Transforming Microfinance in Kenya: the Experience of Faulu Kenya and Kenya Women Finance Trust

This report examines the experiences of Faulu Kenya Ltd (Faulu) and Kenya Women Finance Trust (KWFT), two MFIs in Kenya that decided to transform into deposit-taking MFIs (DTMs). It highlights weaknesses in the transformation process, identifies challenges, and draws lessons for other MFIs planning transformation in Kenya and elsewhere.Faalu and KWFT transformed into DTMs with the support of Financial Sector Deepening (FSD) Kenya. Both transformations were successful and have helped the two institutions to maintain their strategic positioning in the market. In both cases, however, the process required more resources and took much longer than expected. The transformation also raised several organizational challenges. Conclusions include:

• Microfinance legislation in Kenya is stringent in its licensing procedures and branch infrastructure establishment;
• MFIs seeking a DTM license should prepare a detailed and prudent strategy dedicating sufficient human and financial resources to the transformation process;
• Transformation is expensive and a detailed strategy to manage finances throughout the process is essential;
• Transformations are long and complicated processes which call for ownership from all stakeholders;
• It is important to have a clear communication strategy to ensure that interests and incentives of all parties are aligned.