Equity Bank LoansEquity-backed bank loans
In the event of success, the loan instrument can set an important example for those who wish to enter the finance sector at a point in attention at which individuals, governments and non-state actors are attracting attention and taking measures to reduce wealth through fiscal integration. Whilst the speed of overall fiscal integration may seem fast given technology and the development of bank lending, the path for the million of East Africa's most disadvantaged was long and straight.
Following years of thrifty and customer-focused finance administration programs, CARE's linking up program promotes autonomous country DSLAs that bundle their economies and provide these resources relatively easily to each other. This was followed by the first stage of formally integrating the Sparkassen, as it entered into partnership arrangements with large finance institutes to "link" the Sparkassen with the latter via group saving bank deposits.
Aim was to promote cash-driven inclusiveness for under-served, cash-conscious groups; to broaden their comprehension of finance policies and provide them with bank formalities while at the same time preventing the risk of microcredit-driven inclusiveness. During the last three months of 2015, VSLA and Equity officially opened a new chapter in CARE's relationship by providing VSLA with select customised loan solutions.
Loans to these groups provide a long-awaited window of opportunities to tap resources beyond their own in-house skills and perhaps the last stage towards full fiscal integration; for CAARE, it is an window of opportunity to measure the scaleability and viability of group loans as the next stage towards interest-rate driven integration; and for the Equity Bank, this project could demonstrate a viable new Kenyan loan industry while at the same time reinforcing the bank's case for servicing saving groups across the country.
Equity loans were made available to a few CARE-facilitated SSLAs in Western Kenya. Loans, the first of which were granted in October and November 2015, were granted to sophisticated groups with sizeable group saving portfolios, high group saving interest rate and a solid domestic credit redemption record.
Loans are between GBP 650 and GBP 2,000 and will be paid out and reimbursed by Equity Bank. CAARE assists in the careful supervision of the use, allocation and utilisation of loans. In contrast to other lending services provided to saving groups, Pamoja Tujijenge has no pre-defined utilisation requirement; the loans are given as a fixed amount to the group, which then determines how the resources are allocated and used among the members.
Free use and joint redemption responsibilities are exercised both by the Group' s own credit allocation system and by Group responsibilities within CRARE SLAs. Recently, employees of VSLA recently paid a visit to seven of CARE's VSLA pilots groups to review the effects of the loans, their use and the group's reimbursement schedules.
Short survey showed general contentment with Equity Bank employees and a sound grasp of lending conditions and repayments by groups. Each group identified activity as the main use of borrowed money, such as increasing activity, stockpiling and buying devices. Each member also understands the importance of their roles in broadening debt availability and had strong blueprints for success.
Over the next few month, there will be 50 Pamoja Tijijenge loans with a volume of 1,000-1,250 members with 50 Pamoja Tijijenge DSLAs. Ongoing assistance from CRARE and Equity Bank will enable the project to set an important example in the next year in the creation of finance solutions for saving groups. Finally, the parties want to create a solution that can be rolled out nationwide to all saving groups, beginning with the 1,500 DSLAs that already use Equity's group saving solution.
The Equity Spar Group's loan portfolio will gain dynamism in due course as SG-oriented finance becomes more visible and supported by cross-sector stakeholders. The MasterCard Foundation launched the "Savings at the Frontier" initiative at the Savings Groups and Zambia SB2015 Conference: a US$16.7 million development program to provide finance to saving groups in Ghana, Tanzania and Zambia.
The aim of such an exercise is to ensure that the same population structure that has been the aim of CLARE for centuries is financially integrated. At the same time they release huge quantities of local funds and support the strengthening of the economies of Africa's tens of thousands of low-income females.
The East African finance industry must recognize this opportunity, understanding the needs of members of the saving group and developing solutions that meet their individual needs. Pamoja Group Saving and the current loan instrument Pamoja Tujijenge are two example of a large bank doing this; at the beginning of 2016, however, we look forward to presenting our joint results from the trial series.