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IRTI Working Paper Series WP/2016/09

Poverty Alleviation through Microfinance in North-East Kenya Province Abdelrahman Elzahi Saaid ALI

7 Ramadhan 1437H | June 12, 2016

Islamic Economics and Finance Research Division IRTI Working Paper 2016-09

Title: Poverty Alleviation through Microfinance in North-East Kenya Province Author(s): Abdelrahman Elzahi Saaid ALI

Abstract

This research explores the unique micro-level challenges that face poverty alleviation programmes adopted by microfinance institutions (MFI) operating in North Eastern Kenya Province (NEP). The study used structured questionnaires covering the sample of 600 respondents randomly selected from three counties namely Wajir, Mandera and Marsabit. Three Focus Group Discussions (FGDs) comprising 24 participants were held to facilitate a deeper understanding of the challenges of poverty among the North Eastern Province’s communities when alleviated through microfinance. The results reveal that the illiteracy due to the weakness of education and the unfavorable basic and financial infrastructures such as roads, telecommunications network represent the most important challenges which may affect the successful of microfinance programmes. These results recommend both conventional and Islamic microfinance might contribute positively for poverty alleviation for the only Kenyan Muslim-dominated region if these challenges are mitigated. From where this its not from my submitted draft? Keywords: Poverty Alleviation, Financial Inclusion, Microfinance JEL Classification: G21; O10

_____________________________________________ Suggested citation: Abdelrahman Elzahi Saaid Ali (2016). Poverty Alleviation through Microfinance in North-East Kenya Province, IRTI Working Paper No. WP/2016/09, Jeddah: Islamic Research and Training Institute.

IRTI Working Paper Series has been created to quickly disseminate the findings of the work in progress and share ideas on the issues related to theoretical and practical development of Islamic economics and finance so as to encourage exchange of thoughts. The presentations of papers in this series may not be fully polished. The papers carry the names of the authors and should be accordingly cited. The views expressed in these papers are those of the authors and do not necessarily reflect the views of the Islamic Research and Training Institute or the Islamic Development Bank or those of the members of its Board of Executive Directors or its member countries.

Islamic Research and Training Institute 8111 King Khalid St. Al Nuzlah Al Yamania Dist., Jeddah 22332-2444 Kingdom of Saudi Arabia

Poverty Alleviation through Microfinance in North-East Kenya Province Abdelrahman Elzahi Saaid ALI1

1.

Introduction

Unlike the richest provinces such as Nairobi and the central Kenya, the recent UN report has showed North East Provinces as the poorest region in Kenya. The North provinces have been deprived from the quality education, health and very poor standing of living. Despite the great efforts exerted in the top level in Kenya and North Eastern Province (NEP) in particular, the country might remain prone to food insecurity: vulnerable to both external and domestic shocks. The International Fund for Agricultural Development (IFAD) indicates that more than half of Kenya’s population of 43.18 million live below the poverty line. The United Nations Development Program (UNDP) Human Development Index (HDI) of 2013 ranks Kenya as 145th out of 186 countries. This ranking, based on measures of standard of living, life expectancy, access to education and health care, implies that Kenyans in general are ranked amongst the world’s poorest countries.

Compared to other regions, North Eastern Kenya is very poor and might be desperately marginalized. The main historical activities of the population of this region were pastoralism, i.e. rearing camels, cattle, sheep, and goats as a principal source of economic livelihood. Due to limited water and grazing land, drought and clashes between tribes, they still live or are transformed into sedentary, pre-urban lifestyles. This usually brings little hope of employment beyond manual labour, like hauling water or gathering firewood. There are also significant social inequalities within the region, particularly with respect to women and minority groups. Hence, this segment of the population exhibit the highest rates of poverty and might be forced to beg and rely on humanitarian food aid to survive. This level of poverty and human underdevelopment might affect the country’s prosperity. It might discourage investment, undercut productive potential, drain

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Senior Research Economist, Islamic Research and Training Institute, Islamic Development Bank. E-mail: [email protected]

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resources and prolong emergency responses while undermining poverty alleviation initiatives and innovations.

