Response Mechanism of Microfinance

Institutions in Post-Conflict Situations Case Study: Microenterprise Development

Services Ltd (Sunlink) and

Opportunity International

By Tamara Campero

January 2009

2

Introduction

CORDAID’s policy for the microfinance program gives special

attention to the beneficiaries, in particular to marginalized

groups. Therefore the theme Microfinance in Post- Crisis

Situations (natural disaster and post conflict) will play a

major role in the coming years.

The success of Microfinance Institutions (MFIs) in post-

conflict situations is largely determined by its ability to

adapt its services and products to the changing needs of its

clients. Response Mechanisms (RM) to the crisis, such as

rescheduling the loan repayments, design of emergency loans

are needed to enable clients to rebuild their household

finances and rebuild their business.

This case study intends to examine the MFI’s Response

Mechanisms in post conflict situations and its efficiency to

meet the immediate needs of the beneficiary group after a

violent conflict.

The case study, has been carried out in two MFIs in Kenya

(currently merged): Microenterprise Development Services Ltd

(Formerly Sunlink) located in Nairobi and Opportunity

International WEDCO Ltd located in Kisumu.

1. Post Election Violence in Kenya.

General Elections were held in Kenya on December 27th, 2007. On

December 30th the Electoral Commission of Kenya announced that

President Mwai Kibaki; lid of the coalition Party of National

Unity (PNU) had won the presidential election over opposition

candidate Raila Odinga of the Orange Democratic Movement

(ODM). Immediately after, Mr. Odinga rejected that result

arguing fraud.

The Party of National Unity (PNU) is a coalition formed by ten

traditional parties most of them directed by tribes leaders

from a biggest ethnic group in Kenya called the Kikuyus.

Historically the Kikuyu tribe has been supported and been ally

of the British government.

3

The ODM coalition is being directed by Odinga, from Luo1

origin, and supported by five different parties directed at

the same time by the leaders Luhya , Kanenjin and Kambas.

According to the official results, Mr Kibaki won the elections

with a tiny margin of 230,000 votes out of a total cast of

some 10 million. There were various discrepancies in the

elections, such as:

- the results were delayed for more than a day, at a time when

ODM candidate Raila Odinga was leading in the results

- many thousands of people seem to have only voted in the

presidential election but not in the parliamentary or any

local polls held at the same time during the parliamentary

race (some of these results came from areas known to be pro-

Kibaki), Mr Odinga's ODM party won twice as many seats as Mr

Kibaki's Party of National Unity (PNU);

- results in some constituencies were different when announced

nationally, to when they were previously locally announced;

- the head of the election commission has admitted that the

turnout in one constituency was 115%.

For all this reasons it seems likely that President Mwai

Kibaki manipulated the results in order to remain in power2. In

any case this announcement, did caused nationwide protests

against this alleged fraud, during and after, on which 1.000

people were killed, houses and properties were burned by armed

youth groups across the country and 350.000 people were

internally displaced.

The violence is a result of longstanding conflict over land

rights, prevailing impunity for human rights violations and

highly unsatisfactory fulfilment of economic and social

rights. Lack of accountability for previous acts of electoral

violence and ongoing violations of economic and social rights

seem to have contributed to hit up the people and accelerate

the violence in the aftermath of the elections3. The immediate

post-electoral reaction eventually took on a violent

character, led initially by mobs youths against Kikuyu people

and turned on interethnic violence. Attacks counterattacks and

reprisals developed notably in Nairobi’s Mathare and Kibera

slums, and two localities of the Rift Valley –Naivasha and

Nakuru and The Central Province. This last, appears to have

been affected later than other regions and as a reaction to a

dynamic of secondary displacement.

The African Union requested Kofi Annan and other eminent

African personalities to help negotiate a power-sharing deal

between Mr. Odinga and Mr. Kibaki. As result of that an

agreement was signed on February 28th, 2008 and later, on April

1 Kenya’s population is conformed by Kikuyu 22%, Luhya 14%, Luo 13%, Kalenjin 12%, Kamba 11%, Kisii 6%, Meru 6%,

other African 15%, non-African (Asian, European, and Arab) 1% 2 Khilafah.com : Political Analysis: What is happening in Kenya? Friday, 01 February 2008;; www.khilafah.com

http://www.khilafah.com/index.php/analysis/africa/50-africa/1834-what-is-happening-in-kenya 3 Bastiaan Remmelzwaal: Cordaid’s Response To The Post-Election Crisis In Kenya January – June 2008.

