small enterprise promotion + training
sept working papers no. 03 2000
Replications of the Grameen Bank
Model as a Means to Eliminate Global
The author graduated with a M.A. in political sciences, anthropology and sociology at the
University of Trier, completing a thesis on the replictability of the Grameen Bank model. She is
currently finishing her degree in economics, international relations/developing countries and is
preparing for a field research in East Africa, planned to be carried out during autum 2000.
Barefoot Banking: Replications of the Grameen Bank Model as a Means to Eliminate
von Tanja Kern
The current prominence of Development Finance is partly due to the success of the Grameen
Bank in Bangladesh. This semi-formal bank targets the hardcore-poor and grants small and
micro loans to its clientel without demanding real collateral. The Grameen Bank
instrumentalizes peer-group mechanisms as a form of social collateral instead. Many
organisations within developed and developing countries are attempting to replicate this
The working paper sets out to analyse the success of a replication of the Grameen Bank in
Kenya, established by the Kenya Rural Enterprise Programme Holdings Limited (K-REP). K-
REP is a flexible replication of the Grameen Bank model. The working paper compares the
most essential Grameen Bank components to those of K-REP. Three possible explanations have
been established to which the various alterations of the K-REP model are assigned to. These
have been developed in order for the analysis to be systematic and in order to allow one to draw
conclusions about the replictability of the Grameen Bank model.
A special focus is given to the components that are necessary for the formation and functioning
of the peer groups. Offering loans to individuals and securing them by means of joint liability
provided by group members is the most essential element of the Grameen Bank model and is a
prerequisite for it`s success. Therefore, the relevant peer group mechanisms are defined and the
inadaquate establishment of some of the mechanisms is identified as being at least partly
responsible for occuring problems.
2 Development Finance and Microfinance...............................................................................................................3
3 Systematic Comparison of the Essential Grameen Bank Components ............................................................5
3.1 The Clientele .......................................................................................................................................................7
3.2 Empowering Women.........................................................................................................................................9
3.3 Focus on Rural Areas ......................................................................................................................................11
3.4 Loan Schemes for Poor Entrepreneurs .........................................................................................................12
3.5 Joint Liability....................................................................................................................................................15
3.6 Individually Determinable Activities............................................................................................................22
3.7 The Incentive of Long-Term Access to Small Loans................................................................................22
3.8 Repayment Discipline .....................................................................................................................................24
3.9 Success without Subsidies..............................................................................................................................25
3.10 Promotion of Savings....................................................................................................................................26
3.11 Social Development Agenda........................................................................................................................27
3.12 Flexible Management....................................................................................................................................28
sept working papers no. 3, 2000 1
The Grameen Bank in Bangladesh has been a very successful microfinance institution (MFI)
ever since the 1980s. The bank offers its financial services to the “hardcore-poor” and focusses
in particular on female entrepreneurs. Despite some criticism concerning the quality and impact
of the services offered by the Grameen Bank, the majority of experts come to the conclusion
that the successes of this semi-formal institution outweight its negative impacts.1 Following this
assumption, one would consider the replication of the Grameen Bank model a desirable and
useful strategy in the fight against poverty. Thus, the essential questions are, whether a
replication of the Grameen Bank model is (a) possible in any cultural context and whether such
replication (b) really holds the potential to eliminate poverty worldwide. This working paper
aims to answer these two crucial questions by means of comparing, on a sample basis, the
original model with a replic ation model in Kenya.
The Grameen Bank was initiated by Mohammad Yunus as a project of the University of
Chittagong, Bangladesh in 1976. The initial project involved disbursing micro-loans of 30 US-
dollars to fourty-two people. These loans were all repaid on time. This achievement confirmed
to Yunus that the hardcore-poor have the ability to deal with financial matters and it encouraged
him to extend the services on offer. The status of this project changed in 1983 when the target
group-oriented Bank was established. Since then, a Grameen empire has been created. The
organisation is involved in the production and marketing of its own chequered fabric, promotes
the spreading of internet activities, and the usage of modern sources of energy. 2 The bank does
more than just serving its clientele, it is owned by its customers.3
The Grameen Bank uses a minimalistic approach, in that its financial services on offer are not
supported by training. The MFI uses existing “survival” -skills and grants short-term loans for
the purpose of establishing self-employment facilities. The essence of the Grameen Bank’s
success is a group-based loan model. Loans are disbursed to individuals within a peer group and
are secured collectively by means of utilizing group processes. “Joint liability” serves as a form
of social collateral, making it possible for the bank to do without real securities. The Grameen
Bank does not offer subsidies. The interest rate is market-oriented, so as to ensure the long-term
financial sustainability of both, the bank and the borrowers.4
The wide range of the Grameen Bank`s services, as well as the successful repayment rate are
outstanding and can be considered as a major incentive to replicate the model elsewhere.
The possibility of a negative impact of microfinance programmes (e.g. increasing intra-household
violence against women) is pointed out by Rahman, Aminur: Micro-Credit for Poor Women in Rura l
Bangladesch: Rhethoric and Realities. Paper Presented at the 40th Annual Meeting of the Western Social
Science Association, Denver, Colorado, USA, April 15-19 1998 and Goetz, Anne Marie/ Gupte, Rina,
Sen: Who Takes the Credit? Gender, Power, and Control over Loan Use in Rural Credit Programs in
Bangladesh, in: World Development, Oxford, Vol.24, No.1 (1996).
See Grameen Bank: Grameen Bank, Dhaka (no date), pp.15ff.
Yunus, Muhammad: Grameen Bank: Experiences and Reflections. Presented at the Consultation on the
Economic Advancement of Rural Wo men in Asia and the Pacific Held in Kuala Lumpur, Malaysia on 15-
21 September, 1991 Organised by IFAD in Collaboration with the APDC and Assisted by the Ministry
National Unity and Community Development, Malaysia, Dhaka 1997, pp.8.
See Khandker, Shahidur, R./ Khalily, Baqui; Khan, Zahed: Grameen Bank: Performance and
Sustainability. World Bank Discussion Papers 306, Washington, D.C. 1995, pp.27.
2 sept working papers no. 3, 2000
Despite some deficiencies inherent in the model, which need to be addressed in the future,
empirical evidence shows that participation in the “Grameen family” generally has a positive
impact on the ndividual situation of most customers. For most microfinance programmes
however, the long-term benefit of the membership can be considered limited. 5
The Kenya Rural Enterprise Programme Holdings Limited (K-REP) is the star in the
Kenyan “microfinance sky”. This programme is considered one of the best Grameen Bank
replications within Africa. The organisation started off as a financial intermediator, initiated by
the US-American organisation “World Education Incorporated” in 1984. In 1989, unsatisfactory
results led to the introduction of the Grameen Bank model.
In 1999, K-REP changed its institutional status. Now, K-REP is a holding company, which is
comprised of a Non Governmental Organisation (NGO) as well as a target-oriented banking
institution called “K-REP Bank Limited”. The establishment of the bank enables K-REP to
achieve institutional sustainability, since the MFI can deposit its customers savings and thus to
use this as internal capital. 6
Besides, the group-based model “à la Grameen”, K-REP offers its customers an alternative
credit scheme. The Chikola Scheme is based on indigenous associations, which traditionally
function as an alternative source of capital. This scheme also utilizes peer-group processes as a
form of social collateral in order to minimize the risk of default. K-REP`s successes with its
minimalistic approach are remarkable and are categorised as “best practises“ along with Banco
Sol (Bolivia), Bank Rakyat (Indonesia) and the Grameen Bank. Nevertheless, a close look at the
Kenyan programme reveals some weaknesses concerning the repayment discipline and the
“joint liability” condition. These need to be addressed in the future. The programme performs
well in terms of subsidy independence, outreach and repayment discipline. The lack of
information available on the impact of K-REP’s services makes it difficult to form a reliable
statement on this issue.
This working paper aims to answer the crucial question, whether the results of K-REP speak in
favour of the worldwide replictability of the Grameen Bank. The hypothesis the analysis is
based on is as follows: A strict replication of the Grameen Bank model cannot be successful in
the long run without taking into account socio-economic and cultural characteristics. Cultural as
well as regional characteristics could turn into unwanted “import restrictions” on the model,
should these aspects not be taken into consideration. Culture can be defined in different ways. In
this paper, culture is understood to be:
See Breth, Steven, A. (Ed.) Microfinance in Africa. Mexico City 1999, pp.25. Bittner (1998) shows that
microfinance only helps parts of the poor population. He develops different categories of poverty that
make statements on the impact of MFI`s possible. Bittner, Andreas: Heiße Sonne - Hartes Geld, Mikro-
finanzierung in Entwicklungsländern am Beispiel Kenias, University of Leipzig Publications on Africa,
Politics and Economics. Leipzig 1998, pp.32.
Following the Kenyan „NGO Act“ from 1992, NGOs are not authorised to deposit savings. See
Pederson, Glenn, D.; Kiiru, Washington, K.: Kenya Rural Enterprise Program: Case Study of a
Microfinance Scheme. Africa Region/ The World Bank No.3, Washington, D.C. 1997, pp.15.
sept working papers no. 3, 2000 3
Culture is a historical derived system of explicit or implicit core ideas on live, which is shared
by the members of a group. 7
The analysis of the above hypothesis leads to a different result which shall be anticipatory
introduced: An identical replication of the Grameen Bank model leads to better results,
because the individual components of the model determine the efficiency of the „joint
liability“-instrument, which does not seem to be strongly influenced by cultural aspects.
Cultural influences should not be held responsible for every problem that appears. One has to
find valid empir ical evidence to support such a thesis. ”Cultural aspects“ are often presented in
an abstract and inaccurate way.
Before comparing the essential components of the original model to those of the Kenyan
counterpart, a theoretical framework will be drawn up which will allow the reader to understand
the aims of Development Finance and the necessity to promote microfinance services to the so-
2 Development Finance and Microfinance
During the 1980s, German development agencies began to pay attention to the significance of a
sound financial system for the growth and development of a country. Development Finance was
put on the agenda and new approaches and instruments were introduced. In the past, promoting
the financial infrastructure as well as promoting local savings was neglected in many
developing countries. This subsequently resulted in the infrastructure remaining inefficient and
also resulted in such countries depending on subsidies over the long term. 8
Infrastructural deficiencies are the main reasons why sections of the population in developing
countries do not have access to formal financial services. The demand for capital and for
facilities to deposit savings was not met by the required supply of services. Thus, the
accumulation of capital used to take place within indigenous associations, social networks or the
family either in monetary or non-monetary form (stock).9 Savings were seldom invested for
prof itable and productive purposes. Instead, they functioned as security for possible
emergencies or special occasions.
Restricted access to the formal financial sector is still a problem in many developing countries.
This results in the co-existence of informal, semi-formal, and formal financ ial institutions.
Sections of the population not being in the position to deposit real collateral as well as the non-
availability of bank branches throughout rural areas and formal banks being suspicious of the
See this definition of „culture“ follows Kluckhohn and Kelly. See Hansen, Klaus P. (Ed.): Kulturbegriff
und Methode. Der stille Paradigmenwechsel in den Geisteswissenschaften. Tübingen 1993, pp.176.
