COMMUNITY DEVELOPMENT

COMMUNITY DEVELOPMENT

SIMPLE DEFINITION

This is a process of identifying and harnessing local and regional resources and opportunities to stimulate new economic and employment opportunities.

It is about communities maximizing the use of their human, physical and financial resources to maintain and enhance development opportunities and their quality of life
It is based upon simple premises that each community has within itself, considerable opportunities to influence its economic future.
As we think about development, we need to appreciate that sustainable local economic development does result from fix measures. It involves developing a mix of initiatives related to the community’s competitive advantages.

ROLE OF MICRO FINANCE IN ACTIVATING LOCAL ECONOMIC DEVELOPMENT BOF THE DISADVANTAGED

Micro finance can be defined as an effective and innovative solution to deliver services (credit, saving, insurance, etc to the poor or disadvantage)

Past experience and data available has shown that while micro finance is a business, it is also powerful tool for development.
2.1 Even very modest loans generate huge productivity gains and contribute both to job creation and to raise family living standards (adequate nutrition, better health and housing, more education).


If the above is true we can therefore say that credit alone cannot eradicate poverty but contributes to eradication and other development interventions must come into play

Micro finance offers for the first time in the field of social action, the opportunity to reach sustainability of impact through financial profitability.
It is indeed an opportunity for socially responsible development partners to make a concrete and lasting contribution to the improvement of the poor and their families.

3. FINANCIAL SERVICES AND POORTY REDUCTION
Micro financing assists the entrepreneurs to exploit the skills and competence without compromising his or herself confidence. This is because the entrepreneurs participates in designing and attaining his/her success path

The poverty lending approach of microfinance institutions (MFI) overall goals should be poverty reduction and empowerment MFIs should target the poor .Credit is indeed a powerful tool for poverty reduction

3-1 Investment in productive assets for income generation
3.2 Facilitating the household’s livelihood activities.
3.3Protection against income shocks and reduced vulnerability
3.4 Qualitative factors such as empowerment and building of social capital.

1)SERVICES WHICH MICROFINANCE INSTITUTIONS GIVE

Loans or credit
A common assumption upon which micro finance programmes are based is lack of access to credit. This is seen as most serious constraint the poor face.


Various entrepreneurs needs different loan products which most institutions try to provide

While MFIs in other countries have developed innovative products for the clients, this is not so in Kenya where credit has dominated the sector. Other products could be market linages,business training

The products currently available are ;

Ø Business loans
Ø Education loans
Ø Medical loans
Ø Small holder farmer loans
Ø Technology loans-popularly called community telephone
Ø Skill and knowledge acquisition



Most MFI s started through an integrated approach, providing training and credit. Over the time, the training has not emphasized due to various reasons:-

Ø Insurance – for proposal needs and assets
Ø Consumer loans –purchase of household items
Ø Investment loans- for acquisition or development of assets.

NB: Commercial banks have now started micro lending but for the able, employed and those with small and medium businesses and their loans are larger.
One characteristic of these loans is that they are short term between 3-24 months. There are also small loans of between shs 5,000- to shs 400,000/-

4. TYPES OF MICRO FINANCE INSTITUTIONS

Currently in Kenya, the word micro finance is generally used by any financial institution which imagines that they are lending small loans to its clients.

We see commercials banks calling themselves institutions and this distorts the sector. While micro finance institution goals are to support the poor or disadvantaged, the reasons for banks and non –banking institutions may be actually tapping the benefits of the large market to create wealth for the shareholder.
Categorically there are two types of micro finance institutions:-

4.1 NGOs: Pursuing exclusively social objectives. They use micro finance as a mean for poverty reduction

4.2 Commercial institutions; These perceive the provision of financial services as their main objectives commercial. Institutional goal is expansion to new markets for institutional image profitability

The two have very little in common e.g. vision mission lending methods, capital accesses,etc


5. DO MFI ‘s REACH THE POOR OF THE POOREST

It is commonly believed that MFI clients in general are the poor .However there is a relationship between the type of an institution and poverty level of its clients. Studies which have been carried out indicate that very few MFI’s reach the poorest of the poor. The poor benefit more on social services than credit.

Why is this :
Firstly ,because the poorest of the poor do not need credit but support to meet their immediate need e.g. food,health,etc.It is what finances do that reduces poverty and therefore, since the poor of the poorest have other pressing needs financing makes little sense.
Secondly the poorest of the poor lack physical collateral e.g. household assets which form part of collateral e.g. household assets which form part of collateral for loans
Solidarity groups lending has tried to solve this problem but still the poor of the poorest still are limited to this access

However NGO MFI’s reach more poor people than commercial MFIs.

Thirdly the push for MFIs to become financially self sustaining we have seen in Kenya donor’s pushing MFIs from the poor because they must be sustainable.

