FSD Kenya was privileged to participate at the Financial Inclusion Conference and Investor Expo 2024 (FINCON 2024) held on September 25th -26th 2024 hosted by the Association for Microfinance Institutions (AMFI) at the Central Bank of Kenya Institute of Monetary Studies (formerly KSMS). The theme ‘Enhancing financial inclusion- bridging economic opportunities and outcomes’ aligned closely with FSD Kenya’s mission to serve vulnerable populations. FSD Kenya participated in three sessions, and some key insights and takeaways related to some of FSD Kenya’s work are covered in this blog.
The digital revolution on its own has not yet been able to deliver on finance for the real economy, and there are still significant challenges with respect to inclusivity, fairness and value addition. (See FSD Kenya keynote presentation ‘To what extent has Kenya’s financial inclusion journey been fair, inclusive and value adding). In a discussion led by David Cracknell of First Principles Consulting, a number of issues were raised including the problem of rural exclusion and the need to transform rural financial eco-systems; the need for deeper engagement with customers through face to face as well as digital intermediation and closer attention to solving customer needs (e.g. investment and shocks) and challenges (e.g. challenges with debt repayment) rather than offering generic solutions and dealing with default simply by penalising customers; and the opportunities for FinTechs and more traditional institutions such as MFIs and SACCOs to come together and maximise their respective strengths while mitigating their weaknesses (David Cracknell, 2024)
In line with this, and related to FSD Kenya’s affordable housing work, a key take out was that housing microfinance continues to be an important financial product for middle and lower-income Kenyans. These loans do not require collateral like title deeds and allow for small loans that can support the household to build or improve their homes, improve their access to water, sanitation or adoption of cleaner cooking solutions . Such loans are usually guaranteed by a spouse or a group, making them accessible for those who otherwise might struggle to secure traditional financing. AMFI members, who include Microfinance banks (MFBs) also face regulatory challenges that hinder their ability to adequately serve their target customers. Current risk classification rules require provisioning after 1 month (as they were designed for weekly repayment terms which was the norm at the time the regulations were created, therefore one month late repayment equated to four late weekly repayments). But the industry has moved to monthly repayments and hence the existing regulations need to be adapted to reflect the current circumstances. This is a bigger challenge for housing loans which are usually longer term than livelihood loans or other loans. Additionally, MFBs are restricted from using retirement scheme funds as deposits, limiting access to affordable financing for housing. Regulatory definitions further exclude MFBs from home loan tax incentives, reducing competitiveness in offering affordable housing loans. The absence of tax incentives and high Cash Reserve Ratio (CRR) requirements also drive-up compliance costs, restricting the funds available for housing finance. These factors increase the cost and complexity of providing housing loans, limiting the impact on affordable housing efforts. Several initiatives led by various entities, are under way to tackle these.
During the session “Effective financial inclusion policies, regulations and national strategies to promote inclusive green finance in Kenya” it was noted that ESG reporting has become increasingly important for financial institutions, yet the microfinance sector has lagged behind in establishing clear regulations and guidelines for sustainability reporting. Despite serving a large and diverse population, microfinance institutions (MFIs) have remained relatively passive in influencing these crucial developments. For instance, during the drafting of the Green Finance Taxonomy by the Central Bank of Kenya (CBK), MFIs were notably absent in providing input, missing an opportunity to shape a framework that directly affects their operations and the communities they serve.
Given the sector’s reach and impact, it is imperative for MFIs to actively participate in the creation of sustainability guidelines. By contributing to such discussions, they can ensure that their unique challenges and opportunities are adequately addressed. Furthermore, aligning with international frameworks such as IFRS S1 and S2 will allow MFIs to integrate global sustainability standards into their reporting processes. This will not only enhance transparency but also strengthen their position in the growing green finance landscape, unlocking further opportunities for investment and social impact.
Leveraging gender-disaggregated data to advance women’s economic empowerment (WEE)
Gender-disaggregated data and evidence play a crucial role in supporting financial systems and infrastructure to advance women’s economic empowerment. While there is rich gender-disaggregated data on the demand side in Kenya, especially from FinAccess, it’s costly and infrequent, produced only every 2-3 years. The true value is realised when this data is integrated with supply-side data, offering deeper insights into financial interactions. AMFI, in collaboration with FSD Kenya, is working on ways to collect supply-side data more consistently through business processes, disseminate it effectively, and apply it to design gender-specific financial solutions that can attract investments and boost the growth and sustainability of women-owned businesses.
Lastly, another notable takeaway from the session, ‘Positioning research and data for sustainable investments and effective inclusion- decision making anchored on data,’ was the clear appreciation of granular data and its value to provide a complete picture of the financial solutions that households and businesses rely on. Without this, it becomes difficult to price risk and serve different segments effectively, resulting in over- indebtedness and other challenges associated with the growth of digital financial solutions. One of the challenges that emerged is the non-existence of a platform where such comprehensive information is consolidated. While credit reference bureaus can offer a good starting point as far as credit is concerned, the current regulations don’t require all credit providers to report here. FSD’s ongoing work with gender -disaggregated data could provide the market with an example of what’s possible in terms of aggregating and sharing market data, setting a precedent that could influence a standard for the sector.
FSD Kenya looks forward to partnering with AMFI to tackle some of these emerging opportunities.
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