See Feige, Thomas: Der vergessene Sparstrumpf, in: Deutsche Gesellschaft für Technische Zusam-
menarbeit (Ed.): Akzente. Aus der Arbeit der GTZ. Sonderheft. Focus Finanzsysteme, Eschborn 1996,
The storage of agricultural products or the stock of animals can be considered a form of informal saving,
which can be turned into liquid assets easily. See Temu, A.E./ Hill, G.P.: Some Lessons from Informal
Financial Practices in Rural Tanzania, in: African Review of Money, Finance and Banking, No.1(1994),
4 sept working papers no. 3, 2000
hardcore-poor as customers and vice versa are major reasons for destitute people being
underrepresented within formal institutions. Formal financial institutions generally avoid
offering services to the hardcore-poor as they consider the risks to be too high and profits too
low due to high transaction costs. Many banks trust neither the creditworthiness nor the
bankability of the poor clientele.10 Money lenders, demanding horrendous interest rates,
indigenous associations and financial transactions within social networks serve as alternative
sources of capital available to everyone. 11
Steady long-term growth is dependent on the mobilisation of national capital resources. The
promotion of national savings is necessary in order to establish healthy competition within the
financial sector. This in return, is a precondition for the optimal allocation of the existing capital
stock. Neglecting “national savings” leads to an imbalance in the relationship between
investment and savings.12 Finally, it results in a long-term dependency on subsidies and donor-
money and lasting deficencies in the financial sector.13
A major goal of Development Finance is to improve this situation through the promotion of
“microfinance”. Microfinance institutions shall thereby cover the local demand for loans by
offering an alternative source of capital to the poorer clientel. 14
Development experts focus on creating financial technologies and techniques especially suited
to the needs of those groups who have been excluded from formal financial services.
Microfinance is supposed to be a means to fight poverty, improve the financial infrastructure, as
well as to promote the private sector.15
The financial sector is in need of reform both at the top and at the bottom. The “ top-down
approach” is intended to create macroeconomic conditions necessary for a reform-friendly and
reform-favourable climate. On the other hand, the “bottom-up approach” aims to extend the
financial sector through the innovation of new financial sub-systems and financial institutions.
Firstly, this expansion is to take place horizontally by means of offering a broader supply of
financial services (financial broadening). Secondly, the expansion is to take place vertically by
See Bittner, Andreas: Armutsbekämpfung durch Kleinkredite - Das Beispiel der Grameen Bank in
Bangladesh, Berichte und Analysen Dritte Welt Nr.10, Bremen 1995, pp.3.
The interest rate demanded by traditional money lenders can be as high as 10% per day. See Yunus,
Muhammad: Group-Based Savings and Loan for the Rural Poor. Presented at the Inter-Country Work-
shop on „Group-Based Savings and Loan for the Rural Poor“ Sponsored by ILO (UN Inter-Agency Panel
on People`s Participation) Held at Bogra on November 6-13 1983, pp.1. However, traditional money
lenders do not play an important role in Kenya. See House-Midamba, Bessie: Class Development and
Gender Inequality in Kenya, 1963-1990, African Studies, Vol.20, Lewinston, Queenston, Lampeter 1990,
See Schmidt, R.H./ Kropp, Erhard: Rural Finance Guiding Principles, Eschborn 1987, pp.7.
See Seibel, Hans Dieter: Easy money: How to Undermine Financial Systems and Development, in:
Quarterly Journal of International Agriculture, Vol.33, No.1 (1994), pp.64/65.
See Kommission der Europäischen Gemeinschaften. Mitteilung der Kommission an den Rat und das
Europäische Parlament: Mikrofinanzierung und Armutsbekämpfung, Brüssel, den 30.09.1998, pp.16.
See Bohnet, Michael: Sparen und Kredit für die Ärmsten - Kleinstkredite als Schwerpunkt der
Armutsbekämpfung, dargestellt am Beispiel CGAP. Referat anläßlich der 20. Entwicklungspolitischen
Fachtagung der KAS e.V. "Entwicklungspolitik im Wandel - Zukunftsstrategien für die Eine Welt" 20.-
22. November 1997 im Bildungszentrum Schloß Eichholz, Bonn 1997, pp.1.
sept working papers no. 3, 2000 5
reaching new customers through new, target group-oriented institutions (financial deepening).
The ultimate aim is to integrate finance into the development process of developing countries.16
There are different options available when establishing a microfinance institution. The four
main strategies to build-up an institution that deals exclusively with the poor are as follows:17
• Downgrading - Formal financial institutions adapt to the local situation and to the
special needs of the new clientele. The most known example in this field is Bank
Rakyat from Indonesia.
• Linkage - Formal and informal financial institutions link-up.
• Upgrading - Informal and semi-formal financial institutions are upgraded. This can
include indigenous associations as well as cooperatives, which exist in various forms in
• Innovation - New financial institutions are created offering specialized services
exclusively to the poor. Examples here are the “Village Bank-technology” and of course
the Grameen Bank. 19
The Grameen Bank can be classified as being an “innovation”. It is a microfinance institution
that has been established in order to assist the hardcore-poor. It does not utilize indigenous
associations, but builds up a new financial institution using some of the basic ideas of informal
credit associations. Therefore, K-REP`s replication of the loan scheme “à la Grameen”, the so-
called Juhudi Credit Scheme, can also be considered as an “innovation”. K-REP`s second loan
scheme, the so-called Chikola Scheme, institutionalises indigenous associations and, thus,
belongs to the “upgrading”-category.
3 Systematic Comparison of the Essential Grameen Bank Components
Striving for a valid statement on the potential of Grameen Bank replications, it is necessary to
compare the crucial elements of the original model to those of the replication. A systematic
comparison offers the possibility to illustrate substantial changes of philosophy and/or
technology and helps to identify possible reasons for any differences or for any occurring
problems. An isolated analysis of the replication could lead to a distorted picture.
In this chapter, an overview of the philosophy and the applied techniques is drawn by presenting
twelve essential Grameen Bank components. These are compared with those of the Kenyan
See Bundesministerium für wirtschaftliche Zusammenarbeit und Entwicklung (Ed.): Sektorkonzept
Finanzsystementwicklung 046. Förderung von Sparen und Kredit, Bonn 1994, pp.7.
See Seibel, Hans Dieter (1994), ibid., pp.72/73 and Bittner, Andreas: Zur Förderung von Sparen und
Kredit im informellen Sektor - Ein Überblick, Berichte und Analysen Dritte Welt Nr.8, Bremen 1995,
The different forms of ROSCAs are explained by Seibel, Hans Dieter: Duale Finanzmärkte in Afrika.
Modernisierung traditioneller oder Traditionalisierung moderner Finanzinstitutionen?, in: Hampel, Dieter
(Red.): Kleinkredite als Entwicklungshilfe - eine Form der Selbsthilfe. Gemeinschaftsseminar mit dem
Weltfriedensdienst. Seminar 3/86 vom 18.-20. April 1986 in Falkenstein/Taunus, pp.16.
See Nelson, Candace/ Mk Nelly, Barbara/ Stack, Kathleen/ Yanovitch, Lawrence with Assistance from
The Poverty Lending Group of SEEP and Participants at the International Conference of Village Bank
Practitioners: Village Banking-The State of the Practice. The Small Enterprise Education and Promotion
Network and the United Nations Development Fund for Women, New York 1996, pp.3.
6 sept working papers no. 3, 2000
counterpart. The categorisation of these components being “essentially Grameen” was chosen
according to Gibbons (1994, 1995). 20 Gibbons is the founder of a Malaysian Grameen Bank
replication, called IKHTIAR. He considers the identical replication of these elements a
„conditio sine qua non“, if the model is to be successfully implemented.
The Grameen Bank components will be presented first and then K-REP`s components will be
discussed. The results of the comparison will be presented in a third step. Finally, the
components which were altered by K-REP or which turned out to be problematic will be looked
at again. The working paper offers three possible explanations to be allocated to each of the
components. 21 The aim is to assign existing changes and problems to one of the explanations in
order to draw conclusions about the replictability of the Grameen Bank model.
Explanation 1a) The Grameen Bank is an imperfect model. Replications of the original
components, therefore, can only result in the establishment of imperfect institutions or
1b) changes have been undertaken by K-REP, because the Kenyan MFI did not intend to
replicate the imperfect model, identically.
In spite of the overall success of the Grameen Bank, the MFI from Bangladesh is not a perfect
role-model for replications. Problems inherent in the model from Bangladesh could be imported
into the newly established institution. On the other hand, K-REP might have changed some of
the original components in order to avoid problems.
Explanation 2: The replication of the Grameen Bank model was not implemented
correctly or was incomplete.
K-REP failed to replicate the Grameen Bank consistently and precisely, which resulted in the
organisation being less successful than the original.
Explanation 3a) The model from Bangladesh is difficult to replicate under a different
cultural environment or 3b) K-REP changed some of the components in order to embed
the model under the Kenyan environment.
The Grameen Bank was developed in and for the specific setting of rural Bangladesh. An
identical replication might not be possible and/or K-REP might have changed some elements in
order to prevent the failure of the model.
Thus, the analysis proceeds according to the following scheme.
(1) Grameen Bank component
(2) K-REP component
(3) result of comparison
(4) explanation and conclusion
See Gibbons, David, S.: Replication of the Grameen Bank Financial System, Dhaka 1994, pp.2 and
Gibbons, David, S./ Kasim, Sukor: Banking on the Rural Poor in Peninsular Malaysia, Dhaka 1995,
pp.74. One of the elements described by Gibbons as being „essentially Grameen“ is not mentioned in this
working paper. The element „protection of the loan fund from inflation“ has not been taken into con-
sideration as there exists a lack of data regarding the subject. Besides, it was not perceived as an absolute
necessity to deal with the component within the context of this working paper.
See Kern, Tanja: Replizierbarkeit des Entwicklungsprojekttyps Grameen Bank. Chancen und
Schwierigkeiten bei der Adaption des asiatischen Modells an die Situation in Afrika südlich der Sahara.
Trier 1999. (Unpublished).
sept working papers no. 3, 2000 7
In the subsequent chapter, the initial questions will be addressed again and the results of this
working paper will be summarized.
3.1 The Clientele
(1) Grameen Bank component hardcore-poor, members
(2) K-REP component owners of Small and Micro Enterprises, clients
(3) result of comparison variation
(4) explanation and conclusion 1b - critical for effectiveness of instruments
(1) The Grameen Bank from Bangladesh is a microfinance institution that exclusively targets
the poorest of the poor. It aims to reach the bottom ten percent of the population. 22 Its founder
Professor Muhammad Yunus aims to improve the clientele’s ability to deal with financial
services. As previously mentioned, the poor are not just treated as customers, but the target
group holds substantial shares in the Grameen Bank. They consider themselves as members of
the “Grameen family”.23
Integrating the hardcore-poor turned out to be rather difficult however, as parts of them are too
old or not healthy enough to work in a profitable and efficient way. These sections of the
population must be integrated within programmes that address their basic needs before one can
even think about scaling up their income generating activities.
(2) The Kenya Rural Enterprise Programme Holdings Limited slightly varied this component.
Looking at the different approach of the Kenyan MFI, the reason for the changes becomes clear.
