Ebony Is Happy to Announce the Transfer of Its Commercial Lending Activities from Ebony

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Ebony Institutional Brief 2008

Ebony is happy to announce the transfer of its commercial lending activities from Ebony Foundation (The NGO) to Ebony Enterprises Capital Kenya Limited. This is an investor preparedness action meant tocreate an enabling environment for private and institutional investment in Ebony’s micro finance activities. We are likewise happy to note that Ebony has taken the first step towards regulation by Central Bank after the Central Bank approved name registration for Ebony’s Deposit taking institution in accordance with the new micro finance legistration in Kenya. This event is an important stage in the institutional development of Ebony as a prudent lending institution.

Year 2008 was an important milestone towards this transformation. The following Four events greatly shaped Ebony throughout year 2008:

1)Post election violence,

2)The partnership with myc4,

3)Pre rating by Micro finanza and

4)Development of a strategic plan with the help of Unitus.

Post election Violence

Kenya has been an oasis of peace in a troubled region until 31st December 2007 when the Country exploded into violence after a disputed General Election.
Within days, the country was battered almost to a pulp and blood spilt with vengeance, senseless killings and wanton destruction. Markets, food stores and shops were looted. Hospitals rendered dysfunctional and health centers incapacitated by riots and barricades.

The violence, death and destruction witnessed in the Country jolted the Nation into conscience and everybody craved normalcy. International mediation and pressure brought the politicians to their senses and peace began to slowly return to the Country.

However the impact of the violence was already devastating. Over 1000 people had been killed turning thousands of innocent children into helpless orphans and over 500,000 families displaced, Thousands of micro and small enterprises were looted and or burnt down, while the rest faced a prolonged low business turn over draining the business savings and capital to sustain the families during the mayhem and thousands of businesses were burnt down and looted.

By virtual of its location in the Rift valley Region which was the epic-centre of the violence, Ebony was greatly affected by the crisis. Our offices were robbed twice within a month. We lost computers, data and loan contract files. A number of our clients were displaced, some had their homes and business premises looted and burnt down and about 56 went missing and have never been traced.

Peace was quickly restored; the Country and its leadership learnt an important lesson. It is now very unlikely that the same can happen again in Kenya.

However the impact of the damage had long term effects. At Ebony about Kenya shillings 25 million of the loan was affected as borrowers lost their homes and businesses. This segment of the loan fund had been directed to fund mostly low income people in slums and peasant rural farmers who had no access to collaterals. It was a very social funding to people who are normally excluded from financial services and this funding would not have been possible without the support of KIVA micro loan of USA. The violence was mostly witnessed in slums and certain rural areas where this portfolio segment was concentrated. After the violence Ebony’s portfolio at risk (PAR) rose from 6% in December 2007 to 42.5% by end of February 2008.

However Ebony’s upper segment loans were not affected by the violence and PAR remained at a low of 2% for the upper segment loans. Ebony therefore decided to concentrate and grow the upper segment loans but at the same time we began reforming the delivery methodology of the lower segment loans and looking for effective ways of recovering the defaulted loans after the violence.

Partnership with Myc4

May 2008 saw Myc4 a Danish based on line lending platform sign a contract allowing Ebony upper segment borrowers fundraise on the Myc4 platform. Over 300 borrowers have raised almost 1 million Euros and maintained an impressive PAR averaging at 2%. By December 2008 the Myc4 portfolio had created 1,600 direct jobs as each borrower expanded their businesses and employed and average of 4 people. In Kenya an employed person supports and average of 4 people meaning that the Myc4 portfolio had by December 2008 supported some about 6,400 family members with food, healthcare, shelter and education. Early reports from the ongoing Ebony’s social impact survey indicate some 2,200 children are in school directly as a result of the funding through the Myc4 platform.

Green Businesses

In line with the Myc4 vision and the MDGs, Ebony has begun a deliberate effort to direct funding support to green businesses. A pilot project is under way at the Menengai Crater. This is the second largest volcanic crater in Africa but its entire flora and Fiona has been destroyed by human activities. Massive de forestation as people search for firewood and burn charcoal for cooking has resulted to the destruction of the entire eco system affecting rainfall and agricultural income.

