For many years, microfinance was viewed as one of the most successful means of raising individuals and communities out of poverty. In Myanmar, small and medium enterprises made up 99% of the country’s businesses. Most of those were, to no surprise, micro-businesses. In particular, the tool of microfinance was viewed as especially helpful to women. Yet, it turns out that studies found that microloans were not actually as impactful as many wanted them to be. The problem is that, because microloans are often given to those considered high-risk borrowers, high-interest rates are charged, making it difficult for those receiving the loans in the long run. The way to make microloans sustainable is by diverting the focus away from scalability and immediate returns. Rafode, a startup in Kenya, has done just that.
Headquartered in Kisumu, Kenya, Rafode is a “non-deposit taking Microfinance Institution.” With its main focus on women in rural communities, Rafode has successfully distributed over 40,000 loans, all with a value of around 700 million Kenya Shillings or $6.5 million. Relying on technology to deliver its products and services, Rafode has succeeded in reaching rural communities and uplifting both men and women through microloans.
Products and Services
Rafode has eight different products, all in the form of loans for different purposes.
- Inuka Business Loan: As a group loan, this is intended to encourage clients to create, upgrade or expand a business. This loan is the first step to receiving an individual loan and can range from 10,000 to 480,000 Kenya shillings.
- Masomo Loan: Dedicated to education, this loan is aimed to support a client’s family in receiving an education.
- Green Energy Loan: Working with other companies that provide green products, including Burn, Marathoner and Sunking, this group loan provides support for rural clients seeking access to affordable green energy products.
- Agribusiness Loan: As the name would suggest, this loan exists to specifically help small scale farmers in the agribusiness industry.
- Pamoja Loan: As another group loan, this works to support a group hoping to support its local economy.
- Emergency Loan: As an individual loan, the Emergency Loan serves to cater to the client’s emergencies, typically related to their business.
- Individual Business Loan: A more selective loan to receive, this loan exists exclusively for clients who already have businesses, and who already have businesses that are stable and have a reliable source of profits.
- Asset Loan: This final loan is self-securing. Providing real flexibility to clients, they gain the ability to finance movable assets and free up cash they might not have had before. Like the Individual Business Loan, this exists for clients who already are seeing their business profit, and hope to expand or grow it even more.
The Value of Microfinance
While conventional microloans have not been so effective, researchers have found that by providing microloans with little to no collateral, there are usually better results. Specifically, when given to women, these results are even more effective. This is because, especially in developing countries, microloans are among the only things that increase women’s decision-making power. In other words, microloans undeniably empower women.
So, Rafode’s efforts to give 85% of their microloans to women, focusing on rural communities and offering a plethora of different types of loans, all with very little collateral, have enabled this startup to do extremely impactful work that provides mutual benefits to the clients and back to the company. The most successful microfinance products allow flexible payment periods, individual liability contracts and one of Rafode’s main tools, the use of technology.
By believing in microfinance and adjusting to what will work by trusting in their clients, Rafode has raised individuals and families out of poverty, as well as revitalized economies in the process.
– Olivia Fish