Kisumu II: The Implementationing

After my previous week in Kisumu helping RAFODE with some financial modeling, analysis and operational recommendations, they asked me to come back and implement my recommendations. A case of me having to put my money (or in this case, my time) where my mouth is. My work from the outset has been pushed by the VSO volunteer with them, Ricky who is implementing a sorely-needed management information system. Somehow they wanted a British banker in their midst, despite the banking crises of the last few years, and who was I to disabuse of them of the notion that I might be of some assistance.

RAFODE is a microfinance institution (MFI) about 3 years old which specialises in servicing the rural poor, who even in the current global microfinance explosion, do not have access to any financial credit. The RAFODE model is similar to many in the industry, loan officers go into the field and find people to form groups of 10 individuals or more. Once a group is formed, they start saving with the organisation and go through a 7 week training program; consisting of 1 hour per week group meeting in which the loan officer teaches them the basics of a loan and other simple business skills.

At the end of the program, the group decides who in the group is to get the 1^st loan, known in RAFODE as a stagger; in a group of 10, 4 would be in the 1^st stagger, 4 in the next and 2 in the last. Each stagger is be separated by 4-6 weeks between loan disbursment, this encourages the rest of the group to ensure the people who have loans outstanding are prompt payers. Lending at most microfinance institutions is split into cycles. As a new client to an organisation you have no payment record and with the lack of financial services in your area no credit bureau to assess payment history, so in order to build up a payment record an MFI will provide a client with a smaller loan before assessing them for the loan amount they actually wanted.

As part of implementing my recommendation we visited these rural communities. The RAFODE loan officer commented on these locations as being 'rural but not super-rural', I think this was because they could get electricity on occasion. Upon our arrival in the community, we were warned by the loan officer that the clients may start clapping and singing, luckily they did not. I tried to imagine any of my client meetings in the UK where clapping and singing could have occurred; I failed miserably.

As an unreformed cynic, 15 minutes into leaving tarmac road I doubted whether we would see any businesses with potential growth; I was pleasantly surprised. Despite the paucity of resources, we met several good businesses. One in particular was run by a retired teacher who ran a tailoring workshop with 5 employees. The workshop made school clothes for children in the local towns, the clothes were sent to town on a piki-piki. The owner of the business wanted a loan to get some new sewing machines and stock so that he could supply some more schools whose orders he could get.

A key element of implementing the operational recommendations was training the loan officers to collect the financial details of the customers' business so that they could actually assess the customer's ability to repay. The main challenge of this was the client themselves, they may not know all the information needed or, not knowing exactly what the loan officer was looking for, inflate their costs to demonstrate a need for a loan. However, having run a training session in the early part of the week, we followed the loan officers into the field, where they demonstrated the ability to ask questions from various angles to get the right information from the customers and also confirm the information that they were getting.

Once the loan officers started collecting the information, they rapidly took on the implications of assessing their clients' ability to repay. Previously, loan officers main criteria for assessing clients was character, savings and the cohesion of their group, now they could begin assessing their clients ability to repay the facilities requested. Somehow, this seemed like a quantum leap for them and it was privilege to see them take on this knowledge and use it.

From an operational point of view, the new process helped them reduce the time it took to conduct a full assessment of their clients and increase the amount of data captured in the process. On their return to the office, they used the data they collected in their credit committee process, and with a credit committee procedure checklist, we halved the time it took to discuss each credit committee case.

The credit committee procedure checklist was a very simple affair, taking the criteria the loan officers use for assessment and ensuring this was delivered in a uniform manner. The loan officers took it well, which was surprising given the Kenyan love of conversation. Also, having been reminded of some of the credit committee cases from my previous life, where words like: concise, specific and pertinent need not apply, I decided this was an instance where the UK could learn from an Kenyan institution.

It was a very encouraging week, mostly because the people working at RAFODE are so eager to improve what they do and are so receptive to any help provide, even though I felt I have given them only a very little.