Since the independence of Kenya in 1963, the NEP has been in deep-rooted marginalization, lack of infrastructure development and services, exclusion from national development processes and high levels of insecurity in terms of armed tribal conflict, militia attacks and violent livestock raiding. This might result in imbalance of regional development in terms of the distribution of the resources by all the successive governments. The continuing unequal treatment of the NEP Kenyans has made the people in this region ultra-poor. The level of under development is shown by the fact that seven districts in this region had Human Development Index (HDI) lower than that of Sierra Leone2, which at that time was the lowest-ranked country in the world.

The North East Province, placed in a potential strategic location, can be an essential gateway for Kenya to the growing markets of the Horn of Africa. The region is also very essential for the cross-border trade to Kenya. It suggests that intra-regional livestock trade is significantly growing, with an annual value exceeding US$60m. The evidence shows the trade between Kenya and Somalia has increased three-fold (2009)3. Moreover, NEP represents the main supplier of the livestock to the country. More than 67% of the red meat consumed in Kenya comes from this region. In addition, of the potentiality livestock industry, NEP has a limitless supply of renewable energy in the form of wind, solar, biogas and geothermal that can be utilized for homes, schools and factories across the entire region.

The potentiality of growth and development of North Eastern Kenya might be considerably high since the region will start from the lower base. It needs adequate attention from the policymakers and donors, and clear understanding of the developmental challenges. The region is strategically positioned not far from the GCC and countries with large populations such as Ethiopia, Sudan and Somalia that might be a potential market for their products and imports of manufactured goods and reconstruction materials. In additional to this, NEP could be the main local supply of livestock for the country and help in reducing unemployment. Previous studies 2

UNDP 2006 Kenya National Human Development Report 2006

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COMESA 2009: Hidden value on the hoof

suggest that livestock production could create more jobs and cover 50% of the meat deficit from NEP alone4. Adding to that the natural resources and minerals such as sand and gravel for construction, a wide range of precious minerals, soda ash, gums, resins, and medicinal plants as explained in Table 1. This diversity of natural resources, if well used, might shape a developmental policy for the benefit of the people of NEP. Hence, this research investigates how microfinance can be used as a tool to reduce high unemployment and foster sustainable development to alleviate extreme poverty in North East Kenya. Its main objective is to identify the challenges facing poverty alleviation through microfinance in NEP. More specifically the study also seeks to examine the political, economic, sociological, technological, legal and environmental challenges that might hinder microfinance institutions operating in the NEP, and suggests relevant solutions so as to contribute positively in alleviating extreme poverty in the region.

Table 1: Potential Mineral Resources in the Arid Counties of North East Kenya

Source: Ministry of Environment and Natural resources

2.

Poverty Alleviation Initiatives in North Eastern Province (NEP) of Kenya

Since the last century, Kenya has attempted to launch many initiatives to control drought and achieve relative stability of food security. In 1980, the government set up Arid and Semi-Arid

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ReSAKSS, 2008

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Lands (ASAL) project under the Ministry of Economic Planning and Development 5. The main objective of this project was to improve the ability of participating districts and communities in the arid and semi-arid lands to plan and implement climate changes adaptation measures. In 1996, the Arid Lands Resource Management Project (ALRMP) was established with World Bank support. The program achieved a significant progress in managing drought and food security at national and local levels. ALRMP re-focused attention to the more acute challenges facing the arid areas. In 2001, pastoralism became the theme for the Poverty Reduction Strategy Paper (PRSP). Based on that an ad hoc Pastoral Thematic Group facilitated the process of gathering pastoralists’ views on how to reduce poverty. This resulted in the identification of the causes of poverty such as the lack of infrastructure, security, land tenure, education, employment and drought management strategies. This report was incorporated into the Poverty Reduction Strategy (PRSP), which embodied in the government’s Economic Recovery Strategy (ERS) for 2003-2007. Kenyan Vision 2030 policy document builds on the progress made by the ERS and sets out a broader and more ambitious agenda. Its target date shifts the planning perspective beyond the short-term horizons of individual governments, reflecting the time required to achieve sustainable change.