4

17th, a new cabinet was constituted with Mr. Kibaki as

president and Mr. Odinga as Prime Minister.

Since the agreement’s implementation, the domestic political

and social situation has gradually stabilized. Nevertheless,

the socio-economic effects of the crisis may take much longer

to heal. From a macro-economic perspective, the negative

impact on the economic system caused by the recent political

events, along with the bottleneck represented by the lack of

infrastructure and rise of inflation, has caused the World

Bank (January 2008) to forecast a GDP growth of 5.3% in 2008

and slowing further to 5.1% in 2009, down from a record 6.3%

in 2007.

Regions affected

Areas particularly affected include Kisumu, Kibera, Eldoret,

Bungoma, Mumbias, Molo, Naviasa, Nakuru, Jogo Road, Kakamega,

Busia, North rift valley and in Nairobi the slums of Kibera

and Mathare (see map).

Source: UNICEF

Trauma related to the PEV

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A large part of the population is traumatized as a consequence

of the violent events. Many of them have been attacked and

threatened, some have been severely injured. Houses have been

burned and properties have been looted, sometimes by their own

neighbours. People had to flee their homes having sometimes to

have to hide for days before they could reach a safer place.

Some families have been separated during the turbulences and

there are children that have lost their parents, brothers and

sisters. Young people had to interrupt their education or

their ongoing projects, many lost all their documents, their

diplomas and certificates and this will be an obstacle when

applying for jobs and educations. Many women were victims of

sexual violence and rape related to the conflict and children

are traumatized by the ethnic cleansing-type violence in the

post-election crisis.4

1.1. Post Election Violence‘s Impact in Microfinance

Sector in Kenya

The microfinance activities in Kenya are carried out by

different organisations in varied institutional forms, grouped

into three broad categories:

- the formal category, that includes banks and financial

institutions licensed under the Banking Act (Equity Bank,

Kenya Commercial Bank, Co-operative Bank, K-Rep Bank, and

Family Finance Bank)

- the semi-formal category includes SACCOs, MFIs,

Development Finance Institutions, Agricultural Finance

Corporation, Industrial and Commercial Development

Corporation, Kenya Industrial Estates, Industrial

Development Bank, and Kenya Tourist Development

Corporation

- the informal category which includes accumulating and

rotating savings, credit associations (ASCAS, and

ROSCAs), shopkeepers and money-lenders

Despite of this high number of players in the sector and the

efforts of international organizations and development

agencies, the sector has not yet accomplished a complete legal

and regulatory environment.

A preliminary study on the impact of the Post Election

Violence (PEV) in the micro financial sector, released on

February 2008 by the Association of Microfinance Institutions

of Kenya (AMFI)5, reveals the dramatic effect of it, especially

for the MFIs actives in the most affected zones (Rift Valley,

northern rural area). Institutions such as KADET, SMEP, Faulu

Kenya, SISDO, KDA, Jimii Bora and K-ECLOF have estimated the

damage in their portfolio between 50% and 100%.

4 Psychosocial Assessment Kenya – Final Report, 25 January – 1 February 2008; Action by Churches together International 5 The Association of Microfinance Institutions of Kenya is a member Institution that was created in 1999 to build capacity of the

microfinance industry in Kenya. AMFI presently has 36 member institutions. The AMFI members are currently either regulated

or unregulated. The unregulated institutions are operating at different stages of microfinance development spectrum.

6

According to the estimations of Jamii Bora6, 50% of his clients

in Kibera and Nakuru were displaced (see table Annex 1)

Along with the risk of prolonged stagnation or recession,

still remain the threat of further disruption, directly

impacting clients, businesses and operations in some areas of

the country. Furthermore, depending on the area of operation

some institutions are running a high liquidity risk, with

consequently potential inability to cover operational expenses

with high cutting down on loans disbursement in the short run.7

The study, just mentioned, have analysed the impact of the PEV

in the following levels:

1. Impact on clients8:

For the MFI clients the economic impact was devastating.

During the crisis, the lack of security in the streets forced

the citizens to remain at home during the disturbances (for

more than two months) which on one side diminished the

shortage of first necessity products and, on the other side,

paralysed in major scale their businesses.

The MFI clients were classified according to the Doyle’s9

definitions, who defines the population in Post Conflict

Countries (PC) affected areas as follows:

1. Inhabitants: Individuals who remained in their home

communities throughout most or all of the conflict.

