The Akiba Mashinani Trust,Kenya: a local fund’s role in urban development

Abstract

This paper describes the funding and financial services provided by the Akiba Mashinani Trust (AMT) to support the Kenyan Homeless People’s Federation (Muungano wa Wanavijiji). Muungano is a federation of autonomous savings groups with over 60,000 members from informal settlements across Kenya. Savings are critical because they enable wealth accumulation, demonstrate the capacity of the community to repay loans and hence leverage additional resources, and build social capital among members. AMT is able to use these savings as seed capital for revolving funds at the community, city and national scales. The funds offer informal settlers a range of financial products, including community project loans, which allow savings groups to finance social housing, sanitation and basic infrastructure in an affordable way. Therefore, unlike formal banking and microfinance institutions, AMT positions its financial services within a broader effort to improve the physical and social fabric of urban informal settlements. The experiences of Muungano and AMT demonstrate the catalytic impact of establishing appropriate financial services geared towards low-income groups – and crucially, how the savings of low-income people can leverage government resources to achieve more inclusive cities.

I. Introduction

This paper describes the financial and non-financial services provided by the Akiba Mashinani Trust (AMT) to support the many housing, livelihood and other initiatives undertaken by the Kenyan Homeless People’s Federation (Muungano wa Wanavijiji, or Muungano) in informal settlements. It discusses measures taken to ensure greater equity, inclusion (especially for low-income groups), participation and community management, accountability, and cost-effectiveness. It demonstrates the importance of tailoring financial services to meet the needs of low-income groups, and how the savings of poor people can steer government resources towards marginalized urban residents. Ultimately, this paper aims to show the correlation between finance and urban transformation of low-income communities living on land with insecure land tenure and very little government investment in basic infrastructure and services.

This paper describes the results of a recent study of AMT’s and Muungano’s work, and contributes to the analysis of the effectiveness of decentralized finance in Kenya. The objective was to document the benefits of the alliance’s local-level finance. The study covers the financial and non-financial products that AMT and Muungano provide, for capacity building, in-situ housing, greenfield development, house improvements, and individual and group livelihood loans. This paper also includes three short case studies illustrating how these financial services have benefitted different communities in these areas.⁽¹⁾

a. Informal settlements in Kenya

In Kenya, more than half of the urban population live in informal settlements.⁽²⁾ Most of these settlements are built on private land that was allocated by the state for development purposes or on public land initially set aside for other uses.

The balance of landlords, owner-occupiers and tenants varies among settlements: for instance, 48 per cent of the residents of Kiandutu, a settlement in Kiambu, are tenants, compared to 92 per cent of the residents of Mukuru, a settlement in Nairobi.⁽³⁾ Landlords typically build temporary units with minimal services and negligible infrastructure. The housing is ordinarily constructed from corrugated iron sheets; some of these houses have concrete floors while many have only earth floors. Almost all the housing is comprised of single-room units, often measuring 10 by 10 feet, with an average occupancy of three people per household. These single rooms are used by families for sleeping, cooking and bathing. Despite the low quality of housing, rents in most informal settlements are high, with residents spending about 20 per cent of their income on housing. In Mukuru, the majority of rent-paying residents pay between Kenyan shillings (KSh) 1,501 and 2,000 (US$ 14.4–19.20)⁽⁴⁾ per month, with about 20 per cent paying between KSh 2,000 and 2,500 (US$ 19.20–24) per month. Most tenants aspire to live in a one- or two-bedroom house with running water and individual household toilet and bathing facilities.

Although county governments are supposed to provide safe drinking water to all residents, most county water systems rarely reach past the edge of informal settlements. The residents often rely on flimsy water pipes operated by illicit water cartels that charge exorbitant rates. This creates a staggering “poverty penalty”, where Mukuru residents pay 172 per cent more per cubic metre of water than residents living in formal areas.⁽⁵⁾ As a result, slum⁽⁶⁾ dwellers usually consume less water of lower quality at higher per-unit costs than their wealthier neighbours. The majority of households do not have access to toilets at home and are forced to use private commercial toilets in public areas, which are available at a cost of KSh 5 for an adult and KSh 3 (US$ .48/.29) for a child. The available toilets are normally pit latrines that fill up quickly and require constant emptying. The expense and poor state of these facilities push many to use tins and paper bags popularly known as flying toilets. The raw faecal waste is then tossed onto rooftops or into drains.