K-REP does not strive for the empowerment of the hardcore-poor, but primarily aims at
promoting businesses in accordance with the principles of a free market economy. The
clientele is chosen with view to minimizing the risks for the institution`s sustainability. Clients
are owners of Small and Micro Enterprises (SME), most of them offering their services within
the informal Kenyan economy, the so-called Jua Kali-sector. Jua Kali, which means “under the
sun”, is the Kiswahili word for the informal Kenyan economy. 24
Potential clients must prove that they already own a small enterprise and must also have the
required minimal capital. K -REP intends to increase the profitability of the businesses by
offering long-term access to increasing amounts of loan capital, in order to support the “missing
See Yunus, Muhammad: Steps Needed to be Taken for Poverty Alleviation, Dhaka 1992, pp.7.
This „feeling of unity“ is even reflected on the homepage of the Grameen Bank which presents the
institution and its members as a family. See http://www.grameen.com.
See King, Kenneth: Jua Kali Kenya. Change and Development in an Informal Economy, 1970-1995,
London, Nairobi, Athens 1997, pp.1, Stacher, Irene: Afrika südlich der Sahara: Erzwungene Abkopplung
und Informalisierung, in: Komlosy, Andrea/ Parnreiter, Christof/ Stacher, Irene/ Zimmermann, Susan
(Ed.): Ungeregelt und unterbezahlt. Der informelle Sektor in der Weltwirtschaft, Frankfurt am Main
1997, pp.165 and Neitzert, Monica: Human Capital in the Hot Sun, in: Economic Development and
Cultural Change, Vol.45, No.1 (1996), pp.71.
8 sept working papers no. 3, 2000
middle” in Kenya.25 Thus, the clients poverty will be gradually alleviated.
The bottom ten percent of the population are deliberately excluded from K-REPs services. This
part of the population is considered to be a threat to the organisation`s sustainability, because
they are not very likely to use the loan as an investment in profit generating enterprises. Instead,
their situation mig ht force them to use the capital for various consumption purposes. K-REP is
aware of the necessity to serve this clientele. The priority of the programme, however, does not
“allow“ the organisation to put their portfolio at risk.
(3) Variation: The component is slightly altered compared to that of the Grameen Bank. The
change is based on the more pragmatic and profit-oriented approach, which K-REP considers
necessary to secure its financial and institutional sustainability. K-REP thereby follows the more
“modern” and widely accepted approach, which is supported by various organisations such as
the Consultative Group to Assist the Poorest (CGAP).
(4) Explanation 1b) Changes have been undertaken by K-REP because the Kenyan MFI did not
intend to replicate the imperfect model identically. As has been mentioned, the variations can be
drawn back to the different approach of the Kenyan MFI. K-REP does not intend to serve the
hardcore-poor if this is to result in not being able to reach institutional sustainability. The
altered philosophy does not necessarily lead to problems but seems to be an appropriate means
to secure the organisation`s sustainability and, therefore, a way of guaranteeing the durability of
K-REPs relationship with its target group.
Choosing a different philosophy and target group contributed to some of the problems K-REP
has had to face in the past, however. Kimanthi Mutua, the managing director of K-REP, said
that a target group-oriented MFI such as K-REP must pay attention to those clients not having
access to alternative capital resources. If disregarded, this could result in the customers not
being interested in maintaining access to K-REP loans. Thus, some clients take a loan, but do
not repay and then drop-out to participate in a different, less strict programme.26
There is evidence that some of the problems K-REP was facing in the past have arisen because
its customers are not tailor-made for the Grameen Bank techniques and instruments and vice
versa. Incentives and sanctions of the original model were specifically chosen for one target
group of customers and therefore might not necessarily “fit” a different target group. Thus,
“carrot and the stick” might loose their efficiency and the model may therefore need to be re-
adapted to the partic ular situation of the new clientele. Keeping the customers dependent on
only one capital resource is problematic, as the danger of misusing this dependency is
obvious.27 The goal of microfinance institutions therefore should be to make the services on
See Billetoft, Jorgen: Between Industrialization and Income-Generation. The Dilemma of Support for
Micro Activities. A Policy Study of Kenya and Bangladesh. Centre for Development Research,
Copenhagen 1996, pp.107.
Mutua, A. K./ Mirero, S. M.: Report on the Grameen Bank in Bangladesh. The Kenya Rural Enterprise
Programme, Occasional Report No.1, (no date, no indication of place), pp.15.
This statistic is somewhat misleading since many female clients pass on the loan to their husbands. This
problem is acknowledged by the Grameen Bank staff but is tolerated by most of the Credit Officers as the
female clientel is known to be easier to mintor and to control. See Goetz, Anne, Marie/ Gupta, Rina, Sen
(1996), ibid., pp.60 and pp.95.
sept working papers no. 3, 2000 9
offer attractive in the long run by giving appropriate incentives to its customers while finding
the sanctions necessary to prevent the customers from defaulting.
Conclusion: The clientele of a Grameen Bank replication must be selectively chosen and strictly
maintained in order that the incentives and sanctions of the original Grameen Bank model have
an effect. If a different target group is chosen, the „carrot and the stick“ will generally have to
be adapted to accommodate the new clientele’s situation.
3.2 Empowering Women
(1) Grameen Bank component feminists
(2) K REP component instrumentalists
(3) result of comparison innovation
(4) explanation and comparison 1b) likely not to be problematic
(1) The Grameen Bank primarily focusses on serving poor women. Initially, Muhammad Yunus
aspired to achieve a minimum quota of fifty percent female participants in the programme.
Today, one can speak of a programme which promotes women almost exclusively. The rate of
female participants was thirty-one percent in 1980 and fourty-six in 1983. 28 Today, it nearly
makes up to one hundred percent.
The aim is not only to support women to innovate or to extend existing income generating
activities, but it is also to empower them in order to boost their self-confidence and their social
influence by offering them long-term access to capital and by integrating them into solidarity
groups. The Grameen Bank emphasises this issue, even though income generating activities of
females are generally less profitable than those of men. 29 Thus, the Grameen Bank does not
strive for profit maximisation “at all costs”.
(2) The Kenya Rural Enterprise Programme Holdings Limited would like to see women being
integrated more into the Kenyan economy, but does not strive for their social empowerment. K-
REP`s priority is to promote SMEs; women are not referred to as a special target group in the
organisations statutes.30 K-REP can be regarded as an “instrumentalist” type of institution and
the Grameen Bank as a “feminist” type. Instrumentalists integrate women in order to achieve a
broader objective such as “the alleviation of poverty”, feminists consider the aim of “gender-
equity” to be an important goal in itself. 31
See Ghai, Dharam: An Evaluation of the Impact of the Grameen Bank Project. A Study Undertaken on
Behalf of the International Fund for Agricultural Development as Part of the Mid-Term Evaluation of the
Project, (no indication of place) 1984, pp.54.
See Goetz, Anne, Marie/ Gupta, Rina, Sen (1996), ibid., pp.57.
See The University of Birmingham: Development Administration Group: An Evaluation of DFID Sup-
port to the „Kenya Rural Enterprise Programme`s Juhudi Credit Scheme“. Evaluation Report EV:CNTR
97 2205 A, London 1998 (unpublished and provisional version August 1998), pp.xii.
See Mayoux, Linda: From Vicious to Virtuous Circles? Gender and Micro-Enterprise Development.
United Nations Research Institute for Social Development. Occasional Paper 3, Geneva 1995, pp.5.
10 sept working papers no. 3, 2000
(3) Innovation: K-REPs renunciation of a special focus on women is somewhat an innovation,
which can be understood when looking at the different, more pragmatic approach of the Kenyan
organisation. Potential customers have to satisfy K-REP`s requirements of profitability and low
institutional risks in order to be accepted.
(4) Explanation 1b) Changes have been undertaken by K-REP, because the Kenyan MFI did not
intend to replicate the imperfect model identically. K-REP`s renunciation of the “women`s
empowerment“ component is based on the organisation`s pragmatic approach and is not based
on the better financial situation of Kenyan women. The social, economic and political situation
of Kenyan women also plays a subordinate role. For example, the economic situation of single -
mothers in Kenya and Bangladesh is similar.32
K-REP`s goal of reaching sustainability determines its choice of clientele. Women are only
chosen if they can fulfil the necessary requirements.
“(...) The logic of an emphasis on ”efficiency“ and ”cost-effectiveness“ for programmes
requires very careful targeting towards women who already possess a certain level of skill,
resources and experience to make best use of facilities offered, and who are already working in
industries and geographical areas with growth potential”.33
Bearing in mind the “overall” goal of profit maximisation and organisational cost minimisation,
the promotion of women is not the most rewarding choice.
“In many cases the ultimate logic of this is that female entrepreneurs may not be the best target
groups for such programmes, and it is difficult therefore to justify programmes for women in
these terms at all“. 34
Conclusion: Customers should be chosen in accordance with the overall goal of an institution.
The local situation must also be taken into account. Some of the Grameen Bank replications
have a special focus on women, some do not. The renouncement of such a component however,
does not necessarily imply a negative impact on the results of a programme. The profit-oriented
programmes, being the more popular programmes momentarily, tend to determine their clientele
in accordance with the goal of minimising institutional risk, resulting in most women being
denied access to microfinance services.
See Buvinic, Mayra/ Gupta, Geeta, Rao: Female-Headed Households and Female -Maintained Families:
Are they Worth Targeting to Reduce Poverty in Developing Countries?, in: Economic Development and
Cultural Change, Volume 45, Number 2 (1996), pp.265.
Mayoux, Linda (1995), ibid., pp.52.
sept working papers no. 3, 2000 11
3.3 Focus on Rural Areas
(1) Grameen Bank component rural focus
(2) K-REP component urban and rural areas
(3) result of comparison Variation
(4) explanation and conclusion 3b) non-problematic, necessary
(1) The Grameen Bank offers its microfinance services to the rural regions of Bangladesh. Most
of the rural population does not enjoy easy access to financial institutions and therefore to loans,
since formal institutions in general do not serve such “high cost, high risk, low profit” clientele.
The sparse availability of rural finance institutions and the reserved attitude of customers from
rural areas towards banks has resulted in the Grameen Bank introducing its concept of a target
group-oriented bank “that visits its customers at home”.35
(2) The Kenya Rural Enterprise Programme Holdings Limited offers its financial services to
both the rural and urban region of Kenya. Most of the K-REP offices however are located in
urban areas.36 There is no direct evidence of the rural poor being given priority. Instead, the
focus on promoting the Jua-Kali sector implies that K-REP prefers to lend to urban bus inesses.
The demographic situation in Kenya determines the organisation strategy. The population
density in rural areas of Kenya is much lower than it is in Bangladesh. Focussing on urban
SMEs therefore becomes a way for K-REP to limit its transaction costs, attract a large number
of potential customers, thus enabling the organisation to offer its services on a long-term,
”The ACOs [Area Credit Office] are located in areas that have high concentrations of
microenterprises and are close to Banking services. One of the weaknesses of the group-based
method of lending is that it can work only where the microenterprise population is large enough
to support a branch“.37
(3) Variation: This component has been adapted to the particular situation in Kenya. Altering
the target area was necessary in order to reduce organisational costs by reaching a larger
clientele within a “servable” area and therefore enabling microfinance services to be offered at a
sustainable and profitable level.
See Hossain, Mahabub: Credit Programme for the Landless. The Experience of Grameen Bank Pro ject.
Paper Presented at the 4th National Conference of Krishi Artoniti Samity Held at Dhaka on 8-9
September 1983, pp.5.
