FIRST SOUTHERN SUDAN MICROFINANCE CONFERENCE
Under the Auspices of the Southern Sudan Microfinance Forum
MICROFINANCE IN KENYA AND UGANDA
• MicroSave provides advice on market led financial services, either as a
donor project or as a consulting company.
• Currently we have 68 technical staff world wide based out of offices in
Kenya, Uganda, India and the Philippines.
• In Africa we now serve more than 55 corporate clients in 15 countries,
and we are growing our staffing so that we can continue to provide
excellence to our customers.
• Our services are wide and varied and include the Applied Microfinance
Institute and :
• Strategic Business Customer Service
Planning Deposit Mobilisation
•Market Research Electronic Banking
• Process Re-engineering Corporate Branding and
• Institutional Assessment Identity
• Credit Management Product Marketing
• Individual Lending
• Loan Portfolio Audit
• Product Development
KENYAN FINANCIAL INSTITUTIONS
MICROFINANCE IN KENYA
• Relatively highly developed financial sector in Kenya:
– 44 Banks
– 3,500 SACCOs (Credit Unions)
– 205 FOSA based SACCOs
– c.40 MFIs registered with AMFI
– Financial Service Associations
– ROSCA’s, ASCA’s, Merry go Rounds
– Managed ASCAs (VSLA, SILC)
– Large number of insurance companies
– Mobile phone based money transfer services
CHANGING PATTERNS OF ACCESS
High levels of exclusion
32.7% of the adult
population with no access to
There has been a significant
increase in financial
inclusion in 2009
suggests that this is still
banking the easy to bank
population, which has
similar characteristics to
Source FinScope 2009 those already banked.
DEVELOPMENTS IN THE KENYAN SECTOR
• There have been major changes in the Kenyan financial
sector in the last five years.
• New delivery channels
– Safaricom’s M-PESA mobile phone money transfer
– ATMs, Point of Sale devices
• Deposit led growth
– Equity Bank has grown rapidly to host over 54% of all the
deposit accounts in Kenya
• Transformation into deposit taking microfinance institutions
– Faulu (Kenya)
• But very high levels of concentration
Rapid development of a supportive regulatory environment
SACCO Societies Act
Payments Systems Regulation
Agency Banking Regulations
• Capacity constraints are evident though, particularly in
respect of the regulation of SACCOs.
NEW DYNAMICS - M-PESA
Said to be: 11 million
Relatively high levels of
usage particularly in
ATMS AND BANK BRANCHES IN KENYA
Competition and the awakening of the mass market is leading to
notable increases in outreach, particularly in terms of ATMs.
GROWTH IN EQUITY BANK
GROWTH IN EQUITY BANK
TRADITIONAL MICROFINANCE PROGRAMS
High concentration in the Kenya microfinance industry
• 70% concentration in three regulated institutions
– Faulu Kenya
– Jamii Bora
KWFT and Faulu Kenya are regulated under the Microfinance Act and
have invested heavily in developing deposit taking networks.
Jamii Bora ‘purchased’ a small bank. Jamii Bora is very interesting, as it
serves very poor people, and has automated its systems using biometric
based point of sale devices.
UGANDAN FINANCIAL INSTITUTIONS
THE UGANDAN FINANCIAL SECTOR
• 22 Commercial Banks (Some recently licensed)
• 3 Finance Companies
• 3 Microfinance Deposit Taking Institutions
• Many unregulated MFIs and Cooperatives
• MTN money transfer (c.850,000 clients)
• Growth in SACCOs (under the Prosperity for all program of
• Uganda has proportionately much lower levels of financial
access than Kenya, there are believed to be only 2million
deposit accounts in the formal sector, representing only
1million depositors (meeting with the BoU).
• Total banking sector assets around $4bn, which is roughly
equivalent to the top 3 Kenyan banks.
• Significant changes in the legal environment
– Microfinance Deposit Taking Institutions Act
– Mandatory Credit Reference Bureau registration
– Introduction of the Financial Identity Card
– Mobile Money as a product of financial institutions
A CHALLENGING ENVIRONMENT?
Whilst the Ugandan financial sector is growing rapidly, there
have been heavy losses in newer financial institutions
– Equity Uganda,
– Fina Bank
– Global Trust Bank.
• Are these losses due to rapid expansion and set up costs or
are there other reasons?
