Case Study: Feed the Future Kenya Access to Finance in Northern Kenya
This case study explores the progression of USAID's access to finance work in Northern Kenya since 2012.
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Executive Summary
This case study explores the progression of USAID's access to finance work in Northern Kenya since 2012. It highlights the transformation that has occurred in the region's financial sector and subsequent growth and impact among micro, small, and medium-sized enterprises (MSMEs). The report assesses how USAID-funded Feed the Future activities—Resilience and Economic Growth in Arid Lands-Accelerated Growth (REGAL-AG), Kenya Livestock Market Systems (LMS) Activity, and USAID Kuza—have supported developing Northern Kenya’s financial sector with activities that have moved along the investment spectrum, from humanitarian assistance to impact investing. Beginning with an investment in 2012 to build a livestock market in a northern Kenyan county, all the USAID-funded activities harnessed the experiences and challenges of the previous activity, spurring growth, and transforming communities in the northern region.
Access to finance is a key driver of the economic growth for regions and communities, and access to appropriate financial services is also a key component of a resilient economy. During the project period assessed in this report, access to finance in Northern Kenya increased from 11 to 74 percent from 2012 to 2021 through the growth of the private sector and support from USAID, and national and local governments. Despite this progress, Northern Kenya is still burdened with negative perceptions. It is still perceived to have less economic appeal than other regions in the country, and thus, has a limited local presence of financial institutions (FIs). Local businesses still suffer from this perception as well and are deemed "too risky," even by the few FIs located in the region.
This report highlights how the three Activities (REGAL-AG, LMS, and Kuza) helped develop the case for increased private-sector lending in Northern Kenya. It looks at how the Activities supported critical aspects of the financial system’s supply and demand side through tailored activities that progressed and built on one another, and partnership models that increased engagement with the private sector and prioritized sustainability. Through reviews of existing and previous USAID programming, this report identifies some significant lessons learned in how the activities helped move the region along the investment spectrum:
- Diversity among financing sources provides a better range of options for borrowers and greater impact potential. The study highlights the importance of collaborating with a diverse range of bank and non-bank financial service providers, including savings groups, cooperatives, digital finance providers, county government funds, impact investors, and value chain finance actors. By supporting a diverse range of financial services, the activities were able to better reach a diverse range of MSMEs and un(der)served customer segments, such as women and youth.
- Building and continuing partnerships over multiple activities improved trust and willingness to pilot new interventions and increase investment. By leveraging relationships built by previous activities with FIs, Activities were able to provide targeted technical assistance to improve their models to assess risk in the region. For example, Agricultural Finance Corporation (AFC) has partnered with the Activities in several different ways including linking them to local MSMEs, supporting the development of a branch in Marsabit County, and providing a $1.25 million loan for on-lending to MSMEs via the Impact for Northern Kenya Fund.
- Providing policy support to county governments improves the enabling environment for investment and provides a locally driven approach to increasing financing to the region. The USAID-funded Activities provided a range of policy support to the county governments of Northern Kenya, including training on the establishment and management of their county revolving funds (CRFs). Through this work, USAID has supported the development and maintenance of an effective enabling environment that fosters transparent, inclusive economic growth. These policies, as implemented by the county governments, reduce and eliminate unnecessary regulatory barriers for private sector investment, while helping targeted counties improve the business climate to stimulate investment and inclusive growth.
Through this work with the supply and demand side of financing in Northern Kenya, USAID supported the development of the region’s financial system, including improving the supply and diversity of necessary financing in the region and improving the capacity region's businesses to seek and qualify for the financing.