Zahra Alidina in Kenya
Please describe what the organization/company you work with does, how it is set up and where it is located?
Faida Biashara Ltd. (FBL) is a for profit microfinance organization incorporated in Kenya to offer financial and non-financial services to small and micro-enterprises in the country. FBL was incorporated in Kenya as a Limited company under the companies Act (Cap 486), on 19th August 2002. FBLs areas of operations are in Kenya are in Ongata Rongai, Southlands, Wangige/Cura and Kasarani. FBL, although incorporated in 2002, started its operations in February 2004. FBL provides loans to marginalized but productive groups who have limited access to the conventional banking system. Faida Biashara literally means profitable business
Faida Biashara is owned by two individuals: Mrs. Evelyn Mungai and Mr. Mike Eldon. Mrs. Mungai has been a director of other microfinance institutions (Pride Africa and Sunlink) and her experiences at these institutions led her to establish her own Micro Finance Institution (MFI), but on a commercial basis. She has many years of experience in business. Mr. Eldon is also a seasoned businessman and his background is in IT and in human resource development.
The size of FBLs loan portfolio is approx. KShs. 832,000 (USD 11,886). FBLs total savings are KShs. 625,984 (USD 8,943).
FBL has 3 employees at their main branch in Ongata Rongai (now Wangige as of Dec 01, 2006) as follows: a Branch Manager, an Accountant and an Office Assistant. These employees also act as credit officers who use a combined effort of recruiting and facilitating loans to clients. In addition, the Senior Accountant from the Director’s group head-office is utilized to work on high level company accounting needs. The Wangige branch was recently opened and as of December 01, 2006 and the Main branch has been relocated from Ongata Rongai to Wangige. One additional full-time employee has been added who is being trained to be a Credit Officer.
Since the inception of FBLs operations in 2004, there have been a total of 269 clients. Currently, the number of active clients is 84.
FBL has consciously kept their expansion plan slow and steady to enable them to learn the business thoroughly and to know their clients on a personal basis so as to provide excellent customer service and to ensure repayment rates are very high. FBL has also focused on developing a full strategic plan and has up to date audited accounts. In addition, through my role in the last few months, I have worked on introducing systems and procedures to FBL.
FBLs business priorities are outreach (i.e. growth of the number of customers to the point of sustainability, economic and social benefits) and sustainability (i.e. growth of revenues and profitability).
Just to briefly touch on FBLs products and services. FBL offers Loans, Loan Guarantee Fund (LGF) and Business Training. Descriptions of these products and services are presented below and have been partly taken from the business plan.
Loans:
FBL offers non-collateral loans to members through solidarity lending. Peer groups of five unrelated members are self formed into “Faida” Cells and then further grouped into “Biashara” groups of 25 members. “Faida” Cell members mutually guarantee each other and are held responsible for repayment by other members (i.e. act as a loan “security” for other members). A new member must attend weekly meetings and make compulsory savings (see LGF) for 6 weeks before receiving a loan. During this pre-credit period the credit officer carries out orientation and training, this is to prepare the group for receiving their loans and to teach them about the rules and procedures of FBL. Loans are grouped into levels, which members must graduate through showing a strong repayment record.
Loan Guarantee Fund (LGF):
FBL has a compulsory savings (not compulsory deposit) component for members, which is collected weekly in group meetings. Currently the weekly LGF is set at KShs. 250. Before applying for a loan a member must have 25% of the value of the loan in the LGF. In the future, the weekly LGF is to be set at KShs. 150, and before applying for a loan a member must have 35% of the value of the loan in the LGF. The LGF therefore acts as an additional guarantee against loan default (i.e. cushions the guarantors against possible loss). Those clients who have deposited their LGF for a year are eligible for an annual bonus. The clients monies held in the LGF are refundable on exit after any deductions associated with outstanding loans and an exit fee which is KShs. 200.
Business Training:
All “Biashara” Groups are given free basic business skills training to support the success of their business venture and to maximize the impact of their loan. This training currently includes the teaching of bookkeeping and stock management techniques. In addition, groups are occasionally given free up to date information tips in every group meeting on how to become more financially successful. These tips are brought forward by the credit officer, chairman, treasurer, secretary of the group or any other person who’d like to share some information.
What is the organization/company doing well?
The organization is doing well in the areas of recruiting clients. The credit officers are well skilled in building rapport with potential clients, in marketing the organization and recruiting clients. However, the funding to match the interest of recruited clients is lacking and therefore, after clients have graduated from level 1 loans of approximately KShs. 10,000, their options for higher loans are limited as the company is restrained in capital to give higher loans. There simply isn’t enough money to service all interested clients and hence FBL loses them to other Microfinance Institutions (MFI) in the vicinity. One should note that the microfinance field is highly competitive with a lot of organizations servicing low income groups with sometimes even much broader products and services.
