The Commercialization of Microfinance: The Case of Jamii Bora. How has Jamii Bora changed since becoming a commercial bank?

Since the creation of Jamii Bora in 1999, it has grown into one of the largest microfinance providers in Kenya. Recently, it merged with Citi Finance Bank to become the forty-fourth commercial bank in Kenya. Some speculate that it has now out grown its humble beginnings when founder Ingrid Munro started the organization with 50 street beggars in Nairobi. 

Such a transformation is not uncommon in microfinance. Many microfinance providers that were once non-profits or trusts operating with the assistance of donor support are now registered and regulated microfinance institutions or commercial banks that are highly profitable and claim to be self-sustaining.

During an interview that I conducted with a former Jamii Bora employee who was directly involved in its transformation to commercial status, I learned of some of the changes that Jamii Bora has undergone. Such changes include enhanced internal control and regulation along with the revision and formalization of the financial products that were created in its inception more than ten years ago with the approval of the Central Bank of Kenya.

Most of the 58 Jamii Bora branches across Kenya are now closed, but a limited number are now “sale centers” that register new clients, supply clients with information on products and services, train clients, and analyze loan performance and recovery. There is only one branch (located in Nairobi) that now accepts deposits, but members can also deposit their payments and savings in Jamii Bora accounts at Kenya Commercial Bank, Co-Operative Bank, and Postal Corporation of Kenya across the country.

The past and current Jamii Bora clients whom I interviewed seemed very confused about the transformation of Jamii Bora into commercial hood. Many of these individuals spoke of the fact that Jamii Bora is no longer “their institution.” They can no longer can identify with it. This sentiment may be one reason for the recent creation of Jamii Bora SACCO (savings and credit co-operative). I speculate that it is an attempt to regain and maintain its core base of low income, informal economy workers that made it what it is today-a household name in Kenya and an internationally recognized anti-poverty organization.

Based on my research and interview with another past employee of a Nairobi based Jamii Bora branch, the transformation has lead to the increasing of fees and changes in loan products (specifically, larger amounts are now available), and loan requirements becoming stricter (specifically, more loan insurance coverage and loan security is required). Since the current Jamii Bora finance manager would not consent to an interview or confirm any of the following information provided in the chart below, consumers should conduct their own analysis of the loan opportunities of this financial institution. 

 

Loan details: -Jamii Bora Loan: 600-100,000 Kshs (Kenyan Shillings). -Daraja Loan: 101,000-500,000 Kshs. -Biashara Loan: 501,000-3 million Kshs. -Jamii Bora Loan: first loan cannot exceed 30,000 Kshs, second loan cannot exceed                             50,000 Kshs, and third loan cannot exceed 100,000 Kshs. -Daraja Loan: first loan cannot exceed 101,000 Kshs, second loan cannot exceed  200,000 Kshs, and third loan cannot exceed 500,000 Kshs. -All loans are paid weekly by the borrower.

Loan Disbursement details: -For first cycle of loans, loans are distributed to one member every three weeks.

Membership registration fee: -200 Kshs for every client.

Chattel Mortgage Fee: -2,500 Kshs required for only Biashara and Daraja loans.

Additional expenses for application: -A photocopy of the borrower’s national identification card (estimated cost of 5 Ksh).

Insurance fee: -1% of the principle loan amount and additional 5,000 Kshs for  Daraja and Biashara loans.

Disbursement Fee: -40 Kshs or more depending on the loan product.

Interest rate: -20-22% per year depending on the loan product (flat rate).  (This rate is subject to change at any time with the discretion of the lender.)

Required security for Loans: -Savings of at least 50 Kshs per week is required for at least six weeks. -The total amount saved must equal twice the amount of the principle loan amount  before loan disbursement. -Savings of at least 50 Kshs a week per borrower is also required during the loan duration. -Household or business items are also required to be pledged by borrowers. -All members of the borrower’s group must serve as guarantors.

Required Training: -No fee is charged for required orientation and training for group based loans. -Training takes place before all loan distributions for two hours per day for one week. -Additional training is available for a fee of 1,000 Kshs.

Penalty for late payment or default: -Unspecified monetary penalty. -The borrower risks losing community relations (social capital). -The members who guaranteed the loan must repay or the bank will take the savings of   the group members to pay the amount owed.   -All loans for the group members of the defaulter are suspended until the amount owed is paid. -For defaulters, further loans are suspended. The group decides if and when the defaulter  of the group is eligible to borrower again. Additional approval is required from the bank  as well. Ifanother loan is approved, the loan amount must be smaller than the loan for  which the member defaulted, and the savings of the defaulter must be more than twice  of the principle loan amount.