With funds raised through the Myc4 platform, farmers living around the crater are receiving loans to purchase dairy cows. The milk from the cows is sold to local factories at a profit generating income for the families. The income is being utilized to provide basic needs to the families including shelter, education and health care. The dung (waste) from the cows will be fed into bio gas digesters to produce bio gas which will be used by the families for cooking and lighting. The net effect would be reduction of the families’ dependence on timber for cooking which would in turn reduce the need to cut more trees at the Menengai Crater allowing the regeneration of the forest cover at the crater. Once this is achieved introduction of wildlife will follow turning the crater into a tourist destination and revamping the entire economy of the region. Ebony will establish a trust fund where local communities will acquire shares to establish a wildlife Conservancy at the floor of the crater.See attached project write up.

Virtual Banking (Keeping it rural)

Another interesting project being under taken by Ebony through funds raised from the Myc4 platform is increasing access to financial services in remote rural Kenya. This is being done by financing the setting up of M-Pesa Agents in rural Kenya. M-Pesa is a phone based electronic platform that is used to send and receive money through mobile phones. Once Ebony has supported the setting up of an M-Pesa agency in a rural area, Ebony begins using the M-Pesa agency in disbursing and recovering loans thereby enabling rural communities access loans and savings services to set up and or expand businesses. Through a bulk service contract with Safaricom (The mobile phone network providing M-Pesa), Ebony is able to disburse and recover loans from borrowers located in remote rural areas through the touch of a computer button.

Malipo Platform

And through a partnership with the Co-operative bank Ebony has established Malipoa virtual banking programme that provides ATM accounts to Ebony clients. The ATM cards are integrated to the M-Pesa system enabling Ebony clients deposit savings into their ATM accounts using their phones. Malipo is having a tremendous effect of deepening access to savings services among rural and low income people.

Support across the Value chain

Ebony and Myc4 are set to begin piloting of an innovative project that will support Kenyan small scale farmers to grow and export fresh vegetables to Europe. This interesting project will give consumers of the vegetables in Europe and across the globe an opportunity to invest in the production of the vegetables through the Myce4 platform and an opportunity to follow up the impact of the investment to the lives of the farmer and her family. Kyome fresh a Kenyan based producer and exporter of fresh vegetables will handle the technical support and the actual processing and exporting. The net impact of this project is increased income to the rural farmers resulting to sustainable eradication of rural poverty.

CapacityBuilding

The partnership with Myc4 has also seen Ebony receive capacity building support through Myc4. We had a whole week of training last year and more institutionalized training sessions are scheduled this year.

Linking Borrowers to Investors

Finally Ebony is setting up a communication centre that will enable borrowers communicate directly to their Myc4 investors. This project which is meant to increase transparency and investor confidence will also help arrange for the investors to visit the borrowers.

Micro Finanza pre rating

Just after the post election violence, Ebony received funding support from the Association of Kenya Micro finance Institutions (AMFI) to undertake a pre rating exercise. This was a very important and eye opening exercise that examined all aspects and areas of Ebony’s policies, governance, methodologies, management, MIS and the entire institutional capacity.

This rating exercise resulted to an ambitious two years re engineering and re positioning of Ebony. The project runs from June 2008 to June 2010.

Late last year Ebony did go through this time a Myc4 arranged rating by Planet Rating but this exercise came at the middle of the implementation of the Micro Finanza recommendations and was therefore not as useful or as accurate. Ebony will go through another Rating by Micro Finanza sometime this year (2009) to check on the progress of the re engineering.

Governance

In line with the Micro Finanza recommendations Ebony has strengthened its management and governance to reflect the growth of the institution. The board is made up of people with useful skill sets including a lawyer, banker, Microfinance experts and economist.

The board is organized in the following sub committees:

a)Operations

b)Finance and Administration,

c)BDS

d)MIS and

e)Audit and Compliancy

The sub committees meet monthly and work directly with the management staff. The main board meets quarterly but may meet more frequently when needs be. The main function of the board is to formulate policies and procedures including budgeting. The sub committees mainly monitor the implementation of the policies and procedures and support the management in the implementation.

MIS

To improve the flow and access of data and information, Ebony embarked on a mission to improve its management information system (MIS). This project is ongoing but at this point all portfolio (Loan) information and all accounting information is accurately captured and available. Every morning the MIS system is able to show all loans that are due for the day and all loans that are in arrears/defaulted and loan amounts paid.

Focusing on viable pro poor intervention

After the post election violence Ebony has re engineered its lower segment loans targeting low income people who have no access to loan collaterals. These loans are now secured using business and house hold assets/chattels. Unlike before, these chattels are now registered at the Attorney General’s office making it legally possible for Ebony to attach the chattels in case of a loan default minimizing the possibility of losing the loan amount.