Where could the organization/company improve?
The company could improve in sourcing funding to disburse loans to wider clientele and to increase loan levels for existing clientele. This will allow the company to reach operational and financial sustainability through a planned progress as outlined in the business plan prepared by previous MBA Caroline Pulver indicates. Also each credit officer should be able to handle approx 300 clients to derive a cost-benefit analysis for hiring staff as a FTE (Full-time equivalent). But we cannot quite tell if the credit officer is really efficient in handling 300 clients at any one time as there simply hasn’t been an opportunity to handle those many clients with a lack of funding.
The company could also improve in providing Credit Operations Training for microfinance staff.
What are some aspects of the local cultural that should be understood when foreigners consider doing business in this country?
Mainstream work environment is similar to a North American environment but there is no concept of time hence affecting efficiency. Everything seems much slower than a western environment and great patience is required when doing business. Also in some instances, an autocratic style of management, (rather than a participative one as prevalent in North America) needs to be adapted to get work done. One must constantly delegate, follow up and guide on outstanding items to reach an outcome otherwise things will fall through the cracks. Generally, employees are not naturally/culturally empowered to make decisions and to take initiative.
In’ some’ settings in Kenya, or in cases of dealing with traditional superiors, one should keep in mind that the concept of age is very important, i.e. .somebody older than you in a ‘traditional’ business setting must be approached using an indirect (implicit) conversation style. So, a direct conversation style (explicit) may be construed as rude in Kenya while quite business like in western world. The youth from the developed world who would like to do development work may not be aware of the age concept and thus may be frustrated when they encounter this.
What are some aspects of the local business environment (e.g. registration of company, government’s role in business, business items unique to this country) that should be understood when foreigners and locals consider doing business in this country?
Either Part or Full ownership of a business/company by foreign/non-residents companies or individuals is permitted.
The IPC (Investment Promotion Council) is a government body specifically assigned to assist foreign companies/nationals to set up business enterprises in Kenya. Tax incentives/holidays are offered through IPC.
The government of Kenya encourages companies to invest/set up companies through their EPZ (Export Processing Zone). Companies within the EPZ pay no import duties or VAT and can re-export with tax incentives.
Registration of a company technically takes one week but it is generally much longer and mostly dependent on your business contacts.
Every foreigner requires a visa/work permit. There are different types, depending on the types of business (i.e. NGO, for profit, etc.). These permits are difficult to obtain and are costly and one must prove that they have the financial resources to start-up/support the business. Official charges for attaining work permits are approximately $1500 for two years but it attracts an almost equivalent unofficial processing fee
Taxation is very high. There are different types of taxes:
KBS (Kenya Bureau of Standards) levy: 0.2% of sales turnover.
VAT (Value Added Tax): 16% on goods and services sales above KShs. 500,000. Any company with a turnover in excess of Kshs. 3.5M (USD 50,000) annually must be VAT registered.
Corporate tax: 30% of profits
Income Tax: ranges from 10% to 30% based on income earned.
Also, a business owner may have to pay benefits for his employees such as NSSF (National
Social Services Fund).
There are challenges to doing business in Kenya. These challenges include poor infrastructure, poor telecommunications, high costs of doing business, high costs of fuel, security risks, slow/bureaucratic processes, corruption, etc.
Note: Bribing is a way of doing business. Even if one meets all rules of doing business, one must keep in mind that occasionally a cup of tea (chai) will be required to keep unnecessary harassment away.
What were the direct and indirect results/deliverables as a result of your placement? Please be as specific as possible. Please provide both soft and hard examples. Hard examples include number of clients/people trained, dollars raised, people impacted, etc)
The following were my Direct Deliverables:
- Developed an Organization Structure and an Org Chart for FBL. These identified reporting relationships and incorporated the Head Office Shared Structure.
- Developed Job descriptions for key staff at FBL. These job descriptions were unique to FBL’s operations and clearly identified responsibilities. The descriptions included the job particulars, employees place in organization, the objective of the job, employee’s field of responsibilities, required qualifications and experience and attributes required. The job descriptions were for the Group Finance Manager, Branch Manager, Branch Accountant, Office Assistant and Credit Officers.
- Developed a Performance Management System and an Achievement Management Plan to be utilized by management to develop and monitor the growth of each employee at FBL.
Developed an Operations Manual that describes FBL’s processes, procedures and the framework for all operations to train existing and new employees.
