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

22 • MARKETS AND POVERTY IN NORTHERN KENYA: TOWARDS A FINANCIAL GRADUATION MODEL
expand its funding for SGs in northern Kenya. It will be important to consider
how the traditional SG model could be adapted to accommodate the large
Muslim population in the region and to avoid some of the early challenges
faced by CARE in promoting lending within the SG. In some areas the fears
have dissipated once members become more familiar with the SG model,
while in others members have made more fundamental changes to the nature
of the SG.
iv. Promoting income-generating activities
Small-scale income-generating activities (e.g. petty trading) are typically
critical for very poor households to diversify their income, reduce their
vulnerability and establish more regular income flows. Though profit margins
from these income generating activities are often small, low barriers to entry
and their contribution to creating a more even income mean they can be a
useful intermediate step on the path to economic empowerment for many
households. Participation in SGs can support households to make these
investments. Trade in consumables such as foodstuffs (maize, sugar, salt,
tea leaves), drugs (tobacco, khat) as well as new and used clothing is very
important for many of the region’s inhabitants. There are also opportunities
for redistributive trade in these commodities, which while more lucrative,
requires more significant capital. Experience elsewhere suggests SG members
frequently launch IGAs spontaneously once they have pooled liquid capital
and their tolerance for risk increases.
There is little benefit to be gained by FSD focusing on selecting and
promoting specific IGAs as the barriers to entry are so low. In addition to
improving access to finance through initiatives such as savings groups, FSD
may add value by establishing links between SG members and providers of
business development services. These might include business planning and
opportunity identification that households can use to select and develop IGAs.
SG-facilitating agencies including CARE have their own business training
modules that they provide to SGs during their formation. While the evidence
for the effectiveness of generic BDS is generally weak, its application with SG
members may be an exception.
v. Investing in promoting promising value chains
As households become more economically stable, their capacity to entry or to
upgrade their engagement in value chains begins to grow. FSD can contribute
by supporting strategic investment in the high potential value chains
highlighted above in section (v). Experience from other financial graduation
initiatives highlights the importance of focusing on multiple, complementary
value chains. This ‘portfolio approach’ has the advantage of reducing household
risk, generating opportunities that cater to both genders, simultaneously
supporting income generation and food security, and contributing to income
smoothing (Development Alternatives Inc., 2011; Fowler and Endalamaw,
2011: 5). The appropriate development strategies will vary for each value
chain, as they will be tailored to addressing the specific constraints preventing
access to market opportunities. Value chain development requires significant
facilitation skills and thus needs to be undertaken by agencies with specialised
skills and experienced staff.
vi. Encouraging appropriate credit products
Limited access to credit in northern Kenya is a constraint to business investment
and value chain upgrading. Although credit is generally inappropriate for the
very poor in the initial stages of a financial graduation strategy, its importance
grows as households gain increasing confidence and willingness to invest.
Although SGs play an important role in assisting households to mobilise liquid
assets, their financial products are less well suited to supporting investment
in larger assets. Complementary sources of credit for investment are therefore
needed. FSD’s role in supporting financial sector development makes it
ideally suited to contributing in this area. Working with banks, MFIs and other
financial institutions to develop loan products that meet the investment needs
of dynamic value chains (e.g. beehives, fishing boats, milk chillers), supports
households to enter and expand their engagement in high-return economic
opportunities. In doing so, it is important that FSD looks for models that do
not unnecessarily increase risk. For instance, in some cases the provision of
credit to SGs that is guaranteed by the whole group has been found to lead to
member drop-out and group dissolution (Rippey and Fowler, 2011: 22-25).