Ignorance costs women and youths cheap business funds

“No,” replied Mercy Rotich from Nakuru. “But I belong to an investment group of 15 members. It’s called Rafiki Women’s Group. We contribute Sh1,000 every month, then cast ballots to determine who takes the whole Sh15,000.”

Ms Rotich adds that the Women Fund has never been an agenda in their group meetings. “We don’t see it as a highly profitable investment booster,” she says.

On the other hand, Keziah Wafula, a cereals wholesaler in Bungoma, who is a member of Uhusiano Mwema Women’s Group, quotes high interest rates charged by banks as the reason her group cannot apply for a loan. Ironically, Ms Wafula completed her Sh330,000 bank loan in November last year at 16 per cent interest rate.

Although the Santa Cruz Youth Group in Siaya has applied for a Youth Enterprise Fund loan before, they will not be putting in an application to the Uwezo Fund.

According to group member Freddy Odhiambo, the reason is the frustration they felt on being disqualified for a Youth Enterprise Fund loan.

“We have applied for youth loans for the past four years without success. In every application, we are told that we didn’t qualify or that our documents were not filled correctly!” he says.

Apparently, many women and youth groups remain unaware of the potential these funds hold or are too frustrated to pursue these cheap loans.

In the past seven years, the Women Enterprise Development Fund has disbursed Sh381.4 million to 67,799 women in various constituencies across the country.

In a growing economy where small businesses are increasingly expressing a hunger for financial support and/or start-up capital, these figures betray an apathy to loans among small-scale business owners.

INACCESIBLE CASH

Take the Youth Enterprise Fund. Despite the fact that this fund has been in operation since 2006, many youths have remained out of work and unable to access cash even though the fund provides start-up capital to applicable and promising business proposals.

As we found out, many young people believe that only youth-owned existing businesses are eligible for Youth Fund loans.

Moses Masai, 28, has been jobless for the past eight years that the Youth Fund has been lending money. Over the same period, loans worth more than Sh9.3 billion have bypassed him.

In mid-February this year, the Women Development Fund released Sh3.8 billion for disbursement to 800,000 women across the country.

According to Ms Catherine Omuya, the CEO of the Youth Enterprise Fund, strategic partnership with the private sector has seen the fund create a Sh9.3 billion portfolio, up from the Sh4.2 billion offered by the government.

By December 2013, Sh9.3 billion had been disbursed. This came hot on the heels of the Sh6 billion Uwezo Fund — a distinct and independent youth and women enterprise funding entity.

According to personal finance expert James Njenga, release of these monies provides a cheaper alternative to funding that investment groups can use.

“The interest rates charged on women and youth funds are relatively lower than those charged by banks. Instead of going for an expensive bank loan, women entrepreneurs and the youth will do well to grasp these monies while they last,” he says.

In Ol Kalou, groups of women from Karau, Rurii, and Kaimbaga locations are doing exactly that. They formed a women’s sacco called Karuka Jubilee Women Sacco in August last year. They have contributed and disbursed loans worth Sh680,000 at 10 per cent interest rate.

“We bring together different groups of 10 members and above,” says Miriam Wanjiru, a member. “Then we pool money through individual contributions. The minimal amount a member can contribute is Sh200. Every member gets a maximum loan that is three times her six months’ contribution.”

The women’s sacco hosts 152 groups. Wanjiru says that by joining a group and registering with Karuka, she was able to access a loan of Sh30,000.

“I got an individual loan through the group and bought a cow. I now sell milk to Brookside Dairy,” she says. The loans are provided through Tower Savings and Credit Sacco, Nyandarua County’s premier teachers saving society.

Mr Stephen Kibet is one of the young entrepreneurs who have used the Youth Enterprise Fund to expand his business. “I took a loan of Sh150,000 in 2009 under a youth group in my church and started a jua kali workshop.

“I have been building and selling ventilators and metallic boxes. My business has grown from the Sh150,000 capital to a turnover of Sh600,000 and I have employed two workers,” says Kibet.

He says that had his group not visited one of the financing intermediaries to understand how the loans work, they would not have applied for it. “Initially, we thought the loans were similar to those of commercial banks since they were being offered by banks and saccos,” he says.

Currently, Kibet and his youth group are planning to reap big from the Uwezo Fund. “These are cheap funding opportunities that no young entrepreneur can afford to miss.”

GOVERNMENT TENDERS

According to Ms Wanjiru Gathira, chairperson of Uwezo Fund, access to finance is being tagged on the 30 per cent procurement of government tenders offered to women and the youth.

“The fund will enable young people to become shareholders and will give them a larger market for their products,” she said. “It seeks to model an alternative framework for funding community projects initiated by young people.”

Interestingly, 40 per cent of the Sh6 billion on offer will be grants. “Sh2.4 billion is to be distributed without interest. This means that borrowers will repay only the principal. You can’t get such an offer from any bank,” says Njenga.

According to the Cabinet secretary for Devolution, Ms Ann Waiguru, beneficiaries of the interest-free money will be determined on a needs basis and the strength of the proposals presented.

The remaining Sh3.6 billion will be distributed to qualified groups through constituencies at concessional interest rates.

To qualify, youths will be required to form groups of 10 people or more. Sh4.5 billion or 75 per cent of the money will be shared equally among the counties while Sh600 million will help offer business skills.

The remaining Sh900 million will be allocated on a quota basis, with the youths living in the poorest counties receiving more money.

Njenga explains that if you borrow from Uwezo as a group, you will be expected to apply principles associated with table banking. The table banking programme was launched by the government through the Poverty Eradication Commission with the aim of helping women access start-up funds for income-generating enterprises.

Joyful Women Organisation from Uasin Gishu is one group that is reaping the fruits of the table banking concept. After starting with a revolving fund of Sh6 million, the group has seen its wealth increase to Sh425 million in four years, with a membership growth of 100,000 women from 1,000 founding members.

The Uwezo Fund will offer loans starting from Sh50,000 and not exceeding Sh500,000. In the 2013/14 financial year, the interest rate charged stands at 0 per cent.

According to a statement issued by the Ministry of Devolution late last year, the interest rate for the fund would be reviewed annually but would not exceed 1 per cent.

Under the Youth Enterprise Fund, income generating projects are funded up to Sh3 million. “The fund charges an annual interest rate of 8 per cent,” says Njenga.

Unlike Uwezo Fund, the youth fund offers loans to individual businesses or promising business proposals.

Wanjiru (of Karuka group) explains that groups must have a working contribution and a borrowing and repayment formula before applying for these loans.  

“This will keep the money flowing and ensure that groups do not incur bad debts. This is what we did. Now we are even considering bringing in men,” she says.

MONEY MATTERS

Checklist for an Uwezo Fund loan

1. Be registered with the department of Social Services of the Registrar of Societies.
2. Group membership should not exceed 15.
3. Members should be between the ages of 18 and 35.
4. Groups that have been in existence for at least six months will have an added advantage.
5. Group should be based and operating within the constituency where they have applied.
6. Should hold a bank account under the group’s name.
7. Operate a table banking or chama structure where members make monthly contributions and evidence of such contributions presented.
8. Seek a recommendation from the local chief or inter-religious council of Kenya if the groups are under a religious entity.
9. Have business registration certificate and a bank account preferable to the preferred financial intermediary.
10. Submit loan application form — which is to be collected from the intermediary financial institution — or self-prepared business proposal to the preferred financial intermediary.