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Kenya’s microfinance industry slowly limping back to normalcy

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Kenya’s microfinance industry is slowly limping back to normal operations after taking a severe hit during the COVID-19 lockdown.

Owing to the onslaught that led to a nationwide lockdown in March, collection rates had fallen to a trickle as microfinance institutions (MFIs) collect money from borrowers mostly in cash.

The risk of infections and measures postulated by the government then made the collection process nearly impossible according to the Chief executive of Jijenge Credit Chief Mr. Peter Macharia, who says the situation has tremendously improved since July when a host of restrictions were lifted.

The repayment rates or collection rates, he says have returned to between 80 and 85 percent (July to September) compared with 90 to 95 percent in pre-COVID era when the rates were higher in a period that also saw an uptick in disbursement rates in the micro lending space.

“We have seen a huge revision in the last four months since the lifting on travel restrictions with over 80 per cent of collection or repayment rates of amounts we lend to our customers. This is better than what we had previously grasped in the three months preceding July when we began giving out moratorium,” said Mr. Macharia in an interview.

Microfinance, also called microcredit, is a type of banking service that allows people to take on reasonable small business loans safely, and in a manner that is consistent with ethical lending practices.

And like conventional lenders, microfinanciers charge interest on loans and institute specific repayment plans – which is sometimes prone to default that is particularly challenging because it pits the lender’s need for institutional survival against the difficult circumstances of the defaulting customer.

While there has been a loss of income in other Counties due to COVID, Macharia said a lot of borrowers outside Nairobi borrowers have adjusted to the new normal by tweaking business strategies and cutting down liabilities in order to stay afloat.

 

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