Despite the above government initiatives, poverty in Kenya is still very high at more than 52%. The recent survey showed the poverty in rural (49.1%) areas is higher than the urban (33.7%) in Kenya. The government have attempted to address the problem of eradicating extreme poverty and hunger as indicated in its recent MDGs report. Despite these considerable efforts, the report showed more challenges faced the country in order to achieve these objectives. Kenya’s plan faces the challenges of the inadequacy of resources for financing and the existence of economic and socio-cultural practices that have hampered achievement of some MDGs. Moreover, there are adverse climate changes that affect weather patterns, re-emergence of polio and increase in cancer cases, and the regional disparities in critical areas such as school enrolment, gender equality and access to health services among various segments of the Kenyan population6.

The government also seeks the assistant of the international donors and the development partners to help in eradicating poverty as part of the MDGs. The British Department for

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http://www.worldbank.org/projects/P091979/kenya-adaptation-climate-change-arid-semi-arid-landskaccal?lang=en&tab=overview 6 Progress Report, on Millennium Development Goals in Kenya. MINISTRY, 2015

International Development’s (DFID) main objectives, among others, are increasing school access and the quality of education and reducing vulnerability and malnutrition among Kenyans most disadvantaged7. DFID also supported Hunger Safety Net Programme (HSNP) that uses biometric technologies to disburse cash transfers vide electronic point-of-sales devices managed by a network of traders. In a partnership between the MDGs Centre, the French Embassy and the Millennium Village in Dertu, power is being generated from livestock fertilizer for use in businesses, schools and clinics while simultaneously helping to preserve the environment8.

3.

The Challenges of Poverty Alleviation and Financial Inclusion in North-East Kenya

In connection to the above efforts, a Pastoral Risk Management Project (PARIMA) started in 2003 linking pastoralist producers in Northern Kenya and Southern Ethiopia with leaders of the livestock export industry9. One aim of the PARIMA project in East African pastoralism is to help in risk management that can positively contribute to wealth conservation, reduction in conflict, and improved food security and hence assists in eradicating poverty. Based on that, 11 pastoralist groups were given interest-free loans and trained in the skills needed to run small businesses. These might be due to the recent move of improving the financial infrastructures through the opening of new bank branches and Shari’ah banks. In March 2013, the International Finance Corporation announced its first partnership with Gulf African Bank vide a $5 million equity investment whose explicit goal is to expand Shari’ah-compliant banking products and services to small and medium businesses10. However, until today this formal conventional and Islamic banking operated in the NEP only reaches a small proportion of the population. Since the majority of the community are pastoralists, they make little use of the formal banking system because of the lack of literacy and the collateral to qualify for loans. Moreover, another constraint is that because of their nomadic lifestyle they tend to expect to receive better returns when capital is held in the form of livestock than in savings.

Further, despite the fact that most pastoralists have a high level of involvement with the market, they need to be taught to diversify their income generating schemes. Usually they lack 7

https://www.gov.uk/government/world/organisations/dfid-kenya http://millenniumvillages.org/press-releases/green-energy-comes-to-one-of-kenya-s-remotest-areas-2/ 9 http://barrett.dyson.cornell.edu/Parima/index.htm 10 IFC 2013 8

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adequate operating capital at the same time, and large capital investment only in the household herd represents high risk. Despite the little improvement in the financial infrastructures, it seems that national finance schemes might not have been tailored to the specific needs of pastoralists’ producers, although commercial banks have recently shown interest in making livestock trade loans to small entrepreneurs. Hence, the inclusion of the political pillar in Kenya’s vision 2030 policy document may create an opportunity to address the underlying causes of chronic poverty in NEP, and that may put in place the necessary mechanisms proposal to help in mitigating the obstacles that hinder the development of North East Kenya. This recent new political initiative may indicate the awareness at the top level of government of the challenges facing the region that require more than technical solutions.

