Kenya hit by loan defaults

NAIROBI - Kenya's micro-credit industry faces a crunch as defaults hit about half of loans and have cost up to R31 million since an election crisis wrecked hundreds of businesses, a micro-finance association said yesterday.

NAIROBI - Kenya's micro-credit industry faces a crunch as defaults hit about half of loans and have cost up to R31 million since an election crisis wrecked hundreds of businesses, a micro-finance association said yesterday.

Kenya is still reeling from blood-letting that killed more than 1000 people and damaged east Africa's biggest economy.

Most of the clashes happened in poor or rural areas where the majority of micro-finance borrowers live.

"We're faced with a very high default situation in the country where most institutions have a temporary cash-flow problem," said Benjamin Nkungi, CEO of the Association of Micro-finance Institutions of Kenya (AMFI), which boasts some R31 billion in outstanding loans.

"In January we had a very high default rate of about 80 percent, but now it's gone down to 50 percent ... the data we've collected so far shows there's been R23 million to R31 million losses as businesses were destroyed," he told Reuters by telephone.

The Kenya Bankers Association also said last month that it expected loan defaults, and one bank said it planned to relax repayment schedules to help its customers.

Roving ethnic-based gangs burned down shops and small businesses, mainly in central and western Kenya as well as Nairobi's slums, after President Mwai Kibaki's disputed re-election at the end of last year.

"The people who took the biggest beating were the micro-finance institutions. Most of businesses micro-finance support were in the areas that chaos occurred," Nkungi said.

Micro-finance - giving small loans to the poor at high interest rates - has been around for decades but has taken off in recent years, especially in Africa and Asia where tens of millions of people have obtained financing.

Nkungi said the average loan was for about R2700 at an interest rate of 18 percent. The association represents 41 lending institutions providing loans to some 2 million people across Kenya.

"We're trying to recapitalise the institutions so they can keep investing ... we're also able to re-finance people as things calm down," Nkungi said.

Former UN boss Kofi Annan is leading mediation to resolve the standoff between Kibaki and opposition leader Raila Odinga.

But talks have hit a snag over power-sharing, forcing Annan to suspend negotiations to end the two-month old impasse.

Nkungi said he expected loan repayments to regain momentum as the situation in Kenya stabilised: "If the situation continues calming down as it is into March, then the default will be lower. - Reuters

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