See Mutua, Kimanthi/ Oketch, Henry/ Banda, Moses/ Maru, Teresa/ Obuya, Marceline: It did not
Happen Overnight: The History of Group-Based Credit Programmes in Kenya, K-REP, Nairobi 1996,
Mutua, Albert, Kimanthi: The Juhudi Credit Scheme: From a Traditional Integrated Method to a
Financial Systems Approach, in: Otero, Maria/ Rhyne, Elisabeth (Ed.): The New World of Micro-
enterprise Finance. Building Healthy Financial Institutions for the Poor, Connecticut 1994, pp.273.
12 sept working papers no. 3, 2000
(4) Explanation 3b) K-REP has changed some of the components in order to embed the model
into the Kenyan distinctiveness. Looking at this varied component, the necessity to adapt at
least some of the original Grameen Bank components to the particular local situation in order to
be successful becomes clear.
Even if social networks have a tendency to be weaker within an urban context thereby having a
negative impact on the efficiency of the “joint liability“ component, there does not seem to exist
a simple alternative for K-REP serving primarily an urban clientele.38 K-REP invented a special
credit scheme that aims to allow for the integration of a rural clientele. This so-called Chikola
Scheme, is explained in section 3.4 below.
Conclusion: An identical replication of each component of the Grameen Bank model does not
necessarily reflect the specific demographic characteristics of the region. The variation of the
original focus on rural areas was necessary in order to minimize organisational costs.
3.4 Loan Schemes for Poor Entrepreneurs
(1) Grameen Bank component loans to individuals within a group
(2) K-REP component loans to individuals within a group (Juhudi)
loan groups based on indigenous model
(3) result of comparison replication
(4) explanation and conclusion 3b Positive potential of the Chikola Scheme
(1) The essence of the Grameen Bank model and the idea which has since attracted international
attention is to offer loans to individuals and to secure them by means of joint liability provided
by group members. The collective responsibility for the repayment of individual loans allows
the bank to lend money without demanding physical collateral, such as landed property. Certain
group processes evolve through the interaction of clients within peer groups. These processes
are utilized by the Grameen Bank as a form of social collateral. The structure of the peer groups
is shown in figure 1.
See The University of Birmingham (1998), ibid., pp.25.
sept working papers no. 3, 2000 13
Fig. 1: Grameen Bank - Loans to Individuals within Peer Groups
(loan disbursed to X)
group of 30 clients
five person peer group five person peer group five person peer group
XXXXX XXXXX XXXXX
five person peer group five person peer group five person peer group
XXXXX XXXXX XXXXX
The members of the five person peer groups are selected by the group itself, they have the same
gender, similar assets and live in the same area.39 Loans amount from two thousand up to ten
thousand takas and are disbursed to the clients after a group recognition test. The disbursement
follows a 2:2:1-sequence, meaning that the first clients must repay the loan, deposit savings and
come to the regular meetings in order to make sure the other group members get their loans, as
The following persons are liable for the successful repayment of each loans is (1) the individual
client, (2) the five person peer group, and (3) the center as a whole. The group qualifies itself for
a further loan if none of its members have defaulted on the previous loan. Peer pressure and peer
monitoring are regarded by the Grameen Bank as a form of social collateral and long-term
access to higher loans serves as a collective incentive.
(2) The Kenya Rural Enterprise Programme Holdings Limited has two target group-specific
loan schemes. The Juhudi Credit Scheme is a rather strict replication of the Grameen Bank loan.
The five person peer groups are called Kiwa and the centers are renamed Watano. The structure
of the groups is similar to that of the Grameen Bank which has been explained in chapter 3.4. In
the past, K-REP experimented with some of the peculiarities of the loan scheme. The
disbursement sequence was changed to 1:2:2, but this has been changed back again, because
the results did not improve. At present, K-REP manages the size of the Watano and Kiwa
groups as well as the loan size flexibly, in order to reflect the specific needs and wishes of the
customers.41 Up to date, the most essential elements of the original model have been retained by
The second loan scheme of K-REP is called the Chikola Scheme. It is modelled after indigenous
loan associations in Kenya and is based on the prominence of “Harambee” and mutuality. The
word “Harambee“ means “to pull together“ and it became a prominent motto under the former
Kenyan president Kenyatta..42
See Khandker, Shahidur, R./ Khalily, Baqui; Khan, Zahed (1995), ibid., pp.10.
See Rahman, Aminur (1998), ibid., pp.9.
See Pederson, Glenn, D./ Kiiru, Washington, K. (1997), ibid., pp.18.
See Grignon, Francois/ Maupen, Hervé: Les Aléas du Contrat Social Kenyan, in: Politique Africaine
70: Le Kenya. Le Contrat Social a l`Abandon (1998), pp.4.
14 sept working papers no. 3, 2000
“Chikola” is the Mijkenda-word for “merry go round” or “Rotating Savings and Credit
Association” (ROSCA).43 A ROSCA is the most well known form of the authochthone
associations. These associations are an informal source of capital for people who do not have
access to formal institutions. Homogeneous groups come together to pool scarce resources such
as capital or labour. 44 The pool is allocated to one of the participants at a time and can be used
for consumption as well as for investment purposes.
K-REP utilizes existing associations and disburses one loan, as soon as the Chikola group has
deposited ten percent of the loan amount. 45 Thus, up to fourty group members receive a loan
whereas the organisational efforts and costs remain similar to that of one individual Juhudi
loan. 46 The loan amount is then split up between the group members. The average individual
share equals up to 30.000 Ksh for the first, up to 60.000 Ksh for the second, and up to 120.000
Ksh for the third loan. Each loan officer has the capacity to disburse an additional 20.000 Kshs
above the average individual share.47 The cost advantages of the Chikola Scheme enable K-REP
to target a rural clientele since a great number of existing ROSCAs can be used in order to offer
services thereby saving costs and time.48
The Juhudi Credit Scheme and the Chikola Scheme are not designed to compete with one
another in terms of potential clients. Both serve a different clientele. The Juhudi Credit Scheme
offers short-term capital (repayment within 3 to 6 months) for urban profit-generating activities
while the rurally oriented Chikola Scheme disburses longer-term loans. The loan schemes
however, are becoming more and more alike. Problems relating to the lack of credit discipline
of some of the Chikola groups has made increased institutional supervision and monitoring
necessary. K-REP realized the need to concentrate on the group formation phase here. Weekly
meetings have been introduced and the disbursement of loans to individual members of the
Chikola group can now be prevented through the loan officer`s veto. 49
This resulted in the Chikola Scheme being more expensive than K-REP expected. On the other
hand, the more mature and trustworthy Kiwas are treated as Chikolas, as they do not need to be
monitored closely by the organisation anymore. As a result, the Kiwas gain responsibility and
the organisation minimizes its costs.50
(3) Replication and innovation: The Juhudi Credit Scheme is a rather strict replication of the
Grameen Bank loan scheme, even though some of the details have been treated flexibly. The
essential structure has been kept so far. The Chikola Scheme is a new microfinance service
See Esipisu, Ezekiel/ Nasubo, Geofrey/ Obuya, Merceline/ Kioko, Kanini: Lending through Chiko la
Groups. Four Years of Experience. An In-House Evaluation Report No.28, (no indication of place) 1995,
See Bittner, Andreas (1995/2), ibid., pp.20.
See Mutua, Kimanthi (1994), ibid., pp.14.
See Aleke-Dondo, C. (1994), ibid., pp.5.
See Esipisu, Ezekiel; Nasubo, Geofrey, Obuya, Merceline; Kioko, Kanini (1995), ibid., pp.43.
See Aleke Dondo, C. (1994), ibid., pp.15. Aleke Dondo argues that the potential of the Chikola Scheme
exceeds that of the Juhudi Credit Scheme by far.
See The University of Birmingham (1998), ibid., pp.53.
See Mutua, Kimanthi (1994), a.a.O, pp.13.
sept working papers no. 3, 2000 15
offered by K-REP. The scheme offers access to middle -term capital. Its minimal cost design
allows K-REP to target rural areas.
(4) Explanation 3b) K-REP has changed some of the components in order to imbed the model
into the Kenyan distinctiveness. As has been mentioned before, the Chikola Scheme utilizes
existing ROSCAs in order to minimize the institutional costs. In doing so, it enables K-REP to
integrate rural areas by using local qualities. The traditional prominence of mutuality in Kenya
is used for the benefit of the organisation. In African societies, individuality ranks below the
interests of a group. 51
The difficulties regarding the repayment discipline of the Chikola Scheme cannot be sourced
back to the inefficiency of the loan scheme, but to problems concerning the efficiency of the
“joint liability”. This will be subject of the following section.
Conclusion: Local potentials are utilized by K-REP in order to be able to offer cost efficient
services. This innovation helps K-REP to achieve institutional sustainability and enables the
organisation to serve the rural clientele.
3.5 Joint Liability
(1) Grameen Bank component joint liability and responsibility
(2) K-REP component joint liability and responsibility
(3) result of comparison replication
(4) explanation and result 2 - problematic replication
(1) The repayment discipline of the Grameen Bank clientele is impressive. Ever since the
establishment of the microfinance institution, there has been a successful repayment rate of over
90%. At present, it approximates 97%.52 The fundamental concept of the Grameen Bank is to
use joint liability as a form of social collateral. The solidarity that is built up within the peer
groups along with the collective goal of maintaining access to capital serve as incentives to
repay loans on schedule. The social pressure and the fear of losing access to funds are the
The “carrot and the stick“- method minimizes the organisational risks as the performance of
each borrower determines the future of the whole group and, therefore, is monitored closely by
See Dia, Mamadou: Entwicklung und kulturelle Werte in Schwarzafrika, in: Finanzierung und Ent-
wicklung, Dezember 19 Consultative Group to Assist the Poorest (CGAP): Focus No.8. Introducing
Savings in Microcredit Institutions: When and How?, Washington, D.C. 1997.91, pp.11.
See Yunus, Muhammad: Towards Creating a Poverty-Free World. D.T. Lakawala Memorial Lecture
Delivered at the Institute of Social Sciences, New Delhi, India on August 8, 1997, pp.5. The credit dis -
cipline of graduate borrowers is not as good as that of customers borrowing their first loan. See Wahid,
Abu, N. M.: The Grameen Bank and Poverty Alleviation in Bangladesh: Theory, Evidence and Limita-
tions, in: The American Journal of Economics and Sociology, Vol.53, No.1 (1994), pp.12.
Peer-groups are groups of similar age. See Hillmann, Karl-Heinz: Wörterbuch der Soziologie, Stuttgart
16 sept working papers no. 3, 2000
the peer group members. The effectiveness of this component enables the Grameen Bank to do
without real collateral and, therefore, enables the organisation to integrate poor entrepreneurs.
The advantages of joint liability include the attainability of economies of scale, the reduction of
risks through the avoidance of information asymmetries, and the avoivance of free riders.54
“Joint liability” is the crucial element of the Grameen-style loan scheme. Therefore, the
composition of the peer groups is very important. The development of a collective identity is the
result of certain processes during the group formation phase. Before being able to work together
efficiently, members of a new group must get to know each other first. They have to allocate
competences and to agree on group norms.
The cohesion of a group is of great importance in particular for the group`s effectiveness.