Donors have become investors and their funds have been converted to trusts or advanced through commercial banks at high fees, others have converted themselves into MFI’s thus depriving the poor of the social support

6. FINANCIALLY ABLE MFI’s CAN REACH THE POOREST OF THE POOR THROUGH ITS OWN CAPITAL

6-1 Studies have shown that there is evidence that financially sustainable institutions have increased their out reach and served a great number of the poor

6.2 MFI’s also are able to reach petty traders than commercial banks

6.3 MFI’s reach the poor especially in rural areas. Barrier to outreach are poor infrastructure, low population density, terrain and accessibility.

6-4 MFI’s give small loans which are only attractive to the poor

7.SHOULD MFI’s STRIVE TO REACH THE POOREST OF THE POOR

The answer is Yes: The main goal of micro financing the poor is to access credit even when the poor benefit more form social services. If some of the poorest are credit constrained due to other reasons as discussed above this should not be viewed as institutional failure.

The provision of credit to the poor people is complicated and expensive, requires credit worthiness and involves risks for both borrowers and lenders. It is still possible for MFI’s to deepen outreach through complimentary activities.

If this is a factor, MFI’s should be encouraged to reach a large number of poor within a diversified client group. In this endeavour to reach the poor, a wide Varity of approaches and MFI’s is needed.

These should include: Sustainable institutions to secure large scale outreach and reduction in absolute poverty, a poverty-oriented pilot programme

Although studies have not been done in Kenya on the impact and of MFI’s,other studies in Asia and latin America have shown that micro finance plays a big role in poverty reduction.However,conditions must be available for financing to play its role in this endeavour. The following are some of the achievements of micro financing:-

Ø Increased employment
Ø Increased use of family labour
Ø Increased household income
Ø Higher survival of enterprises due to access to additional finance
Ø Improved nutrition and access to health
Ø Increased participation of the entrepreneur at family and community affairs
Ø Improved self esteem
Ø Increased use of local resources
Ø Increased saving for local activities,etc.


8.SOURCES OF FINANCES FOR MFI’s

8.1 Partner contributions (grants)
8.2 Collateral savings
8-3 Reveres (profits)
8.4 Loans
8.5 Alliances and networks

Alliances and networks

This area has started being a major source of funds for MFI’s .This is more so due to two or more institutions with common missions but different skills coming together for the achievements of their goals.

Each of the institution realizes that it can achieve more by partnering with another. The relationships are well defined and each partner’s role expressed


Collaborations goals could include;-

Ø Developing new development agencies and initiatives
Ø Sharing scarce resources
Ø Intermediary- intermediation
Ø Increasing local networks
Ø Creating local networks
Ø Creating synergy
Ø Sharing skills and knowledge
Ø Sustainability
Ø Entering a local market especially for foreign institutions etc.



9.WHAT HAS BEEN THE SUCECCESS OF ALLIANCES AND PARTNERSHIPS
Well designed alliances have worked very well to the satisfaction of both partners although poorly designed ones have failed

MFI’s in Kenya mostly work with more partners and alliances and this has enable institutions to create an impact through use of resources and technical expertise of their partners.

SMEP in this regard has been able to look with various partners in the are of delivery of service to the poor in the following areas.

9.1 Agriculture Development

SMEP is currently working with a partner to provide agricultural credit to small holder farmers in Taita Taveta and Kirinyaga out of this alliance the partner has provided finances for SMEP to deliver credit to this segment which SMEP would not have done due to the nature of credit needed and our current sources of finances which is commercial borrowing. We have disbursed over kshs.75million to this community over 1 year.

9.2 SMEP is also working with a partner in kawangware and Riruta to provide business loans to the recipient of the partner other social support. This partner besides providing services such as water, sanitation, health education, decided to provide credit for income generating activities.

The size of loans needs by these clients is very small and SMEP would have found them uneconomical to disburse. Because of this alliance, we have over 500 borrowers in this location. The partner has provided a payable grant for these loans besides meeting some of our administrative costs.
9.3 Because of isolation currently being experienced by people infected by HIV/AIDS, a partner approached SMEP to provide soft loans to the clients segment of those infected or affected e.g windows.
The programme is working in all major towns in Kenya viz kisumu, Nakuru, Mombasa, Nairobi.The loans are well utilized and repayment rate is over 99% .These people have now been able to meet most of their needs without seeking for handouts.

9-4 We have signed another contract with partner interested in supporting unemployed youth to start small businesses. The partnership will deliver credit to 600 youth over 2 years.Normally; SMEP would give start –up loans.
The services to be provided are training and credit. The partner will do the training and SMEP will carry out the credit component on behalf of the partner. The partner will support SMEP with funds to meet operational costs in those areas viz: kissi, kisumu

9.5Accounting for partner funds becomes easy and cost of delivery is minimised. These partnerships have been very successful for both partners

10.In conclusion ,it is necessary to emphasize that partnerships and networks are important and necessary. They should be formed when organisations seek to mutually strengthen and sustain themselfes.They should be seen as an empowering process which relies on trust and confidence, solidarity of vision and approach and it acknowledges mutual contribution and equality.
Both partners have complimentary roles, established through negotiation s and subject to change as the partnership grows and circumstances changes