Aga Khan Agency for Microfinance

During 2007, AKAM took its first concrete steps towards the reorganisation of its programming and institutions in East Africa. The three microfinance programmes that have been operating for the last several years in Kenya, Mozambique and Tanzania have experienced very slow growth and uneven portfolio performance. At the same time, they have been very effective at reaching out to the very poorest clients in their limited operating areas. AKAM will continue to serve this same clientele, though on a much larger scale as it expands the coverage to neighbouring provinces or districts in each of the three countries.

Combined, the three programmes operate in a relatively contiguous strip along the east African coast and had just over 5,000 borrowers and a portfolio worth US$ 800,000. The First Microfinance Agency in Kenya (FMFA-K) is the largest of the three, and also conducts lending to farmers in Central province near the Rift Valley and areas around Mombasa. Average loan sizes in the East African institutions are some of the lowest of all AKAM institutions and reflect the very low incomes of the program’s constituents. In order to achieve sustainability while working with these same income groups, AKAM is pursuing a strategy that will see significant increases in the number of clients served. Technology and savings mobilisation are expected to play an important role in the evolution of FMFA-K.

The primary focus for FMFA-K during 2007 was strengthening of the loan portfolio and controlling arrears, which exceeded 30% at the start of the year. Portfolio quality improved, though growth was limited. Like many other MFIs, its operations were severely curtailed during the unrest that erupted following the disputed election. As a result, loan growth is likely to be further limited during the year and AKAM is again cautious about a recurrence of bad debts during such testing times.

AKAM’s objective in Mozambique is to serve the under-banked areas of the country which are highly vulnerable to its environment, which is characterised by very poor road and communications infrastructure. Small landowners in these rural areas have difficulty increasing volumes due to lack of cash with which to pay for inputs (seeds and fertilizers). AKAM has already applied for a rural micro-bank license and will begin expanding out of its traditional operating area of Cabo Delgado to serve poor and unbanked clients in all four of the northern provinces in 2008-09. This institutional transformation will allow for the mobilisation of savings from the rural poor and will enable the bank to build on its existing successes and product pilots that have provided financing for housing and education as well as enterprise and farming. The programme had also initiated two joint projects with AKF during 2007 – one in Ibo Island through two silversmiths associations, and a second one in a pilot project with 13 vegetable associations – both of which will be carried forward in 2008.

In Tanzania, AKAM plans to re-start its microfinance operations on the island of Zanzibar, and on the mainland, to expand northwards from its current base in Mtwara under the auspices of the First Microfinance Agency (FMFA-T). Organised as two new unit banks, the institutions will be in a position to collect savings and after initially focusing on the delivery of agricultural and enterprise lending products, will diversify into education and housing loans. AKAM is also working with AKF on the development of a broader strategy for rural development in the southern regions. Once established, the Tanzanian institutions will also help to market and distribute health, livestock and life insurance policies being developed and offered by the AKAM microinsurance (link to microinsurance page) initiative, which is starting operations in the country.