By William Steel (2004)
http://www.alternative-finance.org.uk/cgi-bin/summary.pl?id=83&view=html&language=E&sourcelang=E
Abstract
This paper presents the distinguishing features of the Kenya Entrepreneurship Promotion Program (KEPP) initiative based in Kenya. At present, KEPP facilitates 61 groups with about 1400 members. The author also touches on the subjects of sustainability and outreach regarding this particular program.
Key points of this paper are:
- KEPP is a methodology based on ROSCAs where the sum of money raised at each meeting has to be borrowed by one of the members for a fee (10% for one-month loans).
- KEPP is only a facilitator and does not mobilize any funds. Originally, it did not charge the self-help groups for the facilitation and training services, which was paid by donors.
- KEPP currently charges 1% of accumulated savings to each self-help group. According to the author, this amount could make the organization self-sustainable,
- KEPP would need to raise grant funds in order to serve a larger base of clients.
Summary
KEPP developed the Ngumbato Savings Initiative based on the methodology of the ROSCAs and was supported by international donors in this venture. The key elements of their initiative are:
- KEPP uses a methodology similar to ROSCAs, where every member contributes a sum of money and one member borrows it for a short period of time, paying interest on the loan.
- Interest payments plus continuing contributions allow the self-help group to accumulate a good amount of resources fairly quickly.
- At the initial stages, demand for loans is usually higher than the available resources, but over time, the groups are able to provide less expensive term loans (one year at 17%).
- Funds are immediately lent out, thus, there is no need to have banking facilities or external credit.
- Monthly contributions are treated as 'shares' and self-help groups set the value of shares, which is usually around US$1.50.
- Loans are in proportion to number of shares held by the member. Loans require another member to serve as a guarantor. There is an application fee.
- Provides annual dividends to members as well as group autonomy to decide on products, interest rates, loan approvals, penalties, and all essential matters.
The problems associated with this strategy are:
- Risk of loss is high given that all savings are lent out immediately. In order to minimize this risk, self-help groups are encouraged to keep a percentage of savings at a bank account.
- One-month loans at a high interest rate may be unsuitable to clients, since only some make a full payment, and about half of the one-month loans are rolled-over.
- Risk of default by one member is on average one person per group per year, and it is limited by the 2.5 ratio of loan to shares, which means that a defaulting member's share deposits would cover at least 40% of the principal owed and the remaining 60% is covered by the guarantors.
To gain independence from donors, KEPP began charging for its facilitation and technical assistance services, which can also make it potentially profitable. By charging 1% over savings of 25 self-help groups per officer, it is possible to cover his/her wage plus transportation expenses and other operating costs. However, if KEPP aims to increase its operations to new areas, it would need to rely on additional donor funding.