Markets and poverty in northern Kenya: Towards a ... - FSD Kenya

4 • MARKETS AND POVERTY IN NORTHERN KENYA: TOWARDS A FINANCIAL GRADUATION MODEL
households within higher performing groups to start or expand supplemental
income-generating activities and ultimately, activities with higher return.
Linkages to tailored credit products are eventually offered through BASIX once
individuals have become economically more secure. Unlike many of the other
graduation models, BASIX does not provide an asset transfer and instead prioritises
fast income-generating activities in the first six months of the project.
As the project is still on-going, it is not yet clear how expensive the model
is and whether it will be profitable for BASIX as a means of acquiring new
clients it cannot currently attract. Of relevance to northern Kenya, many of the
participating households migrate during the year. This has created challenges
for savings group formation and service access which the project is still trying
to resolve.
1.3.5 Lessons learned from existing graduation initiatives
There are a number of lessons from the profiled graduation initiatives that
are relevant for FSD’s exploration of a financial graduation pilot in northern
Kenya:
All graduation pilots that were reviewed use a household-focused
approach to address the constraints faced by their target groups to
economic strengthening. This includes limited access to financial
services, a lack of productive assets and insufficient knowledge about
how to use those assets. “Push” interventions including income and
asset transfers feature in many of the profiled graduation models as a
means of increasing a households’ ability to engage with markets.
Every approach uses a combination of interventions. These interventions
are typically sequenced to build successively on each other (e.g. value
chain linkages are only helpful once a household has sufficient assets
and risk tolerance to invest), and to permit multiple entry points
(creating opportunities for households at varying levels of poverty and
vulnerability to engage).
Targeting is often used to ensure the inclusion of the very poor, sometimes
by presenting opportunities to recipients of government support. This is
typically non-exclusive targeting that also permits others to participate
in group structures (e.g. savings groups and marketing groups). These
groups typically benefit from having wealthier members who increase
capitalisation and economies of scale.
Providing untargeted economic support (e.g. asset transfers) without
understanding the market potential of the specific value chain, the
constraints to growth, and whether the value chain creates pro-poor
opportunities, will produce limited results. Livestock and related value
chains often pose lower risks to engagement than crop-based value
chains, particularly in environments characterised by low or irregular
rainfall. 2
Most graduation initiatives have supported the very poor to engage
in economic activities as entrepreneurs rather than as employees or
consumers, despite the lower barriers to entry of many employment
opportunities.
Timelines to achieve graduation are at least eighteen months and usually
longer, depending on the depth of poverty of project participants. Two
or three year projects have proved insufficient in more difficult contexts,
particularly in arid areas facing periodic droughts like northern Kenya.
A drought will have a significant negative impact on livestock and
agricultural value chains.
Savings groups are a common feature of graduation pilots. They
enable fast mobilisation of large numbers of people, a platform for
subsequent interventions and improved access to capital. The pace of
capital accumulation in some groups may be inadequate to enable fast
investment in higher return activities (e.g. livestock rearing).
How graduation is defined varies significantly across pilots. In some cases
it is based on an absolute income threshold, while in others it is based on
a broader range of factors (e.g. household assets, food security).
Graduation is not always sustainable: if adequate risk mitigation
strategies and safety nets are not in place, future shocks (e.g. drought,
illness of an income earner) will reverse graduates’ gains.
Where the government defines graduation, the potential for subjectivity
in measurement grows.
It is important to invest in understanding available market opportunities
and value chains. Where graduation pilots have not carefully considered
the viability of new businesses (such as by distribution assets for
which there is little demand), or promoted links to businesses with
inappropriately high barriers to entry (such as passion fruit cultivation
that requires very high up-front investments), they have seen less
success.
2 For more information on tools that assess the risk level of value chains, see Fowler, 2012.