Mega Gearing Up for Money Lending

After failing to open a commercial bank last year, a welfare society that has been raising capital from the public is preparing to launch a microfinance institution next month.

Even though officials of the Mega Microfinance Company Limited say they will open their doors for business on July 1, regulators-the Central Bank of Kenya and the Association of Microfinance Institutions (AMFI) -are yet to register the institution to receive deposits from clients as provided for by the Microfinance Act 2006.

The Microfinance Act 2006, which was gazetted last month, says that no person shall carry out any deposit-taking microfinance business unless such a person is a company registered under the Companies Act or a wholly owned subsidiary of a bank or a financial institution.

The Microfinance Act further gives the Central Bank of Kenya authority to supervise microfinance institutions.

The Act came into being following numerous complaints by depositors who had lost their money in some microfinance institutions which collapsed between 2004 and 2005.

Officials of the Meru Embu and Gikuyu Association (MEGA) Initiative Welfare Society said yesterday that the registrar of companies has registered the Mega Microfinance Company Limited to operate a money lending business in Nairobi.

"We don't have to register with the Central bank of Kenya since we will not be taking deposits from clients. We will be lending to the public" said Mr Kamau Muchuha, who has taken over as the chairman of Mega following the resignation of politician Peter Kuguru last year.

Caroline Karanja, a programmes officer with the Association of Microfinance Institutions, said Mega MicroFinance Company was not registered with the association which serves as an umbrella body for 23 of the approximately 50 microfinance groups that operate in Kenya.

"But they can carry out their business without taking in deposits from customers since they are registered only as a limited company" said Karanja.

A financial consultant linked with the launch of Mega Microfinance Company Limited said the company will be operating under the Companies Act since it has been registered as a "Limited" company.

The consultant who requested us not to mention his name because he is a director in another microfinance institution said Mega Microfinance Company Limited will advance between Sh5,000 and Sh400,000 to the small business at 18 per cent interest rate.

Mega has recruited about eight people to manage the business, which will open in Nairobi next month before spreading to other towns.

"We want to project ourselves as a business outfit that will do business with the rest of the country. We are not a regional outfit" said Muchuha.People backing the mega initiative helped the organization to raise Sh37 million to start the microfinance institution.

Last year, the Mega welfare group sold its shares to the public with an intention of raising Sh250 million to start up a banking institution.

The money raised from the sale of the shares which were trading at five shillings each were pooled into a kitty called the Mega Bank Promoters Fund and was meant to be used to pay-up the capitalization amount required by the Central Bank of Kenya.

But officials of the organization clashed with the Central Bank of Kenya (CBK) which dismissed the planned opening of the bank because its promoters had not even applied for a banking license.

Further the welfare group failed to raise the targeted amount. "We raised about Sh37 million. We have used Sh20 million as the initial capital to start the microfinance institution" said Muchuha.

Even though Microfinance institutions are celebrated the world over as the vehicle to pull people out of poverty the concept of microfinance in Kenya risked losing its appeal following emergence of pyramid schemes that collapsed that mutate into new forms as soon as they are shud down by the authorities.

Related terms: bank, banking, business, commercial, kenya, money, poverty, promoters