Achieving a cohesive group minimizes the risk of group members leaving the group. 55
Cohesion is influenced by different internal variables, such as the common goal, the applied
technique, remaining alternatives, and the results of the group activities. External variables also
influence the success of a group. The complementary needs and the similarity of members
attitudes and interests as well as the attractiveness of the group activities and the possibility to
utilize the group for purposes other than “just” financial ones are the basis for the establishment
of group cohesion. Once established, it increases the members acitivites and the solidarity
shown towards weaker group members.56
A second mechanism that has turned out to be important is co-orientation. The establishment of
coorientation on the different organisational levels as well as within the peer groups requires an
agreement on certain norms and a consensus on “assumed facts”. Member A must trust his
opinion about member B`s view on a certain topic X. 57 The members must understand and
reach an agreement about the tasks and goals of the group and must assume these issues as
being collectively accepted. Thus, future actions can be (partially) anticipated. 58 A perfect
consensus is established if
”(...) there is an infinite series of reciprocating understandings between the members of the
group concerning the issue. I know that you know that I know, and so on“.59
Thereby, the risks of each individua l member are reduced which results in the clients being
more willing to trust other members in advance. Coorientation must be established within each
peer group as well as in between the different hierarchical stages of the organisation. Clarity on
See Hassan, M., Kabir/ Renteria-Guerrero, Luis: The Experience of the Grameen Bank of Bangladesh
in Community Development, in: International Journal of Social Economics, Bradford, Vol.24, No.12
See Crott, Helmut: Soziale Interaktion und Gruppenprozesse, Stuttgart, Berlin, Köln, Mainz 1979,
See Sader, Manfred: Psychologie der Gruppe, München 1976, pp.82.
See Scheff, Thomas, J.: Towards a Model of Consensus, in: American Sociological Review. Vol.32,
No.1 (1967), pp.34.
See Papa, Michael, J./ Auwal, Mohammad, A./ Singhal, Arvind: Dialectic of Control and Emancipation
in Organizing for Social Change: A Multitheoretic Study on the Grameen Bank in Bangladesch, in:
Communication Theory, New York, Vol.5, No.3 (1995), pp.193.
Scheff, Thomas, J. (1967), ibid., pp.37.
sept working papers no. 3, 2000 17
competences and obligations of every client and staff member is a prerequisite for the
organisations success and for the effectiveness of the implemented instruments.
Along with cohesion and coorientation, MFIs also utilize another group mechanism, the so-
called concertive control. Concertive control is a post-bureaucratic phenomenon. Agreement on
norms as well as on a code of behaviour is reached within the peer groups. The organisation just
provides its clientele with a vision and does not intervene in the group processes substantially.
This post-bureaucratic form of control results in reduced organisational costs, as the MFI does
not need to establish strong external monitoring instruments. In addition, it leads to the
establishment of collective responsibility. 60 Members of such an organisation turn out to be
highly motivated, as well as more productive and committed than clients of institutions using
“traditional” control mechanisms.61
Concertive control is effective at two different levels. The peer group members monitor each
other because their destinies are linked together. The failure of one member results in the
exclusion of the whole group. Each participant puts pressure on the other. Concertive control
also exists on the staff level. The staff agree on institutional norms and goals. This consensus
leads to the establishment of mutual control mechanisms. The ambitious goals of the Credit
Officers (CO) are not entirely pre-determined by the organisation. The competition is increased
due to the internal publishing of each individual CO’s results.62 This strategy leads to
impressive repayment rates as well as to the staff being very ambitious. However, it puts the
COs under immense pressure. This can result in the staff passing on the pressure to its
customers. The three group processes “cohesion, coorientation, and concertive control” are
utilized by both organisations in order to secure loans without real collateral.
(2) The Kenya Rural Enterprise Programme Holdings Limited also uses the “joint liability“
technique. The group structure and the instruments applied can be considered to be a replication
of the Grameen Bank model The repayment rate of the Kenyan organisation is approximately
Despite the favourable repayment rate, K-REP has faced some severe problems in the past
regarding the compensation of defaulted loans. The concept of using the customers deposits in
order to compensate for defaulted loans leads to many groups boycotting the deposition of
compulsory savings, as they consider the loss of their savings due to someone elses fault to be
“unfair”. Even some staff members support such boycotts as they agree that this is an
unsatisfactory way to compensate losses.
”Using peer pressure as a way of enforcing repayments is considered to be an unfair shifting of
the responsibilities of a lender to the clients“.64
See Barker, James R.: Tightening the Iron Cage: Concertive Control in Self-Managing Teams, in:
Administrative Science Quarterly. Vol.38, No.3 (1993), pp.413.
See ibid.: pp.414.
Papa, Michael, J./ Auwal, Mohammad, A./ Singhal, Arvind (1995), ibid., pp.196.
See Ferrand, David: K-rep Financial Services. Financial Analysis January 1995-June 1997, British Aid
to Small Enterprise, Kenya, Department for International Development, August 1997, p.9, in: University
of Birmingham (1998), ibid., Appendix.
Mutua, Kimamthi (1994), ibid., pp.18.
18 sept working papers no. 3, 2000
So, either the groups or the staff did not accept or understand the significance of the exclusive
responsibility of the peer groups in order to achieve a problem-free repayment of all loans.
K-REP’s influence during the group recruitement process has resulted in clients asking for the
organisation to share the responsibility of delinquencies.
(3) Replication: K-REP tried to replic ate the “joint liability“ component. The establishment of
this element is a prerequisite for the renouncement of real collateral, as it limits the danger of
defaults and, therefore, supports the institutional sustainability. The problems K-REP has had to
face in the past have been mainly based on misunderstandings due to an inadequate group
formation phase. Some of the clients were neither informed about the conditions and contents of
the programme nor about their own obligations.
The lack of a strict distinction between “savings” and “collateral” worsenes the situation
because members find it difficult to understand, why they should be subject to forfeiting their
own individual deposits.
”One problem of this cash security however, is when it is called savings and not security.
Borrowers are strongly opposed to losing their savings on account of their colleagues
misbehaviours. Collateral must therefore not be linked to savings and savings should not be
linked to loans“.65
There are doubts as to whether the technique of using deposits and the idea of collectively
securing individual loans by applying peer pressure and peer monitoring is an efficient way to
limit delinquency and to achieve good results.66 Such doubts have already led to some changes.
The utilization of deposits as a means of compensation for losses becomes less important as K-
REP focusses on establishing more effective ways to pursue delinquents legally. Furthermore,
real collateral has been introduced by some of the groups already. This new tendency is
accepted if it is not supported by K-REP. 67
(4) Explanation 2) The replication of the Grameen Bank model was not implemented correctly
or was incomplete. One possible reason for some of the problems is the cultural peculiarity of
the Kenyan people. Many tend to have a different perception towards money and loans. Within
Africa, loans are not necessarily linked to the obligation of repayment. 68 If this is the case, then
it is necessary to use indigenous mechanisms in order to secure loans and it is necessary to
Mutua`s (1994) opinion on the compulsory deposition of savings being an inadequat means of securing
loans is supported by some authors. An obligation to save implies that poor customers have to be
educated how to deal with financial matters. See The Consultative Group to Assist the Poorest (CGAP)
Focus No.8. Introducing Savings in Microloan Institutions: When and How?, Washington, D.C. 1997.
See Mwaniki, Rose: „Strategic Approaches to Support Sustainable Credit and Savings Activities“ The
K-REP Experience. A Paper Presented at KEMFI Seminar on 5th & 6th November, 1996 at Fairview
Hotel, Nairobi, pp.12.
This aspect is relevant for (at least) many West African regions. See Mewes, Eckehard: „Le crédit“ ist
nicht einfach ein Kredit, in: DED Brief. Sparen und Kredit, Zeitschrift des Deutschen
Entwicklungsdienstes, Bonn, No.1 (1997), pp.30. The fact that parts of the K-REP clientele believed in
the loans being subsidies points to the existence of a similar problem.
sept working papers no. 3, 2000 19
experiment with and innovate new tools in order to find the ideal strategy that “fits” the Kenyan
Cultural or regional peculiarities certainly influence the success of a programme. The
difficulties K-REP has had to face concerning the “joint liability” cannot however be limited to
this explanation alone. One crucial element that should be looked at closely is the poor quality
of some peer groups, where cohesion, coorientation, and concertive control within the peer
groups have not been adequately set up. Coorientation at both, the organisational as well as the
peer group level requires a consensus on norms, obligations, and aims. Each borrower must
fully understand the contents of K-REP`s services if the programme is to be successful. Such
coorientation has not yet been established properly, at least not throughout the organisation.
Staff members and clients have not accepted the necessity to compensate losses collectively.
They consider such a strategy to be unfair, as they do not fully understand the purpose of the
component. Such understanding should be established during the group formation phase.
Oketch`s (1992) study on the Juhudi Credit Scheme points out this problem:
”All those whose savings were taken to recover bad loans immediately stopped the required
weekly savings. This suggests that most members had not understood the meaning or purpose of
the group guarantee system“.70
Similar results have been found in a study carried out by the University of Birmingham (1998):
”However, members of the Jasho Self Help Group, a KIWA interviewed in Kawangware,
related drop-out and default to client misperceptions of loan. Apparently, many of the group`s
initial members, who received loans between 1992 and 1993, believed that K-REP was
disbursing grants. They did not anticipate that they would have to repay the loan principal with
interest, leading to high levels of wilful default“.71
Non-clarification as to whether the clients are about to participate in a programme which offers
loans or grants is critical. The fact that even some staff members supported their clients boycotts
highlights the fact that not all staff members understand the significance of the mechanisms and
tools either. Esipisu et al. (1995) reveal such evidence by examining Credit Officers dealing
with Chikola groups:
”Out of all the 23 COs interviewed, 48,48 per cent said that the group guarantee was the most
unsuitable aspect of the Chikola program to the clients. Most of the clients interviewed and
those leaders who took part in focused discussions expressed their misgivings about the idea of
members co-guaranteeing each other“. 72
See Okorle, Aja/ Iheanacho, Andrew, C.: Agricultural Loan Recovery Strategies in a Developing
Economy: A Case Study of Imo State, Nigeria, in: African Review of Money, Finance and Banking,
Number 2 (1992), pp.201.
Oketch, Henry, O.: A Diagnostic Survey of the Workings of Group-Based Lending: The Case of K-
REP`s Juhudi Credit Scheme -Kiberia. Kenya Rural Enterprise Programme (K-REP) Research Paper
No.9, Nairobi 1992, pp.23.
The University of Birmingham (1998), ibid., pp.25.
Esipisu, Ezekiel/ Nasubo, Geofrey/ Obuya Merceline/ Kioko, Kanini (1995), ibid., pp.47.
20 sept working papers no. 3, 2000
Obviously, these COs have not understood the importance of the “joint liability” element. They
do not fully realize that this component guarantees the integration of poor entrepreneurs by
enabling K-REP to do without real collateral. In this case, the function of these Credit Officers
can not be optimal. This is problematic, as the quality of the officers is highly correlated to the
success of the peer groups.73
Aleke Dondo`s findings (1992) are similar. The inefficient group formation phase and the
inadequate flow of information between the CO and borrowers during this phase can be held
responsible for several problems. Dondo considers another issue to have a negative impact on
the repayment discipline, namely that some customers test the organisation’s ability and
strictness to pursue defaulters via legal proceedings.74
Looking at some of Dondo`s (1992) figures, which illustrate the frequency with which deposits
are used by K-REP to compensate for losses, it can be seen that the organisation did not apply
the sanction strictly enough in the past. During the first year after the introduction of the Juhudi
Credit Scheme an amount of 37.790 Kshs was overdue for repayment. K-REP only confiscated
3.660 Kshs of their clients savings, while they actually had access to 1.843.236 Kshs of total
deposits. 75 The inconsistency in executing the sanction could be a reason for the bad repayment
discipline in some groups, as the clients know about the rare implementation of the instrument.