There is therefore an urgent need for investment in housing, infrastructure and services in informal settlements for those living or working there. For Muungano and AMT, the provision of financial services to low-income residents is key to unlocking the resources and capacities of communities. These organizations provide a wide variety of financial and non-financial products ranging from savings accounts to livelihood loans to housing development. Unlike formal banking and microfinance institutions, AMT couches its activities within a broader community effort to upgrade urban informal settlements and markets. Critical to the achievement of its goals has been the investment it has mobilized from local authorities. At the same time, AMT takes its financial responsibilities seriously and seeks to be a credible financial agency. This paper therefore aims to describe how finance or access to financial services is not an end in itself, but a means to achieving improvements in slums and informal markets. The paper also explores what is required to make this goal effective.

b. Introducing Muungano wa Wanavijiji

Muungano, an affiliate of SDI (formerly Slum/Shack Dwellers International), is a federation of autonomous but linked savings groups based in informal settlements. Savings are critical because they enable wealth accumulation, demonstrate the capacity of the community to repay loans, and build social capital among members. Collective savings facilitate strong communal bonds and the development of common goals for their settlements. These enable the savings groups to engage with local authorities and enter into discussions on improving settlements. One of Muungano’s slogans is “Shilingi shilingi, nyumba mpya Mathare”. It means “A shilling, a shilling saved is a new house in Mathare”.⁽⁷⁾

Muungano has over 60,000 members in over 1,000 groups from informal settlements across the country. The income of these members is generally low. For instance, the monthly income of residents in Mukuru is about KSh 12,000 (US$ 115.20), with women earning about 30 per cent less than men in similar occupations.⁽⁸⁾ Each savings group draws its membership from the informal settlement or informal market where it is rooted. The groups hold weekly meetings where members deliberate on all issues affecting them, deposit or review savings, take out loans and make loan repayments. At district and city levels, the groups form regional, county or city networks. The savings groups offer a platform for community mobilizing, organizing and developing their capacities to engage with government towards improving conditions in the settlements.⁽⁹⁾

Muungano groups are self-selected and self-managed. Almost all the groups are registered as self-help groups and are therefore required to have a minimum of 10 members, a constitution and three officials: a treasurer, a chairperson and a secretary. Most Muungano groups have a membership of at least 30 to 40 members. All members are required to abide by the constitution of the group, attend meetings, purchase a passbook and be active savers. Savings groups ordinarily maintain a register of their members.

To become a member of a group, applicants are required to register with a fee, which varies among groups. For instance, an applicant is required to pay a membership fee of KSh 200 (US$ 1.92) to join the Matopeni self-help group or the Mukhwano disabled group, while the Shikamoo savings group charges applicants KSh 1,000 (US$ 9.60) to join. The initial fee set by the Shikamoo group was KSh 100 (US$ 0.96). However, many people joined the group but failed to attend meetings or participate in other group activities. The group raised the fee to deter those who were not serious about participating.

The groups’ main activities are mobilizing savings and share contributions, conducting welfare activities and issuing loans. Group activities and projects also include community organization, settlement planning, land purchase, construction of new affordable houses and house improvements.

c. Introducing the Akiba Mashinani Trust

AMT is the financing vehicle for Muungano, formed to raise and structure capital in order to achieve community and individual plans. The fund’s primary clientele is located in informal settlements and 70 per cent are women. AMT strives to work with the most vulnerable segments of society including clients who are female, young, disabled or living with HIV/AIDS (and thus likely to be among the trust’s poorest clients).

AMT is governed by a seven-member board of trustees, whose role is to provide strategic guidance, general supervision of the finances and general management of the organization. The board is appointed by the National Executive Council of Muungano. Board members are drawn from different communities, who collectively appoint a chairperson from among their number. These governance arrangements ensure that the members of Muungano retain oversight of AMT activities. Board members participate in institutional planning, approve plans and budgets, and receive reports on the performance of the organization. They also report to various Muungano teams on the performance of the trust.

Currently, AMT has 10 staff members: an executive director (appointed by the board), two finance officers, and seven field officers who are distributed across the various regions where AMT operates. The field officers’ main role is to help with the delivery of financial and non-financial products to Muungano members, particularly by building the capacity of local grassroots facilitators. The facilitators are responsible for training existing groups, mobilizing new groups, processing and recovering loans, filing reports, and communicating new information to the community.

