One Step Beyond: Achievements and Challenges in Reaching Remoter Areas

This paper proposes to map the frontiers of microfinance in Kenya based on poverty incidence and population density.

It states that:

• Lower population density relates to high transaction costs on both supply and demand sides;
• High poverty incidence implies smaller transaction sizes on the demand side;
• High population density areas with low poverty incidence present the most promising environment for microfinance.

The paper:

• Presents a spectrum of centralized and decentralized models;
• Argues that decentralized models have the potential to provide services to the rural poor because of:
  • Greater user-ownership and management;
  • Inherently lower cost structures;
  • Key characteristics of their services.
• Presents the following challenges to long-term effectiveness and sustainability of decentralized models:
  • The element of 'negotiability';
  • Bad loans to board members;
  • Complex financial products that create management and governance problems.
• Reviews five organizations in Kenya that are reaching into rural areas to explore where the frontiers lie, examining:
  • Organizational structure and the model of service delivery;
  • Characteristics of the rural/remote areas that the model was serving in terms of population density, poverty incidence, and local economic and agro-ecological conditions;
  • Socio-economic status of clients using the services;
  • Financial sustainability of outreach in rural areas.

The paper concludes by discussing the implications of decentralized models and potential strategies for their improvement as the 'bottom up' strand of a two-pronged approach which complements centralized service delivery.