Tackling poverty in rural Kenya through community-owned village banks

April 25th, 2018

Why FSAs are the preferred financial service providers in Kitui.

The popularity of graduation programmes as the means to ending extreme poverty is growing globally.  A number of graduation programme approaches are in use but  the most well known is BRAC’s which entails a sequenced delivery of five supports namely:  a consumption stipend, savings, asset acquisition, business skills, and mentoring and coaching.

FSD Kenya is implementing a building livelihoods project that aims to inform social protection policy by testing market-based approaches to building the livelihoods of poor households.  The first pilot is underway in Marsabit County – an arid region of northern Kenya also characterised by poor market infrastructure.

Keeping in mind the contextual differences across the country, FSD plans to design and run a second pilot in another part of Kenya. On 12th September 2017, we set out for Kitui Country in the south-eastern part of the country to explore the prospects of implementing the second graduation pilot through financial service associations (FSAs).

FSAs are community-based, user-owned, village banks. Membership in FSAs is through buying of at least one share that costs about KShs 300 (approximately US$3).  A member can access a range of services from the FSA such as credit (mainly secured through social capital using the group methodology), voluntary savings, asset finance.

FSAs undertake asset financing in partnership with various vendors to ensure affordability, quality, and convenience to their members.  This is a highly valued service especially by poorer members who are not able to acquire even basic household assets without such support.

Although there are other financial service providers in Kitui, FSAs seem to be the preferred option to the lower income segment of the population – only 20% of FSA members also uses formal financial services such as microfinance banks and commercial banks. But because the FSA’s are user-owned they are viewed much more favorably as part of the local community, allowing them to serve members that are not interested in using formal financial services. FSAs are therefore often better placed to address their members’ needs and nurture their economic potential.

Based on our visit, the following stood out about FSAs as potential delivery points for a graduation programme.


Kitui county is poor – 60.4% are within the poverty level and 20% of the households are food insecure.  Accordingly, any graduation programme in Kitui needs to be supported by proper targeting.  The pilot will need to identify the right FSAs based on where there are higher levels of poverty and the poorest households within these communities.

Consumption stipend

Some food for work programmes by both the county government and some NGOs are already running.  These entail paying members of poor households some little money for work done on their own farms.  While far from sufficient to meet their consumption needs, these are making a little difference.  The government’s 70-years and above  social transfer programme is also set to start early 2018.  However, there is still a need to explore ways of ensuring that the target households’ basic consumption needs are met as a basis to building livelihoods. This could be done in partnership with the County Government.


As already pointed out, the FSAs provide a range of financial services including savings.  However, there is need to explore ways of making these happen without a massive opportunity cost such as having to make a two-hour trip for some at the expense of attending to an income generating activity or working.  Digital financial services present an opportunity for effectiveness in this.

Productive asset acquisition

Many income generating activities (IGAs) exist.  These include seasonal agricultural production of pulses and livestock, weaving of baskets, and making of ropes.  Trade in these items and petty trade is also common.  However, the ability of these activities to generate enough income to enable poor households to transition out of their poverty would need to be established.  While market exists for the current level of production, this would also need to be assessed for greater production and enhanced to deliver full benefits for the households.

While FSAs are able to finance acquisition of assets and provide loans to their members, the poor households who would be the target beneficiaries of a graduation programme might not be active borrowers or even members of the FSAs.  A way of ensuring their participation and availing the loan capital to meet the related demand for higher loan amounts to make their IGAs viable would be needed – current FSAs loans average KShs 18,000 ($180).

Production skills, coaching and mentoring

FSAs staff already provide basic business planning and financial literacy skills to their clients through the groups.  In addition, the groups serve as avenues for mentoring and coaching – members learn from each other and this is a highly valued (include link to FSA impact report). The groups can be used as outlets to deliver training more targeted at the IGAs that are selected.  The training could be delivered by other players in the IGA value chains for example, buyers of the baskets on the quality needed or those of the pulses on good crop husbandry for better quality. There are also indications that the County Government would be keen to provide some technical support. Established training content and success stories could be packaged and delivered through technology devices for cost-effectiveness.

FSD Kenya will put into consideration all these observations in design of the next graduation pilot.  Stay tuned for a future update on what this will look like.



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