Poverty is one of the greatest challenges that North-East Kenya faces and is significantly affecting pastoralism and the rural ethics in these locations. While more people in the big cities are very rich, the rural areas and the undeveloped pastrolists community far from the cities are completly marginalized. The study is an attempt to gain an in depth understanding of the situation of the poor in North-East Province of Kenya and give specific recommendations on the challenges facing poverty eradication and financial inclusion. Through survey, the study adopts an ethnographic approach to enable the exploration and understanding of the social, cultural and economic context of the NEP from the perspective of the indigenous community. To achieve the mentioned objectives, desk review was undertaken to determine the status of poverty and poverty alleviation challenges in NEP.

Three Focus Group Discussions (FGDs) attended by a total of 24 participants were used to facilitate a deeper understanding of the poverty challenges and whether microfinance can give any hope if it can be used for financial inclusion for NEP people. Induction/capacity building trainings for 10 data collectors were held and a questionnaire survey was deployed to 600 respondents at various locations of Marsabit, Wajir and Mandera. Two hundred and five completed questionnaires were completed and analyzed. In order to negotiate informed consent, the purpose of the study was continually explained to the respondents. Consent was sought both verbally and in writing from every participant. For men, permission was asked from them directly. For women, permission was obtained from their husbands or male relatives before asking for their own consent. The privacy and confidentiality of all the participants was continually assured as a way of allaying

any fears and encouraging participation in the survey. The main limitations of this study is access to people and certain areas was limited due to the prevailing security situation. In such cases, informal and rapid data collection methods as well as telephone interviews were used to complement the formal survey. Data collectors were drawn from the respective counties because of their understanding of the NEP MFI context, culture and fluency in the local languages and Kiswahili. However, their knowledge of microfinance concepts, accurate data collection and documentation called for some form of capacity building. The prevailing security situation also made some respondents to be overly cautious.

Despite of these challenges, the survey run very smooth. In terms of demographics, 62% of the baseline survey respondents were female with the highest reported age range being 22-30 years. This indicates the emergence of a social system in which (even though it places a premium on communal patterns of decision-making and ownership driven by customary institutions) women and youth are starting to play more and more key roles in the management and control of resources, which primarily used to lie in the hands of men in rural Kenya areas. This, therefore, dictates the need for innovative financial inclusion vehicles that are capable of incorporating this emerging NEP social system unlike the previous men-dominated social system.

Figure 1: Level of education

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The survey also has shown 59 % of the respondents are reported being married while 30% said to be single. The education and health care represent one of the challenges in NEP of Kenya. Figure 1 shows about 40% of the respondents have no formal education at all while 16% of the respondents reported having attained secondary school education, and only 5% have attained university education.

Despite the exhibited general lack of formal education, a total 81% (Figure 2) of the respondents were reported as being engaged in some form of formal or informal employment with relatively comfortable average monthly incomes of KES 18,424.40 (US$217). However, it is important to note that there is a great disparity in reported monthly incomes with the lowest being KES 1,000 (US$12) and the highest being KES 960,000 (US$11,300). The employment in NEP was roughly divided into those working within the pastoral economy and the numbers employed in towns with the two groups closely connected through family ties, culture and trade (Figure 2). Due to the lack of literacy, those who works in town normally employ in low income jobs. Hence, they still depend on the livestock economy as a safe guard of second source of income generation. In order to help effectively in mitigating the severe impact of poverty, microfinance providers may need to exploit this opportunity, which could lead to a substantial increase in the outreach and uptake of its products and services. Recently there has been a movement of people from the villages to the towns. This is why the employment shifted more to cities than the villages’ pastoralism economy. The reasons for the shift from the pastoral system might be due to environmental changes such as the drought that affected their livestock and farming and tribal conflicts. The results showed that 55% of the respondents linked the transition from the pastoralist way of life to social vices such as increased poverty, conflict and crime.

