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.
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.