Rural Agency for Development (RAFODE)
Providing Capital for Entrepreneurs Among Kenya’s Rural Poor
Location: Kenya
Rural Agency for Development: Grantee in 2010
The Rural Agency for Development (RAFODE) systematically and exclusively provided small, targeted loans to the rural poor in Kenya. RAFODE’s mission was to empower clients to escape poverty, realize dreams and transform lives; provide financial products and services that meet the needs of the rural poor; and become a sustainable financial institution governed by a spirit of integrity and service
While most micro-finance organizations in Kenya focus on urban areas with dense and more easily reach populations where they could administer larger loans to more clients with fewer loan officers, RAFODE chose instead to focus on the rural poor with small, short cycle loans. After a rigorous assessment process, potential clients were required to apply in groups of five, with each member personally guaranteeing the others, using personal property as collateral. This dynamic created a powerful incentive for each member to repay on time, and to ensure that others did the same. The small amount of the loans, about $150, and their short duration, 6 months, also reduced repayment risk. Financial literacy training was a required part of RAFODE’s program. About 90% of clients were still in operation one year after receiving their loans.
Project Redwood funded a program to extend 165 loans to small business groups to purchase assets or inventory, or to promote their businesses. The kinds of businesses funded included shoe sales and repairs, candy and produce sales, and dairy and agricultural farming.
Because of RAFODE’s success, it integrated its operations and innovations with K-Rep Bank, a significant source of funding for entrepreneurial businesses in Kenya.
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GRANT SUMMARY AND PURPOSE
2010: $25,000 to help RAFODE provide knowledge and financial capital to rural entrepreneurs for the purchase of assets for a business, such as inventory at bulk rates to reduce costs, and for investment in marketing and advertising. The grant also helped RAFODE to scale its operations across western Kenya
IMPACT
294 loan first-year loans with a 98% repayment rate, and capital thus preserved for future loans. RAFODE is now part of a local community bank and has been able to expand its micro-loan program to over 8,000 clients.