Another problem experienced by K-REP certainly is the high fluctuation of customers. The
crucial incentive of the programme is to achieve and maintain long-term access to increasing
loan amounts. If large numbers of borrowers are not interested in a long-term relationship with
K-REP the repayment rate is not likely to be perfect. Thus, the groups with fluctuating
membership lack cohesion and coorientation as they constantly have to integrate new members.
Such new customers have neither participated in the formation of the group nor have they
internalized any collectively obtained norms. It is necessary for them to adapt to the group
environment in order to be trustworthy. Established group members are likely to be more
suspicious towards new members if a former member defaulted and some of the deposits were
forfeited in order to retain access to ongoing loans. Therefore, a high fluctuation of group
members makes it more difficult to establish a group identity and thus can be considered as a
serious threat to the institutions sustainability.
A lack of cohesion results in yet another problem for the Kenyan organisation. The threat of
sanctioning customers loses its effectiveness if group cohesion does not exist. The possibility of
exclusion from the organisation becomes less threatening if a collective identity is not
established as the social pressure becomes ineffective. Thus, sanctions which are weaker than
the threat of being excluded from the programme become totally useless.76
See The University of Birmingham (1998), ibid., pp.21ff.
See Aleke-Dondo, C.: Report on the Performance of K-REP Funded Minimalist Loan Schemes. Kenya
Rural Enterprise Programme. Occasional Paper 16. Paper Presented at the Seminar on „Small and Micro-
Enterprise Loan Schemes: Focus on Group Based Method of Lending to Individual Entrepreneurpp.“
Kunste Hotel, Nakuru 12th to 14th January 1992, pp.8.
See ibid.: pp.8.
See Spittler, Gerd: Norm und Sanktion. Untersuchungen zum Sanktionsmechanismus, Olten 1967,
sept working papers no. 3, 2000 21
It should be mentioned here that the exclusion of a group member is not a very satisfactory
solution for K-REP, as the organisation does not have many possibilities to pursue delinquents
legally. The threat of exclusion has no effect at all if the delinquent has access to alternative
sources of credit. It still threatens those who have difficulties in finding alternative capital
resources. Esipisu et al. (1995) articulate this problem facing K-REP:
“Inability of K-REP or groups to take any action against defaulters is playing an encouraging
role to have more defaults. They know nothing can be done against them even if they default“. 77
K-REP is fully aware of the problem, but has not yet been able to find an effective solution.
Instead, there is evidence that K-REP supports groups in their wish to introduce real collateral.
„The sale of securities pledged by borrowers has been undertaken more easily than forfeiture of
the borrowers savings“.78
In this case, group-formation and the establishment of cohesion, coorientation, and concertive
control lose importance. A complete abandonment of the “joint liability” component however,
would result in poorer entrepreneurs being excluded from K-REPs services. This raises the
question of how K-REP`s future choice of its target groups and the organisations philosophy
will develop. As has been presented in chapter 3.1, neither the target group initially chosen by
the organisation nor the tailor-made instruments can be varied easily.
The Grameen Bank component “joint liability” seems to be replicable as peer group processes
are somewhat universal. The global spreading of indigenous associations which utilize
mutuality, peer monitoring, and peer pressure while on the other hand offering the possibility to
pool scarce resources, speaks for itself. The prerequisite for a successful replication is the
careful recruitement and formation of the peer groups. K-REP identified its weaknesses and
started to take them into account by stopping the massive expansion of the programme in order
to improve the quality of the service provided. Thereby, K-REP tried to create the right
environment for the then planned and today already existing K-REP Bank.
K-REP still needs to recognise the immense importance of establishing cohesion, coorientation,
and concertive control within the peer groups. K-REP has to decide whether it wants to keep the
“joint liability” component. This would force the organisation to focus on the establishment of
functioning group processes. If K-REP decides to change its strategy, the organisation has to
realize that this will entail at least a slight variation of the original goal and clientele. This could
give rise to further difficulties however, as has been pointed out in chapter 3.1, as changing the
clientele while keeping the tailor-made technique turned out to be problematic.
Conclusion: The group processes “cohesion, coorientation, and concertive control“ have not yet
been established to a satisfactory extent. The condition of “joint liability“ can not function
properly if these processes are not adequately developed. This results in the social collateral
being an ineffective means of securing loans and finally results in the need to find alternative
strategies to minimize the risks for the institution as well as for the customers, such as
introducing real collateral. This strategy is no solution to the problems K-REP has had to face; it
Esipisu, Ezekiel/ Nasubo, Geofrey/ Obuya, Merceline/ Kioko, Kanini (1995), ibid., pp.74.
Mwaniki, Rose (1996), ibid., pp.12.
22 sept working papers no. 3, 2000
basically excludes parts of the initial target group and can, depending on the perspective,
therefore be considered counter productive. K-REP should try to improve the deficient
component in order to serve its clientele effectively instead of adapting its clientele to a badly
3.6 Individually Determinable Activities
(1) Grameen Bank component individual decision - income generation
(2) K-REP component individual decision - profit generation
(3) result of comparison replication non-problematic replication
(1) The Grameen Bank offers loans on condition that clients invest the capital in ncome i
generating activities. Each customer can decide on the particular activity he/she wants to set up.
Thus, the customer´s independence can be strenghened and he/she experiences an i dividual
success through his/her own initiative. 79 Through the promotion of microbusinesses the
Grameen Bank aims to improve the individual situation of its borrowers in the long run.
(2) The method of the Kenya Rural Enterprise Programme Holdings Limited is similar to the
Grameen Banks. A productive investment in an existing business is one crucial condition to
receive a loan. Nevertheless, K-REPs more pragmatic and market-oriented approach is
noticeable again. K-REP promotes profit generation instead of income generation. In order to
minimize the risk of delinquencies, staff members visit the small and micro enterprises of its
clientele to make sure that the capital is invested in – at least potentially – profitable activ ities.80
(3) Replication: This component can be considered a replication of the original model. The
customers of both organisations can decide on which enterprise they want to invest the loan in.
It is only the significance of “profit” or the definition of “development” that differs slightly. The
Grameen Bank focuses on the development of the individual whereas K-REP focusses on the
long-term development of the organisation.
3.7 The Incentive of Long-Term Access to Small Loans
(1) Grameen Bank component repayment necessary to retain access
(2) K-REP component repayment necessary to retain access
(3) result of comparison replication
(4) explanation and conclusion 2 - replication incomplete
See Singh, Gulab: From Calories to Capacity Building - the Grameen Bank Approach to Poverty
Alleviation in Bangladesh, in: Journal of Rural Development, Hyderabad, Vol.14, No.4 (1995), pp.419.
Bittner points out that clever Kenyan entrepreneurs find ways to circumvent K-REP’s strategies. See
for example Bittner, Andreas (1998), ibid, pp.31 and pp.98.
sept working papers no. 3, 2000 23
(1) The Grameen Bank offers long-term access to its services. Prompt repayment is a
prerequisite in order to achieve access to future loans. This incentive provided by the Grameen
Bank is one reason for the excellent repayment discipline. The small loan amouts are tailor-
made for the needs of the bank’s clientele. Microfinance institutions assume that poor
entrepreneurs primarily need
”loan for liquidity and working capital, with loan terms of one year or less and with little
attempt to direct loan to specific uses“.81
(2) The Kenya Rural Enterprise Programme Holdings Limited replicated this component.
Although the component has not been held responsible for difficulties which K-REP has had to
face, it seems to have a negative influence on the repayment discipline. The high fluctuation of
K-REP clients points to this assumption. The allocation of 14.760 loans to 3.600 customers was
planned during the period of three years. 14.847 loans were actually disbursed to 12.091 (!)
participants over this period. 82 If customers are neither interested nor in need of a long-term
relationship with K-REP, the “carrot and the stick”- approach become inefficient. In this case,
the whole range of sanctions and incentives has no effect.
Similar to the Grameen Bank, K-REP also disburses small loan amounts. Recently, K-REP has
considered offering larger loans in order to meet their clients demand.
(3) Replication: This component should be looked at closely as its ineffectivness is tantamount
to the risk of the “joint liability“-technique loosing its efficiency. The technique must be tailor-
made for a chosen clientele. If the “carrot” is not included in the customers diet and the “stick”
does not even hurt him in the slightest, then the repayment discipline of such a client is not
likely to be perfect. Other alternatives to obtain capital from elsewhere undermines the
efficiency of the incentive system as well as the whole idea of “joint liability”. On the other
hand, the danger inherent in keeping the clientele dependent on K-REP loans should not be
forgotten either. The needy financial situation of borrowers could be taken advantage of by staff
(4) Explanation 2: The replication of the Grameen Bank model was not implemented correctly
or was incomplete. The indifference of some clients towards a long-term relationship with K-
REP is critical. K-REP has to deal with additional costs due to the recruitment of new clients. 83
As has been mentioned in section 3.5, this problem leads to either new groups being established
or older groups having to deal with new clients. In both cases, the group identity does not
“mature” which finally results in the necessity to monitor and supervise these groups more
closely than was initially planned.
Rhyne, Elisabeth/ Otero, Maria: Financial Services for Microenterprises: Principles and Institutions, in:
Otero; Maria/ Rhyne, Elisabeth (Ed.): The New World of Microenterprise Finance. Building Healthy
Financial Institutions for the Poor, Connecticut 1994, pp.15.
See The University of Birmingham (1998), ibid., pp.24.
See ibid.: pp.24.
24 sept working papers no. 3, 2000
Conclusion : K-REP either has to keep both, the initial Grameen Bank clientele and the tailor-
made technique or has to adapt the incentives and sanctions to the varied clientele in order to
establish a long-term relationship that is profitable for all persons involved in the programme.
3.8 Repayment Discipline
(1) Grameen Bank component strict discipline
(2) K-REP component strict discipline
(3) result of comparison replication
(4) explanation and conclusion 2 - replication incomplete
(1) The Grameen Bank demands strict discipline in terms of loan repayment, depositing savings,
as well as regular attendance at group meetings. The semi-formal Bank supervises the
groups and supplements the peer monitoring with external monitoring. Thus, secret
arrangements within peer groups are prevented.84 Potential problems can be addressed and
solved at the early stages in order to prevent defaulting on the loan.
(2) The Kenya Rural Enterprise Programme Holdings Limited attempted to replicate this
Grameen Bank component. The method of supplementing peer monitoring through external
monitoring was established. Information on the performance of groups and individual borrowers
are available throughout the organisation via the Management Information System. 85
In the case of the Chikola Scheme, K-REP anticipated the need to monitor externally to be less
than in the case of the Juhudi Credit Scheme. Problems inherent in some Chikola groups as well
as successes of very mature Juhudi groups led to the loan schemes becoming more alike.