2. Returnees: Former refugees or IDPs who may be returning to their original homes or to a new area within their

home communities.

3. Internally Displaced Persons (IDPs): IDPs are people who fled their homes but remained within their country of

origin. They are more likely to be living in IDP camps or

with friends or relatives.

4. Refugees: Refugees are people who fled their origin

country (having crossed an international border) and are

unable/unwilling to avail themselves of the protection of

that country due to security reasons.

5. Demobilized Soldiers/Ex-Combatants: Disarmed and

demobilized forces.

The weeks previous to the elections of December 27th, the main

population was prepared for a great celebration of the change

of government together with the end of the year celebrations.

Most of the clients refinanced their loans or got a new credit

6 Founded in 1999, Jamii Bora is the biggest MFI in Kenya with 180,000 clients, 87 branches, and 140 outlets across Kenya 7 A rapid source of liquidity for cover the losses and permit keep on with the operation for MFIs have been founded: Loan

Guarantee Fund provided by USAID in coordination with FSD (Financial Sector Deepening)and AMFI. 8 In the present Study Case only current and potential8 MFI clients were taken in to consideration, in other words, Inhabitants,

Returnees and IDP’s. 9 Karen Doyle ,Microfinance In The Wake Of Conflict: Challenges And Opportunities, The SEEP Network, July B1998 (see

complete description in annex)

7

to acquire more stock and be able to respond the presumed

extra demand caused by the coming celebrations. The losses as

a consequence of the plundering and vandalism, were then even

greater than expected when in most of the cases the clients

were deep in debt to increase their own personal supply.

The trust between members of diverse communities has been

significantly affected. The generated violence has increased

the differences between the several ethnic groups, creating

feeling of hopelessness, frustration and desires of revenge in

the population.

Despite that the stability has return to the country, still

exist many IDP camps, with displaced clients not yet wishing

to return to their original places of residence due to sense

of lack of security and lost. Many of them have lost their

family, homes and businesses and they do not find any

incentive to restart their lives. Many IDP are traumatized

because of the lack of confidence in people they previously

were able to trust. Some of them feel like they have been

betrayed by neighbours, colleges, pastors or even friends.

These feelings have turned into fear and suspiciousness.

2. Impact on Staff :

Many MFIs have reported significant impact on their staff,

especially those who have staff working across tribal

boundaries. Many of them needed to transfer their staff

members (and their families) to order branches in order to

provide them security. KADET, for example, has had to move 36

staff members to other branches.

Most MFIs have reported the need for counselling services

throughout the institution and also at the client level. It is

particularly hard for the staff to ask clients for repayments

from clients when they have been severely affected.

There are other additional dangers in operating in an

uncertain environment as threatening and robbery ‘in the

field’, although these have not been widely reported.

1.2. Post Election Violence’s Impact in studied MFI

This study case has been carried out in the following MFIs in

Kenya: Microenterprise Development Services Ltd (formerly

Sunlink) located in Nairobi and Opportunity International

WEDCO Ltd located in Kisumu, which were merged in 2008.

The WIFIP Trust, a Cordaid’s partner NGO located also in

Kisumu, has been included, due to the relevance of its

Disaster Response Mechanism following PEV, although it is not

mentioned in the TOR of this study

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1. Microenterprise Development Services Ltd (formerly

Sunlink)

This MFI was created by Cordaid in 2002 to take over the

microfinance in slums programme of PRIDE Africa10 (officially

separated in February 2004) and operates under the SunLink

brand name. Their headquarters are in Nairobi and they operate

through their network of five branches in: Nacico, Eastlands,

Githurai, Kawangware and Kitengela.

After three difficult years and severe measures to control the

financial and management problems (negative equity), Sunlink

had in 2007 finally reach a growing portfolio and positive

figures. In order to continue with this positive tendency and

as exit strategy of CORDAID a new investor was found:

Opportunity International (OI).

The fusion with OI was finalized on July 31st, 2008 with the

consideration of subordinated debt from Cordaid.

INDICATORS

FEBRUARY 2008

Total Number of Customers 5,278

Number of Active Borrowers 3,245

Number of branches 5

Gross Loan Portfolio (Kshs.) 119,203,075

Average Loan Balance per

Borrower

36,735.38

Lending Methodology *Village banking loans based

on the Grameen

methodology.

*Weekly meetings at Sunlink

offices.