• Its not only new institutions that have suffered
– Losses in Barclays Bank Uganda
• Uganda has three microfinance deposit taking institutions
– FINCA, PRIDE and Finance Trust
• Transformed after lengthy and costly processes
– Significant increase in range of skills
– Large increase in costs
• Deposit ‘dividend’ not as significant as expected
– Convincing the market that they are safe places to save
– Competing with more credible institutions (banks)
– History of failed institutions
– Wish to avoid taxation (by avoiding financial records)
– Low returns to savings compared with other options
– There are criticisms that the MDI Act has not led to
significant increases in financial sector participation
– MDI Act is not very different from the regulation of
formal financial institutions, in many cases it is tighter and
– No new MDI licenses granted by the BoU since the initial
– Opportunity Uganda chose to be regulated as an NBFI.
DIFFERENCES KENYA AND UGANDA
• So what are some of the differences between Kenya and Uganda and what
can we learn from these differences?
– Regulation matters – but its difficult to get the balance right between
control and access
• Compulsory credit reference bureau should decrease credit risk
over time, but watch how this is implemented so that it does not
exclude financial access through costs!
• Regulation of mobile money as a product of a bank verses product
of an MNO
• Agency banking innovations expected
• Microfinance deposit taking – what is missing?
– Attitude of the regulator matters
• Kenya verses Uganda
DIFFERENCES BETWEEN KENYA AND UGANDA
– Kenya has a larger population which is more highly concentrated.
– Uganda’s population is widely disbursed
• Iganga is a small town with ten different financial institutions on
the same street!
– Low cost approaches will be needed outside major towns in S. Sudan
– Trust is a major factor in deposit mobilisation
• Kenya had banking collapses in the late 90s, but no major bank
has recently failed
• Uganda has a history of even very large banks failing
– When should S.Sudanese MFIs move into Deposit Taking?
– Uganda has shifted more completely to individual micro-lending, and
often larger loans which naturally carry higher lending risk
– Kenya has split its products more evenly
DIFFERENCES BETWEEN KENYA AND UGANDA
• Importance of Localised Research and Product Development
– Kenya has produced many products and services as a result of
extensive market research and pilot testing
– M-PESA (was developed over 18 months – MicroSave and Faulu
Kenya were part of the team)
– Equity Bank (many of Equity Bank’s products were pilot tested with
– Centenary Bank Uganda’s Home Improvement Loan
– More recent developments tend to be copies and have not done so
• Equity Bank Uganda
• M-PESA Tanzania
– Or have been developed based on very limited testing
• Barclays Bank
KENYA VERSES UGANDA
• Experiences with Credit Bureau have been mixed
– It will take time to properly evaluate the impact of the CRBs.
– In Uganda - high costs of credit bureau participation for microfinance
• High initial costs (mandatory)
• Charges per branch
• Charges are per loan (not on loan size)
– Could be pushing up average loan size and actually
• High costs in performing Financial Identity Card Registration
– In Kenya the CRBs have until recently been hampered by legal
constraints on the sharing of client data.
KENYA – UGANDA INSTITUTIONAL GROWTH
• Most growth has been highly institutional specific
– Centenary Bank in Uganda
– Equity Bank in Kenya
– Suggesting that getting the formula right is extremely important in
any market for significant institutional growth
– In these institutions deposit mobilisation has enabled the creation of
stable institutions able to grow from their own resources. Equity Bank
has more active loans in Kenya than the next three largest
– Brand building, products and services, market research, systems
EXPERIENCES FROM OTHER MARKETS
• MicroSave’s experiences in other markets, specifically India and West
Africa suggests that both institutions and markets take time to develop.
• The recipe for successful institutions changes as the market and
• Initial focus on core competencies
– Internal controls, audit
– Credit management
– Delinquency management
– Core lending products
– Staff Incentive Schemes
• Evolving into more market responsive institutions
– Market research
– Product refinement
– Product development
– Deposit mobilisation and payment systems
LESSONS FOR SOUTHERN SUDAN
• Experience with Regulating Micro Deposits has been mixed
– Becoming a licensed deposit taking microfinance program is
expensive, even for larger institutions.
• High costs for establishing branch networks
• High costs for developing systems
• High costs for employing specialist staff
– Expected large scale deposit mobilisation yet to occur
• Promise of using mobile technology to reduce costs especially in
Kenya where there are agency banking rules.
– However, Kenya and Uganda already have highly developed financial