Business Development Services

To minimize the instances of loan default at all loan segments Ebony has introduced business development Services (BDS). The BDS includes training on basic business skills, linkage to markets, linkage to mentorship opportunities and linkage to IT and savings services. This support has greatly improved the technical capacity of the borrowers to manage their businesses well and to exploit fully the economic opportunities available. This has in turn resulted to stable businesses and a reduction in loan default instances.

Ebony Foundation and Ebony Capital

As BDS is a technical and not a financial service, there was a need to separate the credit activities from the BDS activities. Several options were considered on how best to carry out this separation and at the same time ensure growth and sustainability of both the financial and the non financial components.

Ebony’s board finally has taken a decision to move the financial component to a new Company Ebony Capital and to leave the BDS under the NGO Ebony Foundation. In addition to BDS, the NGO will undertake research and pilot new products and delivery methodologies on behalf of Ebony Capital and other MFIs. Ebony Capital will take in individual and institution investments and a number of board positions are reserved for investors. The NGO will have its own board, management and staff. Ebony Capital shall retain two board positions at the NGO while the NGO shall have one board position at Ebony Capital.

Highly skilled staff and breaking the key person syndrome

The Micro finanza rating and the strategic planning sessions with Unitus indentified certain gaps in staffing at Ebony. As a result Ebony began a competitive process to recruit competent staff with the required skill sets.

As a result the following micro finance experts are now working at Ebony Capital:

See attached list of new staff

Development of a strategic plan with the help of Unitus

Ebony remains a highly potential and extremely innovative MFI with very creative and effective products and delivery methodologies. However it was of critical importance that Ebony re-examines itself to fully understand its potential and challenges in order to best position the MFI. This very crucial exercise was done through a highly participatory and thought provoking strategic planning session that brought together the board and management of Ebony. The exercise was funded by Unitus and facilitated by very competent and highly effective Unitus resource persons -Devin and Katherine.

Key highlights

The planning session re stated Ebony’s Vision and Mission as follows:

Vision

Ebony envisions a world in which poverty is alleviated through entrepreneurship

Mission

To provide sustainable financial and technical services in an integrated manner to low income and emerging entrepreneurs to enable them to improve their communities livelihood and or families.

Strategy Statement

Objective

To sustainably provide affordable financial and technical services to 40,000 entrepreneurs, positively improving the lives of over 160,000 people by the end of 2010

Scope

Low income and emerging entrepreneurs in rural and peri-urban areas – focusing primarily on those living on less than $2/day (per household) – with a passion to set up and expand growth oriented businesses

Advantage

Offer a unique approach that creates customer loyalty by providing flexible, unique, market-driven and competitive products, including BDS, and committing to clients throughout the lifecycle and growth of their business through graduation

Implications

•Target clients:

Focus on low income and emerging businesses, bringing in more women and rural entrepreneurs; focus on bringing clients in low and moving them up

•Product offering:

Need to diversify loan usage and to perfect BDS and graduation as these are core strengths

•Operations:

Need for BDOs to specialize in credit and have separate BDS staff; must improve standardization/conformity across branches; connectivity with MIS; improve internal controls (develop policies and procedures); develop effective monitoring and evaluation tool including management reports; need approach to measuring social impact; need tool for staff evaluation

•Visibility within sector:

Need marketing strategy (affects fundraising)

•Profitability:

APR is high – need to reduce interest for SEP, and particularly SEP 1; will have impact on sustainability so need to look for source of funds that will be amenable; need plan to put profits back into the community

EBF STRATEGIC GOALS

Goal 1Offer a diverse set of competitive products that improve lives

Goal 2Have a sufficient and sustainable group of fundingpartners

Goal 3Streamline operationsand controls for scale and impact

Goal 4Build a team of highly competent and motivated staffgoverned by a

strong board

Goal 5Maintain high portfolio quality with PAR 30 <2%

Goal 6Ensure strong financial healthand reporting

Goal 7Be known as a significant player in the markets where Ebony operates

(marketing)

Ebony has begun the implementation of the above strategic goals. A quick look at where we are on each goal is found in the attached activity plan.

It should be noted that this strategic plan will help catapult Ebony to a leading MFI in the region within the East African Region by end of year 2010.

James Maina

Executive Director