Muhammad Yunus will celebrate his 80th birthday this year.
In the spirit of celebration, IEEE Entrepreneurship asked Mercy Chelangat, the Social Impact Liaison on the 2020 IEEE Entrepreneurship Steering Committee, to write an article about how microfinance works at the Maa Trust in Maasai Mara, Kenya. Isen Sitatian Kipetu, the Women’s Empowerment Officer at The Maa Trust & Mercy worked together to provide detailed insight on the subject.
“Muhammad Yunus, who was born on the 28th of June, 1940, is a Bangladeshi social entrepreneur, banker, economist, and civil society leader who was awarded the Nobel Peace Prize for founding the Grameen Bank and pioneering the concepts of microcredit and microfinance. These loans are given to entrepreneurs who are too poor to qualify for traditional bank loans. In 2006, Yunus and the Grameen Bank were jointly awarded the Nobel Peace Prize ‘for their efforts through microcredit to create economic and social development from below’. The Norwegian Nobel Committee said that ‘lasting peace cannot be achieved unless large population groups find ways in which to break out of poverty’ and that ‘across cultures and civilizations, Yunus and Grameen Bank have shown that even the poorest of the poor can work to bring about their own development’. Yunus has received several other national and international honors. He received the United States Presidential Medal of Freedom in 2009 and the Congressional Gold Medal in 2010.” – Wikipedia
What exactly is Microfinance? Please tell us a brief description of what this involves.
Microfinance is a type of banking service provided to unemployed or low-income individuals or groups who otherwise would have no other access to financial services. It can also be used as a savings system within a community’s group to ensure savings amongst themselves and additionally as a loaning structure where group members can lend their savings, with an interest fee, inside of the group or outside of the group.
Microfinance groups are empowering many women in communities to start their businesses. How many groups of women are involved in the Maa Trust microfinance programs? How many women in total are involved?
The Maa Trust microfinance groups within the Maa Beadwork groups were founded in the year 2017 and fully registered the year 2018. A total of 26 Microfinance groups are now functioning as partners of the Maa Trust. The average number of women in each group is 25 members.
How does your microfinance scheme work? How many microfinance groups are now formally registered? What themes are involved in your programs?
All of the groups have a rotary savings SACCO initiative, which involves the pooling of money into a collective pool. This amount varies depending on what the members agree to contribute to the pool. Some members contribute a minimum of 50 shillings a week, while others contribute 500 shillings a week. The amount is then anonymously rotated from one member to another every week. This is a savings system ensuring that the prioritization of needs at home, whether major or minor, is met. 70% of the groups that practice the 50/500 shillings initiative also have a monthly savings scheme. In this scheme, after every three months of getting paid from the Maa Beadwork program, a contribution of 1000 Kenyan shillings is made into a collective pool (The Kenya Commercial Bank). These savings are stored and contributing members have the opportunity to lend out the saved money, with a compound interest rate of 5%, to members within the group.
20% of the groups using the 50/500 shillings initiative have a functioning table banking system where they collectively pool 10,000 Kenyan shillings monthly. The members within these groups often branch out from the Maa Beadwork groups and have unregistered groups of 5 to 20 members. The members see this as an opportunity to start the venture of lending out money to groups and individuals with a higher simple interest rate of 6% to 10%.
All of these microfinance groups have a monthly savings initiative separate from the ones stated above, where 1000 Kenyan shillings or 500 Kenyan shillings are contributed monthly. Using the Rotary Savings initiative, the money is rotated from one member to another in order to help purchase sustainable, spending, program items like water tanks, cooking gas, and solar home systems.
How do you onboard the ladies and women onto the microfinance programs?
The microfinance groups are independent and have appointed group officials within each group. The Maa Beadwork groups and the microfinance groups are different. The microfinance groups are open to women interested in the savings systems, where at any point, the women can withdraw from the microfinance groups. When a woman wants to become a part of the group, the group officials hold a meeting to introduce the potential group member and write a report to the Social Services Labor Officer in order to enlist the member who shows interest in joining. This also applies to women who wish to exit the group.
Are there any interest rates charged on the microfinance scheme?