The most frequently identified type of employment in towns was informal. Women dominated these informal jobs, which generate low income and tend to enjoy less protection under the law. The youth are not better off, and even face some special challenges in that those who have not completed primary school education possess insufficient qualification to join secondary schools or compete in the formal labor market. Moreover, they are not able to cope with their previous pastoralist lifestyle as they have abandoned it for eight years and therefore become effectively deskilled. Due to the lack of education, job creation represents another challenge that is hard to surmount and that might need thorough understanding of the cultural differences and

accurate identifications of the right range of the activities of this community. Based on the critical analysis of what types of job are suitable for them, self-employment through entrepreneurship where the average levels of income prove that resourceful talent does exist might be more appropriate. They are livestock producers and traders. Livestock production is a significant part of the region's economy. The evidence showed that in the recent years Garissa cattle producers earned over 1.8 billion shillings in sales in domestic and overseas markets11. Since the inhabitant ethnic groups are Muslim Somalis, the adoption of Islamic microfinance might be more appropriate to address their extreme poverty. This is because recent studies claimed that conventional microfinance concentrates only on low income groups and excluded the destitute people from microcredit and other related activities such skills improvement12. Hence, this might mean that any initiative from the microfinance institutions and donors, in the form of access to integrated and devolved Islamic microfinance compliant with micro credit packages directed to income generating schemes, might succeed.

Figure 2: Employment Type

Figure 2 also shows that more than 81% of people of NEP left livestock and farming to the informal employment activities. These may motivate the establishment of microfinance providers 11 12

https://en.wikipedia.org/wiki/North_Eastern_Province_(Kenya) Ali (2015) Islamic Microfinance: Moving Beyond Financial Inclusion

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to assist the settler to adapt with the vulnerable drought, climate change, capital gains and human/wildlife conflict. Therefore, these challenges might define the need for MFIs to invest in risk reduction programmes or index based insurance programmes aimed at combating effects of drought and conflict, by acceptance of livestock as collateral. It is possible therefore that both the government and the international donors have to take action to help NEP in accessing microfinance through establishment of international partnerships to move the NEP out of chronic poverty. Apart from the drought and the unfavorable climate, the bad basic infrastructure represents another challenge for the inhabitant pastoralists. According to the respondents currently, there are few options for pastoralists and traders to transport their live animals to the terminal markets in Nairobi. The lack of designated livestock tanneries, abattoirs, auction yards and holding grounds in Nairobi and the surrounding area forces the traders to accept a quick sale at disadvantageous prices. The defining descriptive feature about NEP for many of the respondents is its separation from the rest of the country, which manifests itself in both physical and psychological ways.

In terms of physicality, the respondents described the NEP as a remote region, with transport, very basic energy and Information Communications Technologies (ICTs). Access to ICTs is especially poor with infrastructure for the fiber optic cable having reached Marsabit and Wajir in 2011, while most of the region remains reliant on expensive satellite. Mobile telephone operators have also begun to expand their networks, but coverage is still limited to the major towns. All of this has undermined investment and reinforced the separation of the NEP from the rest of the country. This is compounded by the fact that pastoralists normally sell their livestock when there is an urgent need for cash, rather than to meet market demand. Besides the awareness and mind-set through capacity-building, microfinance availability can really contribute to the development of the human and add more value to the natural resources of this region. The respondents have indicated that there are considerable natural products in the NEP. These resources are not limited to medicinal herbs, essential oils, and bio oils, silk and culinary products such as honey, herbs, spices and wild fruit. The introduction of microfinance might diversify income generation for the poor people through financing sustainable harvesting and value-addition of dry land natural products, which may provide the basis for successful commercial bioenterprises. MFIs could also endeavor to support irrigation technologies and other approaches that are appropriate to the area. Further, the unique landscapes, ecology and culture of the NEP are largely unknown to outsiders. For example, the ecologically rich Malka Mari National Park on the

Kenya-Ethiopia border is said to be one of the world’s biodiversity hotspots. MFIs could therefore facilitate the residents of the NEP to exploit tourism by advancing capital to communities wishing to develop tourism-related products and services.