I also undertook additional deliverables (not outlined in my initial proposal to MWB) to enhance FBLs operations. These deliverables included:
- Writing funding proposals and seeking meetings with donors. I wrote a number of funding proposals for raising capital of KShs. 5M in the short run for FBL. These proposals were for Kenya Commercial Bank (KCB), AMFI, Equity Bank, ECLOF and Oiko Credit. I also met individuals in these organizations responsible for funding to present my proposals. The outcomes I felt were positive given the type of risky business of Microfinance FBL is in. KCB was very interested in a win-win situation and spoke to me about developing a product for Microfinance Institutions like us. As they were relatively new in product development they agreed on loaning us some money but I don’t believe the rate was favorable. AMFI was deciding on whether or not it would grant a loan as their threshold was KShs. 5M, and FBL was slightly risky and still relatively new in the microfinance field. Equity bank (and two other Micro Finance Banks) were given donor funding by the government of France to give to small micro finance institutions to be able to lend to low bracket individuals. However, as of January, their product of lending has not been developed. It will take a few months to do so. ECLOF and Oiko Credit were seeking collateral to give funding. However, the directors were not for pledging collateral. Let’s hope there is some positive outcome in the next few months. Generally, seeking funding in Kenya is a process that can take a year or so.
- Creating “Notes to Management Accounts” to attach to funding proposals.
Writing employment letters/contracts for branch staff allowing disciplinary rules (i.e. office hours, expectations, etc.) to be implemented.
- Creating a new weekly management report with automated calculations to enable the main branch to accurately report on performance to the Directors on a weekly basis. The automated calculations were intended to remove manual calculations and human error that led to incorrect reporting. The new portfolio report is intended to act as a MIS (Management Information System) giving the Directors the relevant information required for their analysis. I trained and mentored staff to use this report as well as provided user notes. Initially I coached all FBL staff (head office and branch staff – 6 people) in an FBL staff meeting at FBL head office (6 people). Secondary and subsequent training was at branch level (3 people)
- Recommending and creating a summary for additional loan products FBL could offer given FBL’s funding constraints. I introduced this in a FBL staff meeting at FBL head office and branch staff (6 people) and later coached branch staff (3 people) on how to implement these products.
Signing up for membership under AMFI. I trained the Branch Manager on how to fill these forms and how to extract relevant information for the forms.
- Creating two job descriptions for future two consultants to join FBL in July 2007 and Jan 2008.
Overall, each of the deliverables was shared with branch staff (3 employees) to get them to train on certain items and to broaden their knowledge.
Are there opportunities in this field (e.g. health, agriculture or finance) for local and international entrepreneurs?
The Microfinance field is actually highly competitive throughout Kenya. There are a variety of institutions ranging from the big microfinance banks (e.g. equity, k-rep, etc.) to the medium ones (e.g. Faulu Kenya, KWFT, etc.) to the small ones (e.g. Cadet, institutional ones, etc.) A number of these offer very competitive products and services. The products range from different types of loans (educational loans, medical loans, emergency loans, etc.) to different types of services (e.g. book keeping training, business startup training, consulting, etc.).
However, the main key to succeeding as a Microfinance institution (MFI) is first and foremost funding – adequate funding to finance the number of clients hoped to be acquired in the initiation stage as well as the growth stages. The second important key is your credit officers and their ability to attract clients (which can only be able to be retained if loans can be given). From what I observe, the return on Investment (ROI) for ‘small’ MFIs is generally not as high as other financial institutions due to the fact that the clients MFIs deal with are high service clients (a lot of time and effort is to be spent servicing clients). It may seem paradoxical as the interest rates for a Microfinance loan are typically in the 20% range yet the ROI is low.
What I have seen (i.e. in Ongata Rongai and Wangige) is that there are a very many low income individuals who are generally very ambitious and business minded. They only need to be given an opportunity to be able to make money. Once they see a business opportunity, and are given the tools (i.e. a small loan) to capitalize on a business opportunity, they have the potential to succeed. And once they succeed they even have the potential to grow bigger. Of course, to grow bigger they will require larger capital to grow their business. If somehow during this stage, the MFI they belong to fails to meet their expectations of a higher level loan to meet capital requirements, they will be discouraged. Also, they will not have the patience to wait as their business has the potential to grow and hence default to other MFI’s in the area. Therefore, it is extremely important to have adequate funding and well-trained credit officers. If you have funding, then you are able to attract and retain clients as they grow, introduce new products and services to keep clients attracted and subsequently train your staff as the MFI grows.
Of course, my thoughts above all assume that before one can even get appropriate funding, one must have a strategy/strategic plan to survive in this highly competitive playing field. Microfinance does not mean a small business that is excused of proper planning and thus haphazard operations. There must be a plan even if it is a small business. Yes, there are opportunities, but adequate strategic and operations planning must be done to succeed in this business!