Source :SUNLINK

Impact of the PEV

Especially the branches of Naccico, Eastlands and Githurai

were affected by the PEV. The highest number of affected

clients was registered in Eastlands Branch (in the Mathare

slum area) in most cases the business of the clients were

vandalised or burned. Two clients of the Nacico branch (Kibera

slum) were shot and hospitalised.

10 CORDAID had given a loan to PRIDE Africa of KES 69 millions to increase their still in development programme of

microfinance in the slums of Nairobi; SUNLINK . The decision of creating an independent MFI was taken in 2002 due the

serious financial problems of the programme.

9

In terms of Portfolio Quality, the PEV has singly affected

Sunlink. From a registered PAR of 3.04% in December 2007

(average percentages in African countries) to 18% and 13%, in

January and February 2008 respectively.

Partially due to their Lending Methodology that demands a

weekly meetings of the groups at Sunlink offices, they have

been able to put in practice a faster analysis of the impact

by the clients and therefore the design of the Response

Mechanism (RM) was effective in short time.

Due to the implementation of the RM in February 2008, combined

with the improved political situation which has enhanced the

level of business, the PAR has decreased to 5,82% in June

2008. (see table below)

Table Nr.1

PEV’s Impact on Portfolio Quality

Month/Days

dec-

07 jan-08 feb-08

mrt-

08

apr-

08

mei-

08

jun-

08

1-30 0,44% 15,12% 8,13% 3,40% 4,38% 3,56% 3,23%

31-60 0,03% 0,17% 2,33% 1,04% 1,22% 1,13% 0,61%

61-90 0,05% 0,00% 0,02% 1,50% 0,60% 0,68% 0,87%

91-180 0,20% 0,16% 0,16% 0,06% 0,86% 0,81% 1,09%

>180 2,32% 2,62% 2,67% 2,73% 2,53% 0,00% 0,00%

Total PAR 3,04% 18,07% 13,31% 8,73% 9,59% 6,18% 5,82%

2. Opportunity International - WEDCO Ltd

Opportunity International (OI) is an international network of

MFIs, founded as non-profit organization in 1971 and based in

Chicago, USA.

OI has created 45 new microfinance institutions (MFIs) in 28

countries in Africa, Asia, Eastern Europe, and Latin America

(see below) and operates in the following countries:

Africa Asia Eastern Europe Latin America

Ghana China Albania Colombia

Kenya India Bulgaria Dominican

Republic

Malawi Indonesia Poland Honduras

Mozambique The

Philippines

Macedonia Mexico

Rwanda Montenegro Nicaragua

South Africa Serbia Peru

Tanzania Romania

Uganda Russia

Zambia

Zimbabwe Source: Opportunity International (OI)

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In Kenya O.I. will establish a commercial bank, trough the

acquisition of already existing MFI’s, due investments of new

capital and by providing capacity building.

The assets of Wedco were acquired in August 1st, 2006. Wedco, a

small MFI in Kisumu, was originally a Care International

Project operating in branches located in Eldoret, Kisumu,

Bungoma, Kisii, Busia, Migoria and Kitali.

In June 2006 the finance company Opportunity International

(OI) – WEDCO was created.

As part of its growing strategy, OI has also acquired the

assets of Sunlink in July 2008.

INDICATORS11

FEBRUARY ‘08

Total Number of Customers

Number of Active Borrowers

Number of branches

Gross Loan Portfolio (Kshs)

Average Loan Balance per Borrower

Lending Methodology Trust Bank

Impact of the PEV

As previously established, Opportunity International-WEDCO Ltd

operates in the Kisumu province, by the crisis severely struck

zone, so also all branches, and approximately 90 % of the

clients were directly affected. In the same way, several staff

members were victims of reprisals (bases on ethnicity) and in

some cases they had to be evacuated from their working zones.

At the same time, WEDCO was facing internal problem that

culminated in dismissals of various staff members. This

unfortunate combination of elements (internal and external

problems) did directly reflected the quality of the portfolio.

The PAR increased from the 1.72 registered in December 2007 to

a 42.5% in June 2008.

For this reason, it was difficult, if not impossible, for the

organization to estimate in all cases the depth of damage to

the businesses of the clients and the consequent impact on

their ability to repay. A restructuring exercise was

undertaken in the immediate aftermath of the violence.

Unfortunately, this action was not effective in terms of PAR

reduction, as we saw an increasing trend in the PAR.

