MYC4 have previously highlighted the challenges currently facing KEEF. We had also shared the progress in addressing these challenges. On our blog of 5th November 2014, we highlighted that KEEF was to pay off the arrears, and be allowed to continue fund raising on the platform up to an agreed limit. The fact that this agreement did not materialize has caused a lot of anxiety, panic, and ill feeling among the entire MYC4 fraternity. Key to KEEF’s turnaround strategy was obtaining a loan from a bank in Kenya (which has now already disbursed to KEEF), and using the funds to on-lend to their clients that had pending loan demands. KEEF was to utilize the funds to repay the loan arrears on MYC4; and then fund raise on MYC4 up to the agreed limit. The delay in KEEF making the repayments means that with time, most of KEEF’s loans have begun defaulting on MYC4.
There have arisen divisions in the Board of Trustees at KEEF on the best way forward for KEEF. The Managing Director of KEEF had confirmed in two separate meetings in September and November, his willingness to regularize the KEEF portfolio on MYC4: However, some board members have come up with a strong dissenting voice. The board intrigues have occasioned a costly delay to both KEEF and MYC4 fraternity. We have now called on KEEF to utilize the risk guarantee funds to pay off the defaulting loans. We have also written to KEEF to fast track repayments to MYC4; giving the positive effects of leveraging on the MYC4 platform by using the bank loan to kill many birds with one stone. Discussions are ongoing, and we have our CEO, Mads Kjaer in Nairobi this week to help steer the discussions towards action on the best possible solution. MYC4 still reserves the right to legal action and other adverse courses of actions, but our utmost hope is that these will not be necessary.
One key positive outcome of the efforts by KEEF is that the borrower groups remained intact and cohesive.
This is absolutely critical for an organization that uses the co-guarantee methodology to raise funds. KEEF has had to make concessions with the borrowers including temporary waiver of co-guarantee for groups affected by fraud; waiving the fees that the groups pay to KEEF; repayments are not paid into KEEF accounts but are remaining within the groups as part of short-term cash advances to the group (usually repaid within a month). Promise of subsequent loans is a key motivator for microfinance clients to pay their loans, and several borrowers have held onto repayments as they wait resumption of loan disbursements (KEEF PAR 30 is now over 40%). All these factors have a contributory factor to non-remission by KEEF of repayments received from borrowers.
Another positive outcome of efforts by KEEF is that majority of the staff that were not even remotely implicated in the fraud have remained intact. The effect of this is that the key component in ensuring maximum collectivity of the KEEF portfolio has been retained. We thus hope that the current hurdles that KEEF is facing can be overcome and KEEF shall resume its operations. The magnitude of the fraud has now been quantified at about 31,000 Euros: Whereas the amount is significant for an institution of KEEF’s size, it is not sufficient to affect the going concern of the institution.