The AMT methodology and experience are mirrored across 39 other African, Asian and Latin American countries that have comparable levels of urban informality and income disparities. This linkage is achieved through the Kenyan federations’ affiliation to SDI and by extension to an increasingly global way of accessing finance connected to urban development. Local funds such as AMT are called Urban Poor Funds. The unique and distinguishing characteristic of these Urban Poor Funds is the involvement of beneficiaries in the management of these funds. In the Kenyan case, the savings groups of Muungano act as intermediaries between AMT and individuals.⁽¹⁰⁾

AMT strives to achieve both operational and financial self-sufficiency. This is a challenge because delivery of financial and non-financial services to very low-income households is necessarily an expensive venture. AMT is working to overcome this challenge by rapidly growing its customer base and adopting efficient strategies and tactics for delivering services. It is also seeking to grow and diversify its portfolio and revenue sources to ensure that there are sufficient financial resources to serve its members. In addition to savings, these resources come from:

• Loan capital: AMT continuously strives to ensure that sufficient sources of capital for loans are in place to fund expected growth.

• Donor funds: AMT accesses development assistance from donor agencies.

• Concessional loans: AMT has access to borrowed funds from SDI at a concessional rate.

• Commercial loans: AMT has previously accessed borrowed funds from a commercial bank at a commercial rate.

II. Methods

This study was carried out in August–October 2016. The research was conducted in five urban areas where Muungano has a strong presence: Nairobi, Kiambu, Kitui, Mombasa and Nakuru. The study covers the six financial products that the trust and the federation provide: capacity building, in-situ housing, greenfield housing development, house improvements, and individual and group livelihood loans.

Literature reviewed included AMT’s strategic and business plans, manuals of operation, project reports and group records. New evidence was generated through focus group discussions and individual interviews (using semi-structured questionnaires) with savings group members who have benefitted from these services. Individual member interviews also helped to track possible positive and negative impacts and the challenges that groups and individuals face in fostering inclusiveness, equity and member participation. To capture the interface and accountability systems between the beneficiaries and the various offices of the AMT–Muungano alliance, the research was carried out at three levels: the AMT, savings group, and individual member levels.

Field officers and federation members (from savings groups that were not part of the groups selected for research) played an important role in identifying the participants, developing the questionnaires, testing and administering the questionnaires, and conducting focus group discussions and interviews with the respondents. Most of the participants in this study joined their groups between 2006 and 2016. Some of the respondents founded their groups; others were introduced to their groups by Muungano leaders, other members of the group, friends or family.

Focus group discussions were conducted in 10 savings groups, as well as one with AMT staff and another with three members of the board and the executive director of the trust. Sixty-seven individual interviews were completed with members of the benefitting savings groups. As far as possible, the study ensured that these interviews represented different genders, ages, and particular needs such as disabilities. Participants were selected randomly from each group.

III. Providing Financial Services to The Urban Poor

Muungano and AMT offer deposit and credit services to all residents of informal settlements who are members. The majority of respondents to this study attested to the high quality of these services.

The financial services offered include:

• Savings: These are operated at the group level and include ordinary savings and welfare funds.

• Share capital accumulation: These are funds accumulated at the group level by members. They are used for on-lending to members.

• Livelihoods loans: These loans may be used to finance group enterprise projects or individual projects, such as selling charcoal, groceries, clothes and food or opening a mobile phone, hotel or motorcycle transport (bodaboda) business.

• Consumption loans: These loans are used to cover expenses such as school fees, medical costs and home improvements.

• Community project loans: This is a credit facility that funds Muungano’s social housing, sanitation and basic infrastructure projects, which are mainly centred on providing affordable and decent housing to Muungano members. These loans finance land acquisition for housing development, greenfield housing development, in-situ slum upgrading and house improvements.

Operational costs are covered by registration fees, fines for late attendance of meetings, and administration-fee contributions from members, which are collected from time to time when necessary (for example, to buy stationery or cover bus fares for conducting banking activities). These have a minimum cost of KSh 10 (US$ 0.096) or KSh 20 (US$ 0.192). Presently 50 per cent of AMT’s total operational costs are covered. The trust’s core financial goal is to cover costs while lending at affordable rates.

a. Deposit products

The formal banking sector in Kenya has historically catered to a select group who were mostly employed by government, and to formal business institutions. The conditions for opening accounts were too onerous for other people. For example, the initial deposit required for opening a bank account was too high for the majority of Kenyans, and a potential customer was required to obtain guarantees from at least two account holders from the same bank before they could open an account. As a result of these restrictions, low-income people did not have access to formal financial services. The microfinance institutions set up to fill this gap initially catered to organized, higher-income groupings. The informal savings groups established by Muungano members therefore helped to meet an important need.

Savings are voluntary and members save different amounts based on their incomes. The respondents in this study saved KSh 50–250 per week (US$ 0.48–2.40). The amount of money accrued in savings from each respondent was on average KSh 7,000 (US$ 67.2) for ordinary savings (for livelihood or day-to-day needs) and KSh 50,000 (US$ 480) for project savings (for housing or infrastructure projects).