11 This figures do not include the Sunlink Portfolio

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Table Nr.2

PEV’s Impact on Portfolio Quality

Month/Days

dec-

07 jan-08 feb-08

mrt-

08

apr-

08

mei-

08

jun-

08

1-30 0,44% 15,12% 8,13% 3,40% 4,38% 3,56% 3,23%

31-60 0,03% 0,17% 2,33% 1,04% 1,22% 1,13% 0,61%

61-90 0,05% 0,00% 0,02% 1,50% 0,60% 0,68% 0,87%

91-180 0,20% 0,16% 0,16% 0,06% 0,86% 0,81% 1,09%

>180 2,32% 2,62% 2,67% 2,73% 2,53% 0,00% 0,00%

Total PAR 3,04% 18,07% 13,31% 8,73% 9,59% 6,18% 5,82%

Taking this into consideration, the management decided to

carry out a second round of restructuration. Although this

time, an exhaustive analysis of the client’s real repayment

capacity was first made. In July 2008 some improvement in PAR

has been achieved.

3. WIFIP: Women in Fishing Industry Project

WIFIP Education and Development is a non-profit organization

founded on the desire to contribute to the empowerment of

marginalized communities in general and women in particular,

through education and development initiatives. They work

especially with the fisher women around the Lake Victoria in

Kisumu.

The women economic activity in this area is mainly

related to the retail of fish. Women are only allowed to

commerce because according to the traditions women can

not be fisher themselves.

WIFIP's Program includes small business management skills,

health issues, rights issues, cooking, gardening and

nutrition; community based health scheme, environmental

conservation and bio-diversity as well as other development

issues in response to needs.

Microcredit program: Revolving Loan Fund

The WIFIP Revolving Loan Fund began in 2003, founded by

CORDAID. This scheme is a follow up of the ‘Small Business

Management Skills’ training that WIFIP offers. It is used to

monitor if the learners have mastered the business skills

through practical use of the revolving loan fund scheme,

record keeping and good business management skills.

A proper Business Plan is a prerequisite for the loan

approbation. Only the members who have gone through the

learning process, are operating businesses and have saved some

money with WIFIP in the form of shares are subject to credit.

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Lending methodology (Grameen bank): Members are divided into

group of up to five. The first two receive the amount of loan

they requested and the remaining three members act as

guarantors and peer support group to the first two. After

their repayment the next two benefit, depending on the

repayments.

Impact of PEV

Group’s members were also affected by the PEV, their daily

income depended on the fish processing factories which were

closing down during the crisis. Most of the group members lost

their property due to youth gangs invasion at night. Their

stand were grabbed from the markets and used to light fires on

the spot, customers were lost, metal racks were turned into

weapons, the women did not even have time to sell their fish

because of the police brutality. Women that sold fried fish

could not afford the fish price that was hiked due to

increased cost of transportation.

In some beaches fish was available but there were no means of

transport to the city centre, they lacked preservation

equipment (cooling of the fish) and profitable customer base

was lost. Most of them were sexually abused.

During the interviews, women inform us that they are still

victimized by the ‘youth gangs’. The relief in kind that they

received from the Red Cross or other organization were stolen.

1.3. MFI’s Disaster Response Mechanisms

PC times are hectic for MFIs and their clients. The MFIs have

to minimize their own losses in order to be able to continue

providing their services. So the MFIs will need to consider

financial, and non-financial, tools and strategies that ensure

maximum protection with minimum costs for themselves and their

clients.

Choosing the correct response mechanism in the shortest time

possible is essential but not simple. The preferences and

needs for microfinance products change rapidly in PC

environment. To keep products in line with the current

clients’ demand the RM should include both the adaptation of

existing products and the design of special products created

solely to cope with their new needs.

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With the main focus on portfolio management, the following

measures are suggested by The Hazard Management Unit (HMU) of

the World Bank 12:

1. A rapid portfolio review to assess the damage

This emergency survey involves analyzing each loan and loan

type to ascertain client creditworthiness, the probability of

repayment, the level of expected client cooperation, and

especially, the possible types of assistance that can be

offered to them. On this review lays the basis for developing

a strategy for each client.

2. A moratorium on lending

In certain special cases the MFI might consider freezing all

new loans until the situation has been controlled. The option

of freezing loans may cause a temporary excess of liquidity

and a reduction in the loan portfolio which will result in a

reduction in gross revenue.

