Character-based loans grow in Kenya
TEXT OF STORY
MARK AUSTIN THOMAS: We all know the drill. If you want to take out a loan, you need some collateral. But in very poor countries many people have little to borrow against. Sometimes household assets are little more than a few cooking pots or a small herd of goats. But in Kenya one bank has found that personal integrity can be form of collateral. Gretchen Wilson brings us this story from Nairobi, Kenya.
GRETCHEN WILSON: I’m in the back of a minibus taxi, lurching over potholes. Every Friday, loan officer Alice Kuria takes this route past banana trees and tin-sided slaughterhouses to the neighborhood of Dagoretti.
Kuria works for K-Rep, a commercial microfinance bank. Her destination is a shed without electricity. The community’s borrowing group meets here at a long table, counting coins and crumpled bills.
Everybody pools together their savings, and they each bring about $10 to pay off their own small-business loans, as well. Their reputation depends on it.
ALICE KURIA: So in the group, if you don’t come to the meetings, if you don’t send your contributions, then now your character is questionable. Or even if you have a bad reputation in the community, then we can’t allow you to go ahead and access a loan.
That’s because your own neighbors put their savings on the line. Only 2 percent of these loans go unpaid, far better than the 15 percent of commercial loans.
Milka Wangari Mundati is a dressmaker and the group’s chair. Since 1995, she’s received loans totaling $3,500.
MILKA WANGARI MUNDATI: Being a group, it really helps, because we are together, we join together, and we are able to get those loans.
This empowerment is the idea behind microfinance banks, and it’s working, says K-Rep’s head of microfinance, Titus Chweya.
TITUS CHWEYA: Collateral never repays a loan. It’s you, the borrower, who repays the loan. And we tell the clients very well: “From your next loan we are going to evaluate you on how you have performed in this loan that you have taken.”
K-Rep isn’t a charity. It charges interest. Still, it’s been the spark behind 40,000 small businesses in Kenya, such as Mundati’s dressmaking business.
MUNDATI: I’m so grateful because I’ve been able now my children are in secondary school and I’m able to pay for them and I feel great. I feel proud!
Mundati’s now helping other women start their own businesses. And that does a lot for her reputation.
In Dagoretti, Kenya, I’m Gretchen Wilson for Marketplace.
Stories You Might Like
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.