Muungano savings groups practise either daily or weekly savings. A savings group that practises daily savings has a collector who moves from door to door at a given time collecting members’ savings. On collection, the savings are registered by the collector in both the member’s passbook and the collector’s book. The collector acknowledges receipt of the member’s savings by signing the member’s passbook. The collector then hands over all the money to the treasurer, who records the total amount in the treasurer’s book. The treasurer likewise acknowledges receipt of funds by signing the collector’s book. All savings groups meet on a weekly basis to ensure that money collected has been duly banked and no unauthorized withdrawals have been made.⁽¹¹⁾

In groups that save on a weekly basis, members make a commitment to save every day and submit their savings to the group during their weekly meetings. The savings exercise is aided by three records: the treasurer’s book, the saver’s passbook and the minutes book. Members hand in their savings to the treasurer during the meeting. He or she records all the savings collected alongside each member’s name in the treasurer’s book and the savers’ passbooks and signs each with an acknowledgement of receipt. The minutes book, which is under the custody of the secretary, summarizes the meeting, from the number of people who saved that day to the amount of money collected. The money is banked after every meeting. All groups conduct monthly bank reconciliations by comparing the amounts reflected in the savers’ books with those in their bank account and the treasurer’s book. The treasurer’s book is audited by the group audit team on a monthly basis and also reviewed before the commencement of any project.

One of the earliest interventions of Muungano and AMT (in 2001) was to support these informal savings groups to bridge the divide with formal financial services. AMT entered into a partnership with Standard Bank, which agreed to open up subsidiary accounts for Muungano groups under a main account opened by the federation. Subsequently, other banks in Kenya began to open up. Local banking institutions like Equity Bank adjusted their regulations by drastically reducing the account-opening requirements and the bureaucracy of opening an account. Many low-income people were for the first time able to hold a bank account. However, despite this opening up, many of the lowest-income households were still left out.

A related and important deposit product is the welfare fund, into which a small proportion of each group’s savings is put aside. Generally, the group welfare programmes are of two types. The first is where members contribute an average of KSh 100 per month to assist each other in the event of a death of a member or their immediate family. The second is where the members make ad hoc contributions in the event of another member’s unforeseen crisis, such as death, fire or illness. In many instances, welfare contributions accumulate over time as they are not fully utilized. In such cases, the groups convert the unused funds into capital or use it to buy Christmas gifts or to finance group celebrations. Some groups like the Nakuru West Network also encourage their members to subscribe to the National Hospital Insurance Fund (NHIF),⁽¹²⁾ providing an additional layer of security in the event of disaster.

b. Loan products

Although deposit products such as savings accounts and welfare funds are important, limited access to capital has continued to disadvantage low-income households. Mungaano groups have responded to demand by lending money to their members, drawing on those same members’ contributions in the form of savings. In most groups, almost all of the money deposited each week is lent out as soon as it is received.This revolving fund model ensures that the groups’ limited resources are used effectively, but also acts as an additional safeguard by ensuring that minimal cash is left in the treasurer’s hands. As of December 2016, 6,822 Muungano members had received financing from AMT for land and housing, while 6,174 members had benefitted from livelihood loans.

The amount a member can borrow from the group is to a large extent determined by the value of their savings, the character of the individual, and their credit history. Personal loan applications are appraised by the committee and approved by the whole group. Group loan applications require loan recommendation by an AMT officer and approval by the AMT head office. A loan contract agreement is then created, followed by a payment of cash collateral and a service charge to the AMT bank account. Loans are disbursed either to the borrower’s bank account or with a cheque, and loan repayments are made directly to the AMT bank account.

Different borrowing limits and processes are adopted depending on the savings group, the amount to be borrowed and the source of the money. Loan sizes are deliberately small in order to attract low-income groups. In Mukhwano, for instance, the respondents explained that the maximum sum that is lent from members’ savings is KSh 1,000 (US$ 9.6), which can be lent for a maximum period of one week. There are exceptions: in the H-Town savings group, internal loans range in size from a minimum of KSh 500 (US$ 4.8) to a maximum of KSh 25,000 (US$ 240). For the most part, however, members need to manage their expectations and recognize that they can only access loans in proportion to their savings.