3. The restructuring of loans

This is the most common and logic measure in PC situations; it

entails a change in the loan terms to facilitate the

repayment. The client selection criteria and the restructuring

type should be defined by the MFI after the preliminary

portfolio review and consideration of its MIS capacity.

This measure requires special training of the staff at

assessing clients’ situations: whether they meet the selection

criteria and how to communicate the procedure to them.

Restructuring options: by simply changing the frequency of the

loan repayment, the amount of each loan instalment, an

extension of the loan’s maturity or deferring interest

payments until the last scheduled repayment (a balloon

repayment).

Charged interest options:

Interest charged while capital repayments are being

restructured: the continuation of interest payments

minimizes the impact of delayed payments;

Additional interest charged to compensate extending the

loan period: this puts greater strains on liquidity, as

no payments will come in for a period of time. However,

in terms of income this strategy facilitates the

reduction of losses, as full interest payments are made.

It also allows severely affected clients time before

payments are required.

12 Miamidian, Arnold, Burritt and Marc Jacquand. Surviving Disasters and Supporting Recovery: A Guidebook for Microfinance

Institutions. Disaster Risk management Working Paper Series, No 10., Washington, DC: World Bank, 2005.

14

No additional interest is charged to compensate the

extension of the loan period: This strategy has a

negative affect on the current liquidity and income.

4. Writing-off of loans

In PC situation the MFI may consider modifying temporarily

the normal policy for write–offs, for example, by extending

the time before writing a loan off.

Even though this strategy may assist severely affected

clients, total write-offs or loan cancellations should

generally be avoided due its negative effect (synonym: impact)

on the MFI’s income and capital and, more especially, on the

client’s credit-repayment culture.

Partial or a total write-off should be analyzed in each

individual case.

5. Product modifications: adaptation of current loan and

savings products

Modification of loan product terms

Switching from group-based to individual liability during the

disaster

As the ability to repay the loan in a group will vary, the MFI

should decide to disburse new loans to those clients who have

repaid their loan, even if some other group members have not

yet completed their payments.

However, this double strategy (encouraging repayments by the

beneficiated clients and increasing loan disbursements) can

increase the risk by reducing the cohesion within the group,

if clients are not aware that the increased disbursements are

exceptional.

Allowing withdrawal of forced savings

By allowing access to forced savings, clients can get cash

without taking on more debt at a critical time. However, this

measure has a seriously negative impact on the liquidity of

the MFI. An alternative liquidity source plan is strongly

recommended, alternative to be applied in this case.

6. Provision of emergency loans

Emergency loans should be offered to clients of good standing

and with a good repayment record. The purpose of this loan is

usually consumption. Generally, it involves small amounts with

a short repayment period designed to assist clients meet their

immediate household needs.

7. Providing of Non-financial Services

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This is a very controversial measure. Generally speaking

practitioners recommend not to mix relief aid with

microfinance activities.

To provide directly non financial products (grants, relive

products) during PC situations can cause a confusing image in

clients and might affect their future payment behaviour.

Nevertheless, an MFI must take into consideration the needs of

his clients and try to fulfil these at a best possible manner.

In PC cases is recommended to work in team with other

stockholders, following a common politic and/or through

alliances.

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Table Nr 3

Response Mechanisms Applied by the three studied organizations

MEASURE SUNLINK O.I (WEDCO) WIFIP

1. Carrying out a

rapid portfolio

review in order to

asses de damage

In January-February 2008 based on

absence at group’s weekly meeting

in the affected zones: Naccico,

Jogo rd. and Githurai.

Partial portfolio review took place

in February 2008.

In January 2008 the first survey

took place to measure the

immediate damage between

clients.

A follow-up survey took place on

March 2008. Special attention

was paid to the return of the

IDP’s and their needs.

2. Imposing a

moratorium on

lending

Measure not applied, on the

contrary, they established, as

‘support strategy’ to the client,

granting of loans.

Measure not applied.

The formation of new groups was

later suspended to emphasize the

restructuration process.

Measure not applied.

3. Restructuring

loans

The official restructuration of

loan to clients affected took

place from February to May 2008.

Officially only 56 loans were

restructured (the same that had

received periods of grace). Worth

to mention is that up to date

partial payments made to capitals

of clients that are still

actively participating in the

weekly meetings, are accepted

(the official status of these

debts is in default)

Large % of the 8,047 accounts were

restructured in February 2008. This

restructuring effort was only

partially successful as the market

had not fully stabilized at that

time. A second phase

restructuration is taking place at

this moment.

