Is­lamic fi­nance pro­vides Kenyans with cush­ion against drought

Kuwait Times - - HEALTH & SCIENCE -

WAJIR: Ha­mara Hu­jale tries to keep an eye on two squirm­ing chil­dren and a pot of sim­mer­ing ugali - a white doughy dish as she reaches for her buzzing phone. Af­ter speak­ing a few words, she hangs up and scrib­bles in a wrin­kled note­book. “My driver has found an­other cus­tomer so won’t be back for an­other 30 min­utes,” she says with a sat­is­fied smile. Hu­jale, who lives in the north­east Kenyan town of Wajir, used to make and sell kitchen uten­sils, “mostly to pas­toral­ists who would use them as dowry for their daugh­ters’ wed­dings”. “But as they lost their an­i­mals to drought, they had no money left to buy my prod­ucts. So I had to find an al­ter­na­tive,” she said.

Last year she se­cured a loan of 370,000 Kenyan shillings (about $3,560) through Cres­cent Taka­ful Sacco, an Is­lamic fi­nance in­sti­tu­tion, and used the money to buy a tuk-tuk and set up a taxi busi­ness in Wajir. Ac­cess to credit is crit­i­cal to help com­mu­ni­ties pre­pare for and cope with in­creas­ingly fre­quent climate shocks like droughts and floods, ex­perts say. But in this Kenyan re­gion bor­der­ing So­ma­lia, where over 90 per­cent of the pop­u­la­tion is Mus­lim, few banks or in­sti­tu­tions of­fer fi­nan­cial ser­vices that com­ply with Is­lamic law, which bans gam­bling and spec­u­la­tion, in­clud­ing in­ter­est-bear­ing loans, said Diyad Hu­jale, a pro­gramme co­or­di­na­tor at Mercy Corps, a char­ity, and no re­la­tion to Ha­mara.

To rem­edy this, in 2016 a project helped set up the county’s first pri­vate co­op­er­a­tive of­fer­ing fi­nan­cial prod­ucts in ac­cor­dance with Is­lamic prin­ci­ples - such as in­ter­est­free loans, with no fees for late pay­ment. The ini­tia­tive, which is part of the Build­ing Re­silience and Adaptation to Climate Ex­tremes and Dis­as­ters (BRACED) pro­gramme, is funded by the UK De­part­ment for In­ter­na­tional De­vel­op­ment (DFID) and led by Mercy Corps.

Gla­dys Mutisya, man­ager of the Wajir sacco, said it tar­gets “the un­banked: pas­toral­ists - who make up half of our clients farm­ers, and poorer com­mu­ni­ties in gen­eral.”“We’re try­ing to fill a gap that banks and tra­di­tional in­sti­tu­tions are not able or will­ing to fill.” Diyad Hu­jale ex­plained that while Sharia-com­pli­ant fi­nan­cial ser­vices al­ready ex­ist in Nairobi, the cap­i­tal, and else­where in the coun­try, they are too far away and ex­pen­sive for lo­cal res­i­dents to ac­cess - so the BRACED pro­gramme sup­ported the sacco to hire and train staff in Wajir.

Pre­par­ing for shocks

The tough­est chal­lenge in this largely pas­toral­ist county is pro­longed drought, which Ha­mara Hu­jale said “af­fects ev­ery­one”. In ad­di­tion to her kitchen uten­sil busi­ness, she used to herd over 100 goats - but drought has claimed many of them. “I can’t even re­mem­ber how many have died,” she said, bend­ing to smell her pot of ugali. Cather­ine Si­monet of the Overseas De­vel­op­ment In­sti­tute (ODI), a Lon­don­based think tank, said that fam­i­lies with lit­tle or no dis­pos­able in­come are most af­fected when drought hits.

Re­peated droughts cre­ate “a vi­cious cir­cle where they not only have no al­ter­na­tive in­come if they have lost their har­vest, for ex­am­ple, (but) they are also made more vul­ner­a­ble to the next shock”, she said. To avoid this sit­u­a­tion, Mutisya said the sacco’s clients tend to take out loans in “good times”, such as the har­vest­ing sea­son, when they can most eas­ily qual­ify for loans. They then hold the cash as eas­ily ac­ces­si­ble sav­ings, so that in dry pe­ri­ods they can buy food and fod­der for their an­i­mals to sur­vive.

Busi­nesses for re­silience

While many clients use the sacco as a way to boost their cash on hand, oth­ers like Ha­mara Hu­jale take out larger loans to set up their own busi­nesses. That fills a key gap in the mar­ket that is not met by other banks or in­sti­tu­tions, Diyad Hu­jale said. “Wajir is vast and its res­i­dents earn very lit­tle, so to most in­vestors they don’t make ‘busi­ness sense,’” he said. Si­monet con­curred that the po­ten­tial for pas­toral­ists to launch busi­nesses is often un­der­es­ti­mated. “We tend to only look at pas­toral­ists for ex­am­ple as house­holds, when they’re also pro­duc­ers, busi­nesses, and a hugely un­tapped source of in­vest­ment,” she said. Key to the sacco’s model is trust, said Mutisya. “We don’t just blindly give out loans. We as­sess the vi­a­bil­ity of our clients’ busi­ness ideas and we train them on is­sues like ac­count­ing.”

To min­imise risk, the fi­nan­cial in­sti­tu­tion often lends money to groups rather than in­di­vid­u­als. “The group’s co­he­sion and rep­u­ta­tion acts as a guar­an­tee for us,” Mutisya said. Ha­mara Hu­jale, who took out a loan on her own, now makes up to 2,000 shillings ($20) per day from her two busi­nesses - nearly twice as much as when she only sold uten­sils. “But I need the money to re­pay over 30,000 shillings per month to the sacco,” she said. Her dream, once she has re­paid the loan in full, is to “buy a big­ger car to serve as a taxi in ru­ral ar­eas”.

Reach­ing re­mote ar­eas

Since the sacco opened, about 500 ac­counts have been cre­ated, Diyad Hu­jale said. But “we’re only present in a 20km ra­dius around the town, when the en­tire county needs us,” he said. He hopes mo­bile phone tech­nol­ogy will al­low the ini­tia­tive to ex­pand and reach more peo­ple through an on­line plat­form, with­out the need to phys­i­cally meet with an agent. “Cur­rently the only way to get a loan out­side of Wajir town is for our agents to travel to out­side vil­lages, so the op­er­a­tion is cur­rently very costly,” he ex­plained. Si­monet said a mo­bile ser­vice would make par­tic­u­lar sense for pas­toral­ists. “Pas­toral­ists not only live in ru­ral ar­eas, they are also con­stantly on the move. So to them a phys­i­cal branch or agents don’t make sense,” she said. — Reuters

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