Internal loans are taken out frequently by individual members. All the respondents in this study stated they had received loans from the group more than three times. 10 per cent of the loan amount is the standard rate for all group loans across the country, and is more affordable than rates of most formal institutions: microfinance lenders charge 22.6 per cent while commercial banks charge 16 per cent.⁽¹³⁾ The interest collectible is the main source of income to the group. The repayment period also varies, depending on the loan size, from one month to a maximum period of three months. Internal loan application processes are generally very simple. One of the respondents explained the process of application:

“If I want to obtain a loan from the members’ savings, I apply verbally during the group meeting, the members vet my application, and if they approve it the money is issued and recorded by the treasurer at the meeting but I have to pay interest upfront.”

The use of loans is not restricted and client groups are assisted to develop financial services appropriate for them. For example, some groups have been assisted to develop express one-day loans and daily savings. Some of the groups interviewed also carry out table banking and run merry-go-round schemes,⁽¹⁴⁾ whereby members rotate taking out loans or withdrawing savings.

When a group has insufficient funds to lend to its members, it applies for a loan from AMT. Individual applications are submitted to the group and – if approved – are bundled together into a single loan application. The group then applies to AMT on behalf of its members. On receipt of the applications, an AMT staff member appraises the group by going through its bank statements to establish its savings, internal loan and repayment records, and ensures that the group meets all the loan conditions. To qualify for an AMT loan, a group must be registered as a self-help group, with a group constitution and clear leadership. It must be actively saving, and have a group bank account.

This approach is much simpler than the processes adopted by most formal financial institutions. According to respondents, a formal institution will normally require a borrower to complete a loan application form, an asset form, an affidavit requiring them to take an oath that the loan will be repaid, a loan insurance form, and several other forms for opening individual accounts for each group member. In addition, borrowers bear the costs of loan applications and pay insurance, feasibility study and legal fees. Financial institutions also ask for asset collateral or solid guarantors (i.e. people with savings equivalent to the loan amount) before loan disbursement. In the event of default, the microfinance institution seizes and auctions the assets held as collateral for the loan. By comparison, Muungano groups and AMT cover for an individual’s inability to pay a loan instalment during times of crisis by using the groups’ savings. This greatly reduces the amount of stress that members bear in the event of default.

There are of course instances of loan delinquency and default. In such cases, the other members of a savings group either use the individual’s savings to pay the debt or need to make extra contributions in order to pay AMT. However, these are the exception: the repayment rate is 90 per cent for livelihood loans and 76 per cent for housing loans, and the repayment rate has improved each year (Table 1). The present arrears rate is 17 per cent.

Table 1

AMT loans, 2012–2016

Year	Membership	Loan amount disbursed (KSh)	Amount in US$	Repayment rate
2012	68,000	5,447,920	52,300	76%
2013	73,360	7,848,580	75,346	76%
2014	73,360	22,558,800	216,564	85%
2015	74,400	13,439,400	129,018	89%
2016	74,400	14,067,500	135,048	93%
Total line of credit loans for general livelihoods		63,362,200	608,276
Total community project loans and grant capital for land and housing (2009–2016)		177,311,021	1,702,186	76%
Total cash collateral as of November 2016		21,000,000	201,600

IV. Providing Non-Financial Services to The Urban Poor

AMT offers technical assistance to Muungano groups, including training in financial management, housing development and business management. Some of this training is embedded in the savings process, such as record keeping. Dedicated training may also be provided during group meetings, formal workshops, and learning exchanges and field visits between Muungano groups.

In some cases, education and training are provided through partnerships with other organizations. For instance, the Kijani Initiative is an organization that aims to empower disadvantaged youth in Kenya to “kick poverty” and build a greener future for themselves, their families and their communities. Kijani helped form the H-Town savings group; subsequently it trained group members in financial literacy and supported some group enterprises. For example, Kijani provided a grant of KSh 35,000 (US$ 336), which was augmented with a loan of KSh 50,000 (US$ 480) from AMT to enable the group to open an M-Pesa agency⁽¹⁵⁾ and a food-vending business.

While individual training is valued, one of the primary goals of Muungano and AMT is to support collective decision-making and action by the urban poor. The structures and processes around savings are key to the development of the necessary social capital. The respondents reported that they felt a strong sense of ownership through the contribution of individual savings, welfare funds and shares. While the roles of the respondents varied depending on their position in the group, they were unanimous in saying they played a part in decision-making in the group.