Practically the whole portfolio

was restructured.

4. Writing-off

loans

Partial or total payments of the

rest loan have been approved only

in extreme cases (hospitalized,

injured, incapacitated clients)

or in cases where clients are

disappeared. In these cases the

balance will be partially

repaid/compensated with the

client’s own savings.

Only in cases of IDP clients/out of

business and/or other extreme

situations were partially or fully

written-off. In the case of partial

write –off, the remaining balance

was rescheduled.

Only the loans from disappeared

clients will be declared

written-off.

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5. Product

modifications:

adapt current loan

and savings

products

Flexibility in the group lending

mechanism have been adapted to

continue lending to the groups

while PEV ‘s affected clients

continue to make late payments.

The partial withdraw of savings

are accepted in cases of ID

clients and business

partially/totally destructed (to

repay part of the loan)

6. Providing

emergency loans

No emergency loans were offered. No emergency loans were offered but

clients whose businesses were in

some way affected and require

rebuilding with additional capital

were refinanced.

Emergency or Top-up loans were

granted in March 2008.

7. Providing

Emerging Non-

financial Services

Counselling is provided by the

staff members to the affected

mixed groups (groups with members

belonging to different

tribes/ethnic groups). SUNLINK

does not provide any other non

financial service. Nevertheless,

did actively participate in the

activities organized by AMFI and

some of their severely affected

clients were honoured with one

and only donation.

No non financial services were

provided.

WIFIP combines granting

financial products with

trainings.As part of its RM,

WIFIP organized on March 2008

“Peace Building Forums” together

with other civil society

organizations.

Remarkable at these forums was

the participation of the youth.

From June 2008 on the clients

receive trainings on business in

PC (to access the new

environments and new demands)

and counselling.

18

1.3.1. Response Mechanisms Applied by the three

organizations

As seen in the matrix presented above (table Nr. 3) the

three organizations put rapidly their ‘Response

Mechanisms’ in working.

In more or less degree the MFI’s, as well as the ONG’s,

adjusted their products during and immediately after the

crisis. The decision, for example of Sunlik, of continuing

granting new loans inclusive during the crisis (January-

February) won their clients loyalty and on the other side

guaranteed that the clients not directed affected by the

crisis could continue with their businesses and clearly

avoided that their capacity of repayment of their debt

would decreased.

The Response Mechanism of the WIFIP was (logic,

considering the main business, the methodology of the

organization and the number of clients) also oriented to

fulfil the needs of non financial services. The active

participation of the organization on ‘Peace Building

Forums’ together with other entities of the Civil

Society, does show us how microfinance can play an active

role on this peace building process

1.4. Current needs of the client and new products demand

As earlier established in this document, the clients

needs and PC situation are variables and are in constant

change with the new surrounding.

Seven months from the eruption of the crisis and under

the Kibaki/Odinga government coalition, Kenya has finally

a relative stability. Up to this moment most of the IDP

camps have been closed with the return of the many

refugees to their communities. Kenya has come out of the

‘emergency phase’ to enter into the ‘transition phase to

early recovery’.

According to Remmelzwaal 13, the term ‘transition’

applies to both external aid agencies and local

beneficiaries, and describes the process of moving away

from emergency relief operations to early recovery and

developmental activities. Transition, in this context, is

commonly associated with countries and regions that have

stable and well-established governments, who are able to

take the lead in the development process.

13 Bastiaan Remmelzwaal: Cordaid’s Response To The Post-Election Crisis In Kenya January – June 2008.

19

Transition from emergency to reconstruction

Source: B. Remmelzwaal.

For sustainable transition to take place, the donor community

must take deliberate steps to ensure that, in tandem with

construction and rehabilitation activities, crucial capacities

and competencies are developed on the part of recipient

authorities and communities, in such a way that institutional

and organizational development is characterised by full

ownership of the beneficiaries.

In this context, we try to establish the needs of the clients

at this phase and there after which are the financial as well

as non financial ‘recovery products’ that the MFIs could offer

to his clients.

Recovery products

Recovery products are offered by MFIs to establish clients

after the emergency phase and once policies and procedures for

products have been developed (recovery phase). These products

should be designed in accordance with the new needs of their

clients. However some of these products may be offered to new

clients in currently unexploited markets and can be used to

create a less risky mix balance in the MFI’s portfolio.