Intensifying the external monitoring of the Chikola groups led to a significant improvement in
the results. 86
(3) Replication: As has been mentioned already, the weaknesses with regard to the repayment
discipline of K-REPs customers are primarily related to the lack of group identity and to the
“carrot and stick” not being efficiently implemented. Even though K-REP realizes how difficult
it is to establish a discipline similar to the Grameen Bank clientele’s, the organisation still tries
to find ways of doing just this. Stopping the massive expansion of the programme for the benefit
of better performing groups, more disciplined customers, and the improved quality of services
provided, was a necessary and valuable preparation for the change of organisational status. 87
(4) Explanation 2: The replication of the Grameen Bank model was not implemented correctly
or was incomplete. Before even having implemented the Grameen Bank model in Kenya, the
management of K-REP anticipated some difficulties concerning the replictability of this
See Khandker, Shahidur, R./ Khalily, Baqui; Khan, Zahed (1995), ibid., pp.11.
See Mwaniki, Rose (1996), ibid., pp.12.
See Pederson, Glenn, D./ Kiiru, Washington, K. (1997), ibid., pp.37.
sept working papers no. 3, 2000 25
particular component. The task of establishing discipline to such an extent and implementing
the same disciplinary measures as the Grameen Bank, was considered to be difficult in the
Kenyan context. Dia (1991) points out the e xisting African characteristic of being a rather
paternalistic and a strictly hierarchical society, where authorities are accepted and individual
interests rank behind collective ones.88
The fact that the clientele of K-REP do not hold any shares in the organisation is also likely to
have a negative impact on the borrowers discipline. The Grameen Bank is owned by its
members which supports the establishment of a corporate identity. K-REPs pragmatic approach,
the limitation to financial services only, and the renouncement of supplementary disciplinary
measures, make it difficult to establish an effective “joint liablility” condition. In addition, the
positive influence of the charismatic Grameen Bank founder Muhammad Yunus cannot be
The lack of borrower discipline can be traced back to the insufficient implementation of group
identity. Badly implemented concertive control leads to the necessity of increased external
monitoring. On the other hand, the increased organisational influence results in the post-
bureaucratic form of control and, therefore, the peer group discipline being less effective.
Conclusion: The Grameen Bank model can only function if every single component is
established carefully. Without the “joint liability“ component being carefully implemented and
the “incentives and sanctions“ being adjusted to a once chosen clientele, the discipline of the K-
REP borrowers will not be optimal.
3.9 Success without Subsidies
(1) Grameen Bank component no subsidies
(2) K-REP component no subsidies
(3) result of comparison non-problematic replication
(1) The Grameen Bank does not give money to charity, it disburses loans at market interest
rates. Its strategy is to offer access to loans for productive purposes, not to give away cheap
money. Cheap or subsidised loans are considered counter-productive towards the achievement
of a sustainable development of both, the individual client and the organisation. 89
(2) The Kenya Rural Enterprise Programme Holdings Limited follows a very pragmatic and
market-oriented strategy. The strategy is based on the assumption that institutional sustainability
cannot be achieved without an economic and profit-oriented approach towards development. 90
See Dia, Mamadou (1991), ibid., pp.11.
See Yunus, Muhammad (1988), ibid., pp.7.
See Mutua, Kimanthi (1993), ibid., pp.23.
26 sept working papers no. 3, 2000
Non Governmental Organisations that focus on social welfare are not able to achieve
independence from donor money. 91
(3) Replication: The Kenyan organisation replicated this component. Even though the
approaches towards development, as well as the institutional philosophies differ, both
organisations realize the necessity to offer their services on a sustainable basis, as opposed to
subsidising the poor clientele. Such a strategy is a prerequisite for the sustainable development
of both the individual borrower and the organisation.
3.10 Promotion of Savings
(1) Grameen Bank component promotion of savings
(2) K-REP component promotion of savings
(3) result of comparison non-problematic replication
(1) The Grameen Bank promotes individual savings and demands the deposition of group
savings. Groups must deposit savings before they qualify for a loan. Weekly group savings of
one taka per person are compulsory. The deposits serve as a form of quasi-collateral in order to
minimize the institutional risk, as they can be confiscated in the case of subsequent loan
defaults. The annual interest rate for savings approximates 8,5%.92
In addition to group savings, 5% of each borrowers individual loan amount is paid into “Group
Fund I“. The purpose of this fund can be determined by the group. 50% of these deposits can be
disbursed in the form of either individual or collective loans. Whenever disbursing loans out of
“Group Fund I“, 5% of the loan amount is paid into “Group Fund II“. The group can decide
whether it takes interest rates on these “internal“ loans.
If one member leaves the group only the individual savings are disbursed to the client; the group
savings remain within the organisation. The shares flow into the emergency fund which also
consists of loan fees.93 Thus, the borrower`s share is utilized for the benefit of the group and
also the institution.
”Although individuals on leaving the group are entitled to receive back their personal savings,
the proceeds from the Group Tax are the property of the group as a whole, thus endowing the
group with a significance and a continuity going beyond the individual members“.94
This situation illustrates a dilemma. The Grameen Bank`s ultimate goal is the sustainable
improvement of its members lives and the institutional stability with a view to profitability.
See Mwaniki, Rose (1996), ibid., pp.3.
See Singh, Gulab (1995), ibid., pp.422.
See Gibbons, David, S. (1995/1), ibid., pp.141ff. Kropp (1995) considers the collection of the share as a
form of collateral. See Kropp, E.: Promoting Poverty Oriented Banking Innovations in Financial Markets
through Technical Cooperation - Experience from Technical Cooperation Projects, in: Quarterly Journal
of International Agriculture, Vol.34, No.2 (1995), pp.202.
Chowdhury, Aditee: Let Grassroot Speak. People`s Participation, Self-Help Groups and NGOs in
Bangladesh, Dhaka 1990, pp.153.
sept working papers no. 3, 2000 27
Looking at the savings-component, the development of the participant leaving plays a
subordinate role. Disbursement of the departing member`s share could possibly help improve
the individual situation of that member. Instead, the money is used in order to guarantee the
sustainability of the group and the organisation.
(2) The Kenya Rural Enterprise Programme Holdings Limited replicated this component. K-
REP also demands the compulsory deposition of savings. The groups must deposit savings for a
period of eight weeks prior to qualifying for a loan. The weekly compulsory savings amounts to
fifty Kshs per customer. Savings of clients of the Juhudi Credit Scheme are collected weekly,
whereas the Chikola groups deposit an amount of two hundred Kshs monthly. 95 The interest
earned on deposits can be used by the group for any purpose. If the deposited savings exceed
the minimum amount, the balance can be used by the group for any purpose. K-REP demands
loan fees in an amount to 0,5% of the individual loan. This is known as the emergency fund and
is used in case of illness or death of one of the clients. 96
(3) Replication: Savings are compulsory within both programmes. These deposits serve as a
form of quasi-collateral. Additional savings are encouraged by the Grameen Bank and K-REP,
but they are not compulsory.
3.11 Social Development Agenda
(1) Grameen Bank component social developmemt agenda
(2) K-REP component non-existent
(3) result of comparison renunciation
(4) explanation and conclusion 1b, 3a - problematic renunciation
(1) The Grameen Bank does not restrict its services to financial matters, but also strives for the
social empowerment of its clientele. The Grameen Bank aims to change the structure of society
for the benefit of poor women through its social development agenda. This agenda expresses
itself in certain gestures, events, and especially in the “Sixteen Decisions”.97
The “Sixteen Decisions” are repeatedly recited at the weekly Center-meetings. Thus, the
Grameen Bank wants to initiate a process of rethinking in terms of education, hygiene and
traditional customs. As a side-effect, members internalize the programme rules and norms easily
through the weekly routine. Thereby, cohesion and coorientation of the groups i crease. This
non-financial component positively influences the successes of the programme.
(2) The Kenya Rural Enterprise Programme Holdings Limited did not replicate this non-
financial component, nor did it invent an instrument in order to compensate the renunciation.
See Mwaniki, Rose (1996), ibid., pp.15.
See Pederson, Glenn, D.; Kiiru, Washington, K. (1997), ibid., pp.24.
See Mutua, Kimanthi/ Oketch, Henry/ Banda, Moses/ Maru, Teresa/ Obuya, Marceline (1996), ibid.,
28 sept working papers no. 3, 2000
Being a profit-oriented, pragmatic, and a market-oriented organisation, K-REP does not focus
on the social empowerment of its customers. It restricts its services to financial matters only.
The problems K-REP has had to face in the past can partly be traced back to the renunciation.
Doing without this possibility to get customers to internalize organisational norms is tantamount
to loosing a chance to improve the “joint liability” condition.
(3) Renouncement: K-REP does without a social development agenda. The Kenyan MFI did not
introduce any comparable instruments to compensate for this renunciation.
(4) Explanation 1b and 3a: Changes have been undertaken by K-REP because the Kenyan MFI
did not intend to replicate the imperfect model identically and replications of the model from
Bangladesh is difficult in a different cultural context. K-REP follows a more pragmatic, profit-
oriented approach and focusses on financial services only. The renunciation is partly explained
by the specific Kenyan mentality and the K-REP clients different attitude towards diciplinary
”For example, in most parts of Kenya one could expect little or no success if discipline
measures similar to Grameen`s were instituted“.98
The establishment of a similar component would not be accepted by the Kenyan customers.
Therefore, the replication of this particular element is not considered sensible.99 Doing without
a social development agenda does not necessarily result in problems. The corporate identity felt
by members of the “Grameen family” will however certainly not be easy to establish without it.
One could speculate as to whether a replication of this component would have been possible or
even desirable in Kenya. No evidence however has been found in the specialist literature that
would allow a simple answer to this question.
Conclusion: The social development agenda influences the financial performance of groups.
The routine order of events offers a good possibility to get the clientele to internalize group
norms. K-REP has abandoned this opportunities.
3.12 Flexible Management
(1) Grameen Bank component practice-oriented management
(2) K-REP component practice-oriented management
(3) result of comparison non-problematic replication
Mutua, A., K.; Mirero, S., M.: Report on the Grameen Bank in Bangladesh. The Kenya Rural
Enterprise Programme. Occasional Paper No.1, (no date, no indication of place), pp.15.
The possibility of the non-acceptance of some components being related to cultural pecularities shall
not be neglected. Karl Mannheim’s definition of the level of reality (Wirklichkeitsebene) could explain
why certain aspects are not accepted in some societies, see Büscher, Martin E.H.: Afrikanische
Weltanschauung und ökonomische Rationalität. Freiburg im Breisgau 1988, pp.75. It would, however, be
desirable to put these „cultural peculiarities“ into concrete terms.
sept working papers no. 3, 2000 29
(1) The Grameen Bank from Bangladesh is characterised by a flexible management and
decentralised operational comptences. The institution has grown from being a “one-man
project” into being an innovative and flexible organisation. Even though the prominence of
Muhammad Yunus is still important, the management has become more institutionalised. This
was a “conditio sine qua non“ for the continuous development and the future stability of the
Grameen Bank services.100
(2) The Kenya Rural Enterprise Programme Holdings Limited also has a flexible, innovative,
and pragmatic management. Starting off with US-American management, the leadership has
since then been taken over by Kenyan staff.101 The organisational structure is decentralised,
existing problems were addressed and where possible eliminated immediately. The one-man-
leadership “à la Grameen“ was not replicated. The importance of such a visionary leader should
not be underestimated. Prof. Yunus is one “component” that led to highly motivated people
sharing his vision. 102 Nevertheless, K-REP has been able to achieve good results due to its
highly motivated and commited staff.