With SDI Kenya’s support, Muungano adopts a range of non-financial practices that support the development of social capital. Enumeration and mapping are used to collect detailed information on households, buildings and infrastructure within informal settlements. The outputs – geo-spatially tagged maps, censuses and other information – enable informal settlement dwellers to be formally recognized by city authorities, who otherwise lack any robust data on the size, composition and population of these areas. Enumeration also helps to ensure every household is accounted for, and provides a platform to involve them in decision-making processes.⁽¹⁶⁾ The collective design, implementation and operation of group projects has also proven an effective way to build social capital within informal settlements, as well as to establish constructive relations with government agencies. Across African cities, grassroots organizations have deployed co-production as an explicit socio-political strategy as much as a way to meet immediate basic needs.⁽¹⁷⁾

Many of the savings groups in Kenya were established with a shared purpose, which has allowed groups facing similar challenges to build their resources and support systems. The Mukhwano disability group members, for example, help one other to overcome stigma and discrimination in the community. Respondents noted that when they initially joined the group, many hid their disabled children at home and often saw disability as a curse. Through the support of the group, their attitudes towards disability have changed; they have even opened a day care centre to take care of disabled children instead of hiding them away. The Mukhwano group is a member of the Association for the Physically Disabled of Kenya (APDK), which offers rehabilitation services to persons with disabilities. The Mukhwano group has also been listed as a beneficiary of the National Fund for the Disabled of Kenya, an endowment fund mandated to use its income for the benefit of the disabled within Kenya.

In other cases, the groups have assumed a collective commitment to social and emotional support. The respondents from the Kakimeki group indicated that the other members provide advice when they face challenges at home, such as domestic violence. The women in the group encourage each other and all of them strive to be financially independent, especially as many have fragile marriages. In this instance, the financial services complement the non-financial services: the respondents explained that the welfare funds provide peace of mind, as the savers know that they will receive some financial support in the event of any calamities.

V. Case Studies

Boxes 1–3 outline three short case studies describing the experiences of Muungano savings groups in delivering certain projects: greenfield housing development, land allocation and in-situ slum upgrading, and housing/land relocation.

Box 1

Securing commercial loans: The Sisal Saving Scheme

In 2007, the leaders of Sisal Saving Scheme approached AMT and asked for assistance to purchase a 23-acre plot of land in Mukuru, at a price of KSh 81 million (US$ 777,600). The land had been used by its current owners as security for a loan issued by Eco Bank. Unfortunately, the corporation that owned the land had failed to repay its loan and was now attempting to forestall the bank’s sale by selling the land to settle its debts.Given the high cost of the land, AMT challenged the leaders to mobilize at least 2,000 savers and to raise at least 20 per cent of the purchase price. Within three months, the group mobilized about 500 savers, who in turn saved about KSh 6 million (US$ 57,600). The Mukuru savings group leaders continued to actively recruit savers to the scheme, and eventually the group had 2,200 members with very robust savings.Once the group saved the 20 per cent cash collateral, AMT sought to raise the remaining amount to purchase the land. As the trust did not have sufficient funds, AMT’s only viable option was to approach commercial banks for a loan. The banks proved very keen and were impressed by the excellent savings history of the Mukuru group savers. Each bank requested the group to transfer its savings account and to deposit the members’ savings with them. The banks also offered the savers micro loans to improve their businesses. However, none of the banks was willing to issue a loan to AMT for the purchase of the land. This was because:1. Banks were wary of transacting business with a large group of slum dwellers, due to perceived organizational risks of dealing with such a large group. The banks proposed instead that the members be organized into small groups of five, which could then receive individual loans directly.2. The banks did not have products for large, middle- or long-term loans for low-income earners. The only loan product available for the poor was a short-term micro loan, for business or livelihoods purposes.3. The banks indicated that they could not use the Mukuru land as collateral, as the reputational risk was too high in the event of a default leading to a forced sale. Consequently, AMT as the borrower would have had to secure any loan issued with a cash guarantee and a charge over the land (additional pledged security).Despite these impediments, AMT eventually obtained a five-year loan for KSh 55 million (US$ 528,000) from Eco Bank, which already held the mortgage on the land in question. A condition of the loan was that AMT would secure the property with a charge, and further provide the bank with a cash collateral of KSh 24 million (US$ 230,400), which the bank would hold in lieu in an interest-earning account. The interest on the loan was agreed at the base rate plus 1.5 points. At the time, the bank base rate was 15 per cent a year.About a year into the loan, the base rate had risen to a staggering 25 per cent. This created a real risk of default for the Sisal Saving Scheme. In response, AMT negotiated for the bank to use the cash guarantee as part of the loan repayment. This, together with the savings from the group, enabled AMT to complete its loan repayment before the loan completion period. This experience underscored the importance of negotiating creative and mutually satisfactory strategies to reduce financial risk.