These new or adapted products may be provided in addition to

normal loans, if there are clear selection criteria’s and

adequate staff and MIS capacity.

Inhabitants and Returnees: clients of the three organizations

were interviewed for this purpose. The results of the

interviews are resumed in the following table.

20

Group

Damage during PEV

Actual situation Client ‘s needs on

financial and non-

financial products

Inhabitants:

Individuals who

remained in their home

communities throughout

most or all of the

conflict.

Not directly affected by PEV

- self/family members not

injured

- house and business remain

intact

- reduction of incomes caused by

temporary closing of

businesses

during PEV

- possible loan repayment

problems

- distrust before members of

others

ethnic groups

- only in specific cases

loan

restructuring, according

to

new cash flow

- counselling and

reconciliation

sessions

- Micro Business insurance

Directly affected by PEV

- self/family members not

physically injured

- house remain intact

- business affected:

Partially: still possess

some

productive assets

Complete damaged: looted/

vandalized/burned

depending

on the level of

destruction in

the area.

- liquidity caused by damage in

the

business

- problems to reactivate the

business

- workers, labourers for other

micro businesses

- loan restructuring,

according

new cash flow

- refinancing/Top-up loans:

to

create/recover asset

- Micro insurance

-Counselling and

reconciliation sessions

- assistance identifying new

business activities

- training in Small Business

Management in PCS

Returnees:

Former refugees or

IDPs who may be

returning to their

original homes or to a

new area within the

country.

- self/family members

injured

- house totally damaged,

vandalized or burned

– forced to leave their

homes

and transferred to other

area

- business damaged: looted/

vandalized/burned

- in case of home completely

damaged, they stayed with

relatives/friends

- Fear and hostility by the

inhabitants (they belong to a

targeted ethnic group)

- access to accumulated

savings

- Seed Capital for

subsistence

agricultural production

- reconstruction /social

housing (Long term loans)

-Counselling and

psychological

treatment

-restart, reconciliation and

reintegration assistance

21

3. CONCLUSION

- In terms of portfolio’s risk management, the RM adopted

by Sunlink has shown to be effective, since it succeeded

in controlling the growing trend of the PAR, this success

is due, in our opinion, the following factor: Loan

officers and branch managers know their portfolio, which

help them to effectively assess the impact of the crisis

on its clients and consequently react promptly.

- Their lending methodology (weekly meetings in the offices

and the formation of interethnic groups) and their policy

to do not consent the dissolution of the lending groups

after the PEV could be a long-term tool to reduce inter-

ethnic confrontation.

- O.I. on the contrary, has not yet managed to control the

increasing PAR. After the purchasing of WEDCO’s portfolio

and before of the PEV, the organisation was facing serious

internal problems caused due the low morale of some team

members and perhaps lack of an adequate control system. The

RM has not been well designed and implemented due to the

rotation of loan officers and their managers. Loan officers

(mostly new) barely know their clients and thus were unable

to establish their needs and less to estimate the real

impact.

- We consider that in both cases the RM have been developed

largely from the risk management perspective and are only

partly a response to client's new needs (Directly affected

inhabitant and Returnees). None of the MFI's studied has

designed new products/recovery products nor provides non

financial services. The surveys show that the restructuring

of debts (grace period and/or write off) are adequate

measures but not sufficient to cover the financial needs of

affected clients. All surveyed clients declare their need

to acquire new working capital (top up of loans or new

loans) to restart their business and accordingly to be able

to repaid their current and future loans. The clients also

demonstrated a strong interest in new products for micro

business and long-term loans for the construction or

reconstruction of their homes.

4. RECOMMENDATIONS

22

In situations of PC joint work of all stakeholders is vital.

Cordaid as a donor, shall play a more active role to solve the

dilemma of the MFIs of maintaining the quality of it’s

portfolio while the new non-financial needs of its customers

by playing The link between Cordaid partner organizations

(NGOs or MFI's-projects of various sectors) in the affected

regions appears to be a determining factor in this process.

4. Bibliography

23

- Action by Churches together International: Psychosocial

Assessment Kenya – Final Report, 25 January – 1 February

2008; Karen Doyle ,Microfinance In The Wake Of Conflict:

Challenges And Opportunities, The SEEP Network, July

B1998

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s in Kenya on the Microfinance Industry in Kenya and Soe Potental Re

ponses ( Feb. 2008)

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http://www.khilafah.com/index.php/analysis/africa/50-

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Microfinance in post disaster and post conflict

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24