he said. “Train them in business skills, how to market their businesses and even customer care so that they have a holistic business knowledge.”

While several studies have shown that microfinance empowers women financially and improves their self-confidence and even reduces HIV risky behaviour, a 2002 Ugandan study found several drawbacks to many microfinance programmes, including too-small loans that enabled women to purchase household needs but kept them in the same economic bracket, oppressive repayment periods and lack of proper training in business and other skills. The authors suggested providing women with sufficient training and loans large enough to buy meaningful assets that would significantly improve their financial position.