Box 2

Greenfield housing development: the Nakuru West Network

The Nakuru West Network was created in 2002 and has 612 members organized into eight large savings groups. About two-thirds of the members are female market traders who work in the same locality. Almost all the members are tenants who rent poor-quality, temporary houses in nearby informal settlements. On average, members from the networks earn monthly incomes of KSh 13,000 (US$ 124.80). The average rent for a single-room house was KSh 3,000 (US$ 28.80) per month as of 2016, which had increased from KSh 1,000 (US$ 9.60) only three years prior.The savings groups had a strong credit history with AMT: over two years, they received KSh 4.5 million (US$ 45,000) in consolidated small livelihood loans. These small loans have helped the members of the Nakuru West Network to increase their earnings, strengthen their systems, and build their confidence to take on bigger projects such as the purchase of land and the construction of houses.To date, the Nakuru West Network has used members’ savings to buy 8 acres of land for 230 members. When members of a group decide to purchase land, they inform their network. A committee is then selected to scout and identify suitable land. After a search of the title has been conducted, the interested members visit the land and decide whether they are comfortable relocating to the area. If the members are happy with the site, the network project committee is given the mandate to negotiate the purchase price and verify the authenticity of the title (with the help of the AMT officer serving the group). In order to ensure affordability, the groups ordinarily ensure that an individual plot will not cost more than KSh 62,400 (US$ 599).The parcels of land bought by the network are acquired in phases due to the lack of sufficient capital to accommodate all the savers at the same time. Priority is ordinarily given to those members who have saved enough money to complete their portion of the purchase while the rest continue to save for the next phase. After purchase, the network hires a surveyor, who demarcates the land based on its acreage and the number of beneficiaries who have contributed to the purchase.Once the network purchases land, plots of equal size are then carved from the original title. The groups work with various professionals to envisage their new neighbourhood and determine what type of house they can afford. These discussions determine the design of the houses. The members of the Nakuru West Network opted for two-bedroom homes of 63.6 square metres. Procurement and construction are overseen by a project team elected by the network, which must source at least three quotations for each item. A separate team is responsible for auditing the project.The Nakuru West Network has worked with Muungano to construct 52 houses for its members. The savers are required to raise 20 per cent as cash collateral, while the remainder is financed through low-interest loans from AMT. The houses are developed incrementally to reduce the amounts of individual loans. The minimum requirement is that the loan must cover the costs of a foundation and at least one room, so that the saver’s family can relocate to its own house, thus freeing it from paying rent. This incremental approach means that housing loan repayments are relatively low, ranging from KSh 100,000 to KSh 250,000 (US$ 960 to US$ 2,400). The repayment for a KSh 100,000 loan is relatively low at KSh 1,413 per month. Repayment rates of the Nakuru Network housing loans are presently about 85 per cent. The construction of these initial houses has created great demand from other members working hard to save money for new houses.

Box 3

Upgrading informal settlements: the Ghetto Housing and Land Cooperative

The informal settlement of Ghetto is situated on public land in Huruma, in Nairobi County. It has a population of about 550 households. Most of the adult residents of Ghetto are low-income earners who own and operate small-scale businesses. Some of these residents are organized into the Ghetto Housing and Land Cooperative. Many joined the group in 2000 when Muungano was mobilizing residents of Huruma informal settlements who were faced with the threat of eviction. Muungano eventually succeeded in stopping the evictions.As a response to poor living conditions and the constant threat of eviction, the residents of Ghetto decided to come together with their counterparts in other informal settlements to lobby the county government to upgrade their settlements. In 2003, Ghetto was one of six informal settlements that were set aside for upgrading by the city government. The county government entered into a memorandum of understanding with the residents, in which it consented to release the land to the residents free of charge. For their part, the residents agreed to redevelop the area with the assistance of professionals.Construction began in 2011 and so far 34 units and 6 foundations have been constructed. The project will eventually benefit 500 households. Before they can secure a housing loan, the beneficiary must be an active participant of the savings group (i.e. attend meetings and save regularly), their household must have been enumerated, and they must have saved 20 per cent of the cost of the house. A major impediment to housing provision has been the low savings rates (a function of low incomes), making it difficult for households to raise the 20 per cent cash collateral. A second impediment has been those whose housing arrangements differ from most residents: structure owners with lots of rooms for rent, who typically want more than one house during the upgrading process; people from outside Ghetto who buy structures in the settlement for the sole purpose of renting them out; and temporary residents such as short-term tenants. Persuasion and negotiation with these groups, encouraging them to adopt the housing arrangements envisioned under the MoU, is an ongoing activity.Housing development in Ghetto is carried out in manageable phases of between 20 and 50 units. Like the savers of the Nakuru West Network, the residents of Ghetto work closely with a team of professionals to develop their house design and settlement layout. The typical house design chosen by Ghetto residents is ordinarily incrementally built in three phases. The first phase of construction is normally a starter unit that comprises a ground floor with a shower and toilet on the upper floor. The ground floor space has a footprint of 19.36 square metres and is commonly used as a kitchenette and living area. The total floor space of the starter house is 22.5 square metres. In order to accelerate housing provision, the project teams have moved from constructing starter houses that cost KSh 250,000 (US$ 2,400) to building foundations only, which cost KSh 60,000 (US$ 576). The 20 per cent deposits for foundations are accordingly lower and more achievable.Ghetto will also benefit from the Kenya Informal Settlements Improvement Programme (KISIP), which will develop secondary infrastructure that will enable the residents to install lane services and then connect their newly constructed homes to the water and sewerage mains. Electricity connections will also be supplied by the government through a World Bank-financed project. These organizations are still determining how the initial upgrading plans and the new KISIP developments will fit together.