Yes, the ROSCA initiative ensures that women in the group have a savings system that is open to loaning money that was contributed by outside parties, as well as loaning money to other outside groups and individuals who are interested. The women groups can also loan money to members within the group with as little as no interest. This, however, varies on the amount of loan requested. The maximum interest rate within a group is a 5% compound interest rate.
If money is loaned to outside groups, the compound interest rate increases to 10%. Currently, the Maa Trust acts as a bridge between loaning institutions and microfinance groups. Women groups have access to interest-free loans from a government initiative called the Women Enterprise Fund. These loans have denominations of 100,000 Kenyan shillings, 200,000 Kenyan shillings, 350,000 Kenyan shillings, 500,000 Kenyan shillings, 750,000 Kenyan shillings, and 1,000,000 Kenyan shillings. A total of 6 Maa Beadwork/microfinance groups have already benefited from these government loans.
What are the end benefits for women? Are the microfinance groups associated with the Maa Beadwork and Honey Farming women groups?
Of the 26 women microfinance groups, 17 are Maa Beadwork groups. The Maa Honey groups consist of 40 members who come from 5 of these Maa Beadwork groups. The microfinance systems have enabled the female members to use the microfinance groups as an alternative source of generating income through the daily group activity which involves beading. This applies to honey groups as well.
Do you have any workshop training tailored to microfinance women groups? How many have you conducted so far?
So far, there have been Economic Empowerment training sessions conducted for all 17 Maa Beadwork women groups. These training sessions have been conducted by the Economic Empowerment and Entrepreneur officer partnering with the Women Enterprise Fund. There will be two microfinance training sessions this year focusing on the microfinance groups’ overall/general development. This applies to all aspects of development, including financial, social, and political. The Maa Trust empowers women on their human and land rights in order to fight common gender inequality injustices faced in society.
What has been the impact of the microfinance projects? Tell us some success stories.
The women in microfinance groups are on the verge of achieving economic independence. The best part of all of this is that economic independence makes the women viewed as potential community/family decision-makers, thus creating an environment where women and men have equal rights. The women who have already received the Women Enterprise Fund Loan show potential, as most of them have already invested in income-generating activities. This also encourages their family and community members to join and look for potential sources of funding to invest in further income-generating activities.
Most of their spouses encourage the women to join microfinance women groups and look for external sources of funding to help them achieve positive economic situations. Before, a certain percentage of men in the community were against the women and their families joining these groups, as they were seen as foreign. Some considered that this would disrupt the chain of command in the community and the family. However, the positive results of the women microfinance groups empowering women have encouraged the community to embrace all of its aspects.
There are ups and downs to undertaking microfinance programs. What are the challenges you have faced as you execute the program activities?
The central essence of microfinance is to provide micro-entrepreneurs with loans to invest in their businesses. 20% of the Maa Trust microfinance groups practice the art of lending money, as well as receiving group loans. The most common problem amongst individuals within the groups is illiteracy. 92% of the group members are completely illiterate and 7% of the group members are literate but do not have good academic writing and numeracy skills. There is only 1% to 3% that have good academic writing and reading skills, as well as strong ability in solving numeric problems. This is the situation faced by women’s groups. For the youth groups, however, only 10% of the members are illiterate, 60% are literate, but have insufficient academic writing, reading, and numeric skills, and the remaining 30% are well-equipped skilled members.
With these statistics, women and youth groups rely mostly on outsiders or members within the group who have literacy skills, in order to excel as a group. However, this creates a situation where group members are not on the same page, which creates distrust between illiterate members and the members/group officials who are among the literate. It also creates an opportunity for the misuse of power by the literate few, over the illiterates.
The Maa Trust promotes programs within the microfinance groups, such as Adult Literacy and Numeracy skills training, in order to curb the problem stated above. This, however, turns out to be slow, as it takes a long time for the illiterate to be on the same academic level of the 1% to 10% of members who are literate.
What is your parting shot on microfinance programs?
Microfinance structures provide a base for social, economic and political development. This is a means of ending generational poverty and addressing issues/challenges faced by a community through entrepreneurial development. Most microfinance groups’ forums are also used as platforms for movements to address problems faced by a nation, as well as globally. Ensuring group members’ full control over the group with little or no external assistance is key, as these are platforms where influential leaders emerge, leaders who can identify key issues in societies and see to it that they are solved.