The idea was simple yet powerful: empower the financially excluded by providing them with access to credit, which they could use to improve their livelihoods, start small businesses, or handle emergencies.
However, over the years, the noble intentions behind microfinance institutions have been overshadowed by the reality of how they operate today.
Far from being agents of empowerment, many MFIs have become more akin to shylocks, exploiting the very people they were meant to uplift.
Shylocks, notorious for their predatory lending practices, operate by offering loans at exorbitant interest rates, often with severe consequences for borrowers who fail to repay on time.
These lenders are known for their ruthless debt recovery methods, which can include harassment, the seizure of property, and even threats of physical harm.
MFIs, though operating under a legal framework, have begun to mirror some of these unethical practices.
Borrowers are lured in with the promise of easy credit, only to be burdened with interest rates that can exceed 100 percent per annum.
Such rates are unsustainable for most borrowers, leading them into a cycle of debt from which it is nearly impossible to escape.
The outcry against these exploitative practices has been growing. Across Kenya, there are calls for stronger regulations to curb the excesses of MFIs.
People are questioning the very nature of these institutions, wondering how they can be allowed to operate in ways that seem designed to trap people in poverty rather than lift them out of it.
The issue is particularly pressing given the widespread use of check-off loans, where repayments are automatically deducted from an employee’s salary before they even receive their pay.
While this system ensures that lenders are repaid, it leaves borrowers with little control over their finances and often forces them into a position from which they are unable to meet other financial obligations.
The situation is exacerbated by the fact that many MFIs in Kenya are part of larger conglomerates that own multiple companies offering similar services.
These conglomerates have effectively created cartels within the microfinance sector, maintaining high interest rates across the board and stifling competition.
This lack of competition leaves borrowers with few alternatives, forcing them to accept loans under terms that are heavily skewed in favour of the lender.
The cartels are so powerful that they can operate with relative impunity, manipulating the market to their advantage and further entrenching the cycle of debt that traps so many Kenyans.
From a very simple angle, an alternative that truly promotes financial inclusion is table banking, a practice that has become increasingly popular among women’s groups across Kenya.
Table banking operates on a simple premise: members of a group pool their resources together, and the pooled funds are then used to provide loans to group members at low or no interest.
Repayments are made directly to the group, and the funds are then made available for others to borrow.
This system not only provides access to credit but also fosters a sense of community and mutual support, which is often lacking in the more impersonal world of formal microfinance.
The success of table banking is a testament to the power of grassroots initiatives in addressing the financial needs of marginalised communities.
It stands in stark contrast to the exploitative practices of many MFIs, offering a model of financial inclusion that is genuinely empowering rather than exploitative.
Women across Kenya have been able to use table banking to start small businesses, pay for their children’s education, and build financial security in ways that would have been impossible through traditional MFIs.
The success of these initiatives has prompted calls for the government to do more to support and promote such community-based financial solutions.
A key initiative in this regard is the Hustler Fund, which embodies President William Ruto's vision for reforming Kenya’s financial landscape that he outlined in the campaigns of 2022.
Launched in November 2022 as a cornerstone of President Ruto’s election manifesto, the Hustler Fund aims to provide affordable credit to low-income individuals and small businesses.
By offering loans at an interest rate of eight per cent per annum — significantly lower than the rates charged by many MFIs — the President seeks to create a more inclusive financial system.
His desire is to replace the exploitative practices prevalent in the sector with genuine opportunities for economic empowerment, ensuring that financial services contribute positively to the lives of Kenyans rather than perpetuating cycles of debt.
Within the first three months of its launch, nearly 19 million Kenyans enrolled in the programme, highlighting the immense demand for affordable credit.
The fund has disbursed billions of shillings in loans, providing a lifeline for individuals and businesses struggling under the weight of high-interest debt.
By leveraging Kenya’s existing mobile money infrastructure, the government has been able to roll out the fund quickly and efficiently, making it accessible to millions of Kenyans across the country, albeit the fund can do with further expansion.
To truly transform Kenya’s financial landscape, more comprehensive reforms are needed. Decisive action to regulate the microfinance sector can be taken to curb the exploitative practices that have become all too common.
That might mean not only enforcing stricter controls on interest rates but also dismantling the cartels that dominate the sector, ensuring that borrowers have access to fair and transparent financial services.
Some MFIs use SSD (Unstructured Supplementary Data) codes where those applying for loans have little information, and even some agents dupe clients.
Alternative forms of financial empowerment, such as table banking need to be empowered further.
By investing in community-based financial initiatives, the government can help create a financial system that is truly inclusive, one that empowers all Kenyans to achieve financial security and independence.
The success of the Hustler Fund has shown that there is a strong appetite for affordable credit in Kenya, and it is now up to the government to build on this momentum, creating a financial system that works for everyone, not just the few.
With the right reforms and a commitment to promoting financial inclusion, it is possible to create a financial system that empowers rather than exploits.
Political commentator