VI. Conclusions

AMT and Muungano have been instrumental in providing opportunities for residents of low-income and informal settlements to form strong communal bonds and to create shared development goals for their settlements. These community initiatives have also enabled them to engage constructively with local authorities about strategies to improve the quality of life in informal settlements. A range of specific practices and policies has enabled Muungano and AMT to use financial services to achieve wider social and economic goals.

First, AMT has enhanced inclusion of low-income and other marginalized groups, who have historically been excluded by formal financial institutions. AMT deliberately designs financial services for the benefit of these people, with small sums of money and simple application processes. It has also represented residents of informal settlements in dealings with commercial banks, negotiating changes in the terms and conditions necessary to enable wider access to formal financial services. By enabling low-income urban residents to save money and secure credit, AMT allows them to accumulate wealth.⁽¹⁸⁾ This improves their resilience to shocks and capacity to generate income. These financial services complement other strategies adopted by Muungano, such as enumerations and mapping, which further ensure that no household is left behind.

AMT cannot always reach those on the lowest incomes. Even with regular savings and flexible financial products, some cannot afford all of the service conditions (such as the 20 per cent cash collateral for housing loans). This means the lowest-income households are often left out and enables better-off candidates to take advantage of community projects meant for the lowest-income groups. (The problem is worse in Nairobi since Nairobi has extremely low-income groups.) This makes strengthening settlement-based community mobilization even more important, as it enables Muungano and AMT to identify and ensure inclusion of all categories of people.

Second, AMT has promoted participation and accountability within urban communities and financial institutions. Community groups actively manage their programmes through meeting, keeping records, voting as a group on important decisions, and orienting new members. They are also continuously involved in planning, implementation, monitoring and evaluation of all projects and processes, ranging from loan collection to housing development. This ensures that AMT’s products and services are locally adapted to suit unique needs of the clients. Savings groups will also elect representatives, who participate in the AMT policy formulation and planning processes. These structures encourage dialogue within and among communities, and promote cooperation and collective action to achieve shared goals.

Kenya’s innovations in mobile financial services create opportunities to further improve the efficiency and transparency of service delivery. AMT can use electronic systems like M-Pesa to improve the efficiency and integrity of its financial services, while also expanding its reach and appeal to new Muungano members.

Third, AMT has developed community capacities to own and manage all service delivery mechanisms, projects and processes. Groups are responsible for all financial transactions at the local level. They bank all funds at their local bank branches. Group constitutions/by-laws and regulations include clear guidance on the management of external and internal resources, incorporation of new members, responsibilities of the office bearers and other members, meeting attendance, and participation in banking activities. At least 90 per cent of members interviewed for this study understood the contents and significance of the by-laws.

To further build the financial capacities of Muungano savings groups, AMT could foster linkages to an increased range of existing services, such as the National Hospital Insurance Fund (NHIF), National Social Security Fund (NSSF), National Council of Persons With Disabilities (NCPWD) and collective investment groups. In the absence of substantially increased capital within the local fund, AMT could also partner with government funds such as the Women’s Enterprise Fund, Uwezo Fund and the Youth Fund. These funds offer low interest rates, ranging from 5 to 8 per cent per annum to low-income groups, and would allow AMT and Muungano to offer their services to more residents of informal settlements. This in turn could accelerate their efforts to transform Kenya’s towns and cities into more inclusive spaces, where low-income and other marginalized urban residents can secure the resources necessary to live healthy and fulfilled lives.