Disaster recovery loans help Kenyans beat weather shocks

NAROK, Kenya - After heavy rains flooded John Macharia's tailoring shop in 2015, damaging his stock, the 75-year-old considered quitting his business of 14 years.

But an offer came along he couldn't refuse - a loan from a fund that partners with international aid agency World Vision, intended to help him recover from the disaster linked to a powerful El Niño climate pattern.

"It helped me restock my business," said the father of five in his shop on Ole Ndutu Street in western Kenya's Narok town. "It has also enabled me to expand my business."

Macharia started with a loan of 360,000 Kenyan shillings ($3,472), and after repaying that in 15 months, secured another for 700,000 shillings.

"I have even bought a car and built housing units for renting out using the loan," he said.

Macharia is among hundreds of thousands of Kenyans who frequently struggle with weather and climate extremes, including flooding and drought.

But many cannot obtain credit from commercial banks to cope with the impacts, because they are poor and viewed as high-risk.

The El Niño Recovery Lending Programme run by VisionFund International, the microfinance arm of World Vision, is helping to change that in Kenya's Great Rift Valley region.

Kijoolu Nkoito, a farmer from Olooroito village in Narok County, has long been disadvantaged because she is not regarded as creditworthy by mainstream banks.

The widow burns charcoal for a living and sells local brew to feed her five children and keep them in school. But during the 2015 rains, driven by the El Niño phenomenon as Pacific waters warmed, she felt as though nature had turned against her.

Her home was inundated, sweeping away her kitchen utensils. And just when the floodwater had receded, pests invaded her maize field, destroying her entire crop.

But VisionFund's lending programme allowed her to get her life back on track. "I have been able to set up a business selling maize with the loan," said the 45-year-old.

SHY BANKS

Charity Mati, an officer in charge of business development at VisionFund Kenya, said some 3,700 people in Narok have benefited since the programme was launched in February 2016. It also operates in Eldoret and Kabarnet.

The fund is unique in that it helps Kenyans hit by extreme weather who commercial banks would not touch as customers.

In the 15 years she has worked in microfinance, Mati has never come across a bank that assists farmers and traders hit by disasters.

"The quickest thing these financial institutions do when there is a disaster is to run away," she said.

Maurice Opiyo, managing director at Kenyan investment bank NIC Capital, said the reluctance to lend to small businesses has worsened due to the government's interest rate cap.

The Banking (Amendment) Act 2016 set the maximum lending rate at four percentage points above the central bank rate.

"Banks are shy to give loans because the profit margin they used to get has reduced," he said. "They prefer to buy government securities to remain operational."

But lending for recovery after a disaster is essential because it allows survivors to build their resilience against weather extremes, said Diana Gichaga, managing partner at Private Equity Support.

Credit should be offered, along with insurance, to protect farmers and traders against future crises, she said.

"The cash model serves the immediate needs of the affected, while insurance is a long-term intervention," she added.

Philip Ochola, chief executive officer at VisionFund Kenya, said it offers loans to businesses, including agricultural enterprises, and individual loans for co-operative members.

It also provides loans that contribute to children's well-being after a disaster, such as paying school fees.

"Aid of this nature is good because it has helped me stabilise my life and motivated me to work," said 36-year-old Kateti Kirima, whose livestock were killed and crops destroyed by the 2015 floods in Olopito village in Narok County.

She used some of her loan to buy more livestock and fatten them up. She then sold some of the animals as the rains were followed by drought towards the end of 2016, making it hard to sustain a large herd.

UK AID FINANCE

In late 2015, Britain's Department for International Development agreed to provide up to £2 million ($2.6 million) in the form of an innovative returnable grant to finance VisionFund's El Niño lending programme in Kenya, Malawi and Zambia.

VisionFund Kenya received 119 million shillings ($1.15 million), and used the money to provide families hit by floods and drought with small loans for a period of up to a year.

As of late June, only 12 million shillings had yet to be returned by the Kenyan recipients, after farmers reaped good harvests thanks to the rains, World Vision said.

VisionFund paid back to the UK government the full amount of the grant at the end of May, it said.

The fund is planning to expand to other regions of Kenya experiencing climate change pressures once it can find new zero-interest finance.

The Thomson Reuters Foundation is reporting on resilience as part of its work on zilient.org, an online platform building a global network of people interested in resilience, in partnership with the Rockefeller Foundation.