Why are you interested in international development and private sector development?
First, my early years as a child were in a developing country (i.e. Kenya) on both a farm (rural) setting and an urban area. From a young age, I was exposed to inequities and always wondered why they existed and always wanted to change that. Then I moved to Canada, completed my education and worked for a few years in Canada. I noticed how fortunate we were in Canada and how some of the systems and processes and ways of working could actually enrich the lives of individuals in developing countries. Maybe that was a way to narrow the inequities gaps and hence, my interest in international development.
Second, I generally enjoy helping people. It gives me great pleasure to know that I extended help to somebody who really needed it, or I changed the quality of life of an individual. What motivates me more is to help the poor or the most disadvantaged of any community. In Canada, I had a chance to help, partly by donating money to charity but I could never really tell whether my monetary contribution was making a difference and I was never satisfied. So, I choose to help in international development, to help physically, in a setting, where I can see that my contribution is making a difference (i.e. it is bettering the quality of life of individuals who need it most).
Third, my brother has also been an advocate for empowering the poor and bringing change. Through his various travels and volunteering in Tajikistan, Cuba and rural areas of Kenya, I learnt a lot and thus begin to love the thought of bringing change and development to empower the poor and thus their economies.
Fourth, I’m just motivated to bring change, change that will better the lives of the least fortunate or even the fortunate who need change. I feel the disadvantaged in developing countries need a broader mindset, and a structured and ethical way of working.
Originally, why did you want to participate in this program?
I wanted to participate in the program primarily because what I mentioned in 1 above.
What were your main challenges, both personally and professionally?
- Slow telecommunications (i.e. email),
- Power outages (& not having a laptop in the for the first three months of the consultancy)
- Different work ethics and work styles (i.e. concept of time, concept of age, etc.)
- Dangerous commuting (i.e. bad roads, potential hijack situations, etc.)
- Work environments not necessarily conducive for females (i.e. lack of hygienic washrooms in new locations (which was even bad for local staff) who would refuse to even go for short calls for a whole day, etc,
Was the monthly stipend of $1,000US/month sufficient and how, if needed, would you change the way and what MBAs Without Borders financially covers?
The monthly stipend is actually lower than what a company would offer to a consultant in Kenya. For development purposes, this stipend may seem OK. However, considering risk involved (i.e. country risk, business risk and area risk-with being based in an insecure location outside Nairobi, threats from angry clients FBL hadn’t paid on time, etc.), sometimes it feels necessary to be compensated better to justify/feel better about the risk
What would have made this experience even better for you?
Links with other young professionals in development here in Kenya from other parts of the world. It certainly provides a support system and is something MWB should look into.
What advice would you like to offer future MBAs who work abroad for MBAs Without Borders?
If you’ve never lived in the country you are going to work in, please research it as much as possible and talk to local area people (i.e. get in touch with the embassy, ask them about challenges, get in touch with local company (ask about challenges). Don’t necessarily just look at tourist websites as a holiday in Kenya is a different experience than a work environment. Some people are more risk oriented while others are not. It just depends on what you are willing to take on. Even research the area you will be located in (everything is not a city i.e. Nairobi, even if the posting dictates). If hygienic washrooms are important for you (even if it is a manhole), research your work environment too (i.e. office location, no of people sharing bathroom, etc. After all, its development but not all development is the same and you must pick development that ‘suits’ you. After I started working in Ongata Rongai, locals always told me it was I was in a dangerous work environment, but I didn’t feel the danger (it’s a state of mind) because the office felt really secure and the locals were very welcoming and I actually enjoyed my time there and made many friends – all on the street. However, when I went to work in Wangige, it wasn’t the same. I felt the tension and the insecurity, and the work environment was not conducive. So be careful in an environment you chose to work in especially being a female. Sometimes, you must also look at gender oriented roles, are women traditionally homemakers in that area and therefore would your presence offend the men or put a power struggle in. Would the struggle be manageable or not?
Why would you recommend others to participate on MWB programs?
Yes, definitely. If you are experienced professional, it gives you great satisfaction to help (as in my case). If you are seeking experience, then it is quite a learning experience and you will certainly make you more marketable when you return to your country as the experience is quite worth it. Infact, I would love to take another MWB placement if there is a need.
Also, I would definitely recommend companies to work with MWB to take on consultants. There is a lot that consultants can do to improve operations, systems of work and work ethics and hence contribute towards economic development of Kenya as a whole.
What are some of your goals and aspirations (i.e. job, personal, etc), that you are planning for once this placement has concluded>
I am open to consulting either in developing countries or developed countries. Either in development related work on non-development work. I have a strong desire to help and share knowledge to improve the quality of life of individuals and span of companies to help individuals.