(3) Replication: This component has been replicated by K-REP. Both organisations are
decentralised with flexible managements as well as highly motivated staff.
Grameen Bank K-REP result of explanation &
hardcore-poor, owners of SMEs, variation 1b – critical for effectiv-
members clients ness of instruments
Feminists instrumentalists innovation 1b – likely not to be
Rural focus urban and rural areas variation 3b – non problematic,
loans to individuals loans to individuals replication non-problematic
within a group within a group replication
loan groups based on
3b – positive potential of
indigenous model innovation
the Chikola Scheme
joint liability and joint liability and replication 2 – problematic
See Hashemi, Syed, M.: Building Up Capacity for Banking with the Poor: The Grameen Bank in
Bangladesh, in: Schneider, Hartmut (Ed.): Microfinance for the Poor? Development Centre of the
Organisation for Economic Co -operation and Development (OECD), IFAD/OECD Paris 1997, pp.111.
Head of the US-Management was the Programme Director Mr. Fred O`Regan. See Bigelow, Ross, E./
Cotter, Jim/ Mbajah, Esther/ M.; Ondeng/ Peter, G.: Rural Enterprise Program of the Kenya Rural Private
Enterprise Project: Mid-Term Evaluation of the Rural Enterprise Program of the Rural Private Enterprise
Project (615-0220) Kenya. A Report Prepared for the United States Agency for International
Development Mission in Nairobi, Kenya. June 30, 1987 (Revised 11/87), pp.17.
See Ghai, Dharam (1984), ibid., pp.49.
30 sept working papers no. 3, 2000
responsibility responsibility replication
individual decision, individual decision, replication non-problematic
income-generation profit-generation replication
repayment necessary repayment necessary replication 2 – replication incomplete
to retain access to retain access
strict discipline strict discipline replication 2 – replication incomplete
no subsidies no subsidies replication non-problematic
promotion of savings promotion of savings replication non-problematic
social development non-existent renunciation 1b, 3a – problematic
practice-oriented practice-oriented replication non-problematic
management management replication
Even though K-REP has had to face some problems concerning the quality of its programmes,
the organisation has had remarkable r esults in the past. K-REP is considered to be a very
successful African microfinance institution and the most successful Kenyan replication of the
Grameen Bank model. The introduction of the Grameen Bank model led to the improvement of
previous non-optimal results. Thereby, the Kenyan organisation was able to work more
efficiently and to come closer to achieving financial and operational sustainability. The
flexibility of the organisation and its ability to reflect on existing problems and to be
experimental in terms of finding possible solutions, are some of the positive characteristics of
the Kenyan organisation. Nevertheless, there are some problems that need to be addressed in the
future. The inefficiency of some of the replicated Grameen Bank components and their impact
on the results of the K-REP services becomes evident when comparing the two MFIs directly.
In this chapter, the replictability of the Grameen Bank model is discussed on the basis of the
explanations already presented in chapter 3. The first explanation deals with the different
approach o the Kenyan MFI, the second explanation attributes problems to the mperfect i
implementation of some of the components, while the third explanation refers to the different
cultural and local situation in Kenya.
The impact of the different, more pragmatic and profit-oriented approach of K-REP is
illustrated in the following table.
K-REP component result of comparison explanation conclusion
Small and Micro variation 1b problematic in terms
Enterprises of replictability
clients not selected by innovation 1b non-problematic
renunciation of a renunciation 1b; 3a problematic for the
sept working papers no. 3, 2000 31
social development group discipline
The renunciation of replicating a component as well as the variations of some of the essential
original elements reflect the different approach used by the K-REP. Maximising the
organisations profits and, thereby, guaranteeing the long-term relationship between K-REP and
its clientele can be considered the primary aim of the institution. K-REP chooses its clientele
according to this approach. Potential clients must fulfil the required conditions in order to
participate; social empowerment or gender equity are considered desirable goals, but are no
explicit organisational aims. The pragmatic approach is widly accepted as being the one which
contributes most to long-term development.
As has been shown however, the alteration of the “philosophy” is somewhat problematic. Mutua
et al. (1996) stated that a microfinance institution has to decide whether it aims to either
“promote businesses” or “eliminate hardcore-poverty” and that an organisation should stick to
the target group chosen.
”There is a tension inherent in carrying out programmes that serve the poorest of the poor and
managing lending programmes for poor entrepreneurs. Neither the beneficiaries nor the
services are the same; indeed, the underlying philosophies may conflict as well.“103
Realization of this fact leads to the question whether the altered approach and the original
technique are an effective combination or whether the change of philosophy demands a change
of instruments in order to adapt the “carrot and the stick”- approach to the new target group.
The inefficency of some of the components can at least partly be blamed on this change of
approach. Changing the philosophy while keeping the technique of a model seems to be
somewhat illogical. The technique has been invented in order to integrate the clientele,
originally excluded from formal financial services. Changing the target group while keeping the
now non-optimal instruments and supplemeting them with new elements such as the
introduction of real collateral, is not a logical strategy. Depending on the perspective, it can be
considered inadequate or even counter-productive, as introducing real collateral contradicts the
“social collateral” -component and at the end of the day contradicts the idea behind the Grameen
Bank model itself.
Summary: The replication of the Grameen Bank model in Kenya is more likely to fail because
of the changed philosophy rather than the different cultural or local attitude towards discipline
or solidarity. Changing the approach while at the same time maintaining the original techniques,
undermines the efficiency of some of the replicated instruments!
As has been mentioned in chapter 3, some of the components have not been carefully
implemented by K-REP. The impact of those badly established elements is summed up in the
32 sept working papers no. 3, 2000
K-REP component result of comparison explanation negative impact on
joint liability problematic repli- 2 establishment of group
cation, strive for vari- discipline (direct)
repayment necessary replication needs to be 2 establishment of group
to remain access improved discipline (direct)
strict discipline replication needs to be 2 establishment of group
improved discipline (direct)
renouncement of a renouncement 1b; 3a establishment of group
social development discipline (indirect)
These four components are responsible for the success of both peer group monitoring and the
condition of “joint liability“. K-REP has not yet been able to create the conditions necessary to
achieve a functioning group identity. The incentives and sanctions do not seem to work
properly. Too many clients are not interested in the ongoing relationship with K-REP and do not
seem to be deterred by the threat of loosing access to K-REP loans. Accepting or even
promoting the introduction of real collateral is not an adequate strategy to solve such problems
in the future. Since the components have not been implemented perfectly, it is not possible to
conclude that a “joint liability” condition cannot be replicated in Kenya.
Summary: Difficulties arising while replicating the „joint liability“-component can be traced
back to the faulty implementation of some of the essential Grameen Bank elements. The current
tendency to supplement social collateral via the introduction of real securities is not going to
solve the problems and is a de facto-renouncement of the basic idea behind the Grameen Bank
Some alterations which have been made are due to the specific Kenyan context. The “cultural
factor” however, did not have a crucial negative impact on the replication. 104
K-REP component result of comparison explanation conclusion
urban and rural areas variation 3b non-problematic
Chikola Scheme innovation 3b positive potential
renouncement of a renouncement 1b; 3a problematic in terms
social development of group dicipline
Chung, Beth, R. (Ed.): Presentations by Mutua, Kimanthi/ Nataradol, Pittayapol/ Otero, Maria: The
View from the Field: Perspectives from Managers of Microfinance Institutions, in: Journal of
International Development, Volume 8, Number 2 (1996), pp.186.
It shall be pointed out again that the cultural peculiarty of a country can be a restriction for the
successful implementation of the Grameen Bank model. However, it is the lack of concrete data and of
concrete cultural variables that is critizied.
sept working papers no. 3, 2000 33
Even though the renouncement of a social development agenda is explained by the different
cultural attitudes towards disciplinary measures, it seems to be primarily based on the more
pragmatic approach. The other culturally/regionally influenced components do not have a
negative impact on the replictability of the Grameen Bank model. On the contrary, the
utilization of existing ROSCAs does have a positive influence on K -REPs results and the
integration of urban areas is non-problematic, but guarantees the cost-effectiveness of the
Summary: The ability to replicate the Grameen Bank model is not influenced negatively by the
particular cultural or regional situation within Kenya!
K-REP is a rather flexible replication of the Grameen Bank model which up to this day has
strictly kept the original “social collateral” technique. This strategy has led t some of the
problems for which the Kenyan MFI itself is responsible. This conclusion does not mean that
the original model is perfect and easy to replicate. The Grameen Bank certainly has its own
weaknesses. Problems which K -REP has had to face, are mainly based on the poor imple -
mentation of certain components and, therefore, cannot be blamed on the models non-
Returning to Gibbon`s (1995) hypothesis that the strict replication of the components that are
“essentially Grameen” is necessary in order to replicate the model successfully, one has to admit
that Gibbons was not proven wrong by the results of this paper. It would be wrong to
completely neglect the influence of the specific cultural, regional, and the political situation. Its
negative impact seems to be limited however. Organisational flexibility is crucial and therefore
insisting on a strict replication would be counterproductive. The strategy of strictly replicating
some elements while altering others does not insure successful results. A potential Grameen
Bank replication should decide whether it wants to “buy the whole package” or not at all.
In the meantime, K-REP has already established a bank. This is a big step towards obtaining
sustainability, as the organisation is now authorised to deposit its customers savings. K-REP has
proven to be very reflective and flexible in terms of dealing with occuring problems in the past.
K-REP stopped the massive expansion of the organisation in order to improve the quality of its
Consultative Group to Assist the Poorest (CGAP). It experiments with new incentives and
sanctions and tries to adapt the services to its customers d emands. In the future, the Kenyan
MFI might find completely new solutions to address its difficulties. K-REP might even dismiss
the Grameen Bank model or adapt the instruments to a new approach and target-group. The
success of K-REP to date and its flexibility are very promising for the future. The current
tendency to give priority to the more profit-oriented and pragmatic approach towards
microfinance and the opinion that
”lenders which cannot generate commercial returns will – like Grameen- be condemned for
ever to live off the uncertain charity of development aid“105
Grameen Grief. Financial Times, 11.10.1998.
34 sept working papers no. 3, 2000
does not reflect the situation completely. One cannot condemn the Grameen Banks approach
and its effort to integrate the “hardcore-poor” while promoting the “market-oriented” approach.
The first includes the danger of being dependent on subsidies, the latter holds the danger of
loosing the initial focus of “offering finance to poor entrepreneurs” and focussing on potentially
profitable businesses which probably could get access to other capital resources. The conflict
between the goal of “institutional sustainability” and that of “poverty alleviation” is not easy to
solve. Condemning one approach however, does not contribute to finding better solutions for
Microfinance does not offer simple answers to the question of how to “eliminate global
poverty”. It is an instrument with a limited, but valuable impact on poverty alleviation.
Glorifying either microfinance or one of the approaches towards it, is counter-productive, as it
will only lead to disappointment. A pragmatic approach towards microfinance and a realistic
assessment of its potential is necessary if microfinance is to remain an important instrument of
Both, the Grameen Bank and K-REP have a limited but positive impact on the lives of poor
people. They hold the potential to improve the living conditions of their target groups and,
therefore, to alleviate poverty within the target areas.
sept working papers no. 3, 2000 35
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