The NEP was also described to have a spread population, scattered across a large area in small settlements, which means microfinance operation might incur a higher per capita cost of service delivery. At the same time, this scattered population provides the enormous potential for the use of technology in overcoming this challenge. However, the respondents forecasted the need for the development of an incentive regime and flexible mechanisms that will encourage the uptake of technologies by the public. The NEP population are mobile settlers where mobility is the rational response to their environmental conditions. The respondents indicated that the legal status of pastoralists moving across international borders is ill-defined which impacts on their entitlements to poverty alleviation programs such as MFI services that are not addressed in any inter-governmental policy framework or agreement. Other challenges might be related to the use of land as a collateral for access to finance. Most of the land ownership is communal in the NEP, which implies that individual possession of land that can be used for collateral purposes is rare. Further, access to and control over this resource is differentiated by gender and age. Hence, this region requires special microfinance model. Most MFI service delivery models were described to be designed with settled, high-density agricultural or urban populations in mind. The livestockbased economy of the NEP, where people are illiterate, dispersed and highly mobile, and are subjected to seasonal drought, requires different approaches. The majority of surveyed respondents (64%) claim that MFI poverty alleviation programs may not be easy to use after initial training, while 37% felt that their voices were not heard by these institutions leading to misunderstanding, and 38% cited hidden costs as a major source of concern. However, despite all of the above 53% of the respondents indicated that they would recommend the products of microfinance leading to poverty reduction.

In order to adopt suitable microfinance model to alleviate poverty in NEP, the respondents recommend that there is a need for capable public service to adopt a suitable model as an experiment, which can be generalized gradually. In the NEP, as microfinance incubator, the experimental model can be applied in areas such as community-based health and mobile schooling; then jointly between the government and private sector to alleviate poverty. 11

Both the government and the NGOs have made some attempt to help in poverty alleviation in North East Kenya. However, many of the poor are not aware of these programs, as 37% of the survey respondents reported that they were not aware of the existence of poverty alleviation programs (Figure 3) at the time when 27 such programs13 existed (Figure 4). With the exception of KWFT, which was a listed regulated microfinance provider, most of these programs are either government or NGOs poverty alleviation initiatives. Even though the majority of the people of this region are Muslims, no Shari’ah-compliant bank was listed among those known to offer poverty alleviation programs. This implies that aggressive awareness raising on poverty alleviation initiatives needs to be undertaken by all the activists in this matter, and MFIs, particularly Islamic microfinance providers, are more encouraged to contribute in poverty alleviation and development efforts in these marginalized communities.

Figure 3: Level of Awareness

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World Vision, USAID

Figure 4: Respondents’ Membership in Poverty Alleviation Programmes

There are more than one social objectives of the ongoing poverty alleviation programs. These objectives may include but not limited to the creation of employment, improvement of food production, countering effects of drought and climate change, and improvement of vocational output. It is interesting to note that when asked, 51% of the respondents agreed that the introduction of microfinance might help in poverty alleviation, which leads to sustainable county development, because they target the actual needs of the rural populace. Figure 5 shows that there is a positive perceive of the respondents about the contribution of microfinance to eradication of poverty in NEP. The most frequently cited benefit accruing to members of the MFIs was access to credit and savings facilities, followed by subsistence allowance with provision of extension services for livestock farming and tailored financial services faring equally. Moreover, 42% of the respondents indicated that being a member of an MFI poverty alleviation program might make them feel optimistic about improving their family’s prospects. Yet 37% of them did indicate that while they worked hard all the time and were members of these programs they had nothing to show for it. Concerning participation 53% of the respondents confirmed being members of microcredit institutions, 15% of Chamas (community-based group) and only 9% were members of MFIs. Curiously, though, MShwari, a mobile banking savings and loan product offered by Safaricom Kenya Ltd launched in November 2012, was reported to have 13

a membership of 8% of the respondents, almost catching up with the MFI service providers. Despite the considerable awareness of the poverty alleviations programs, the counties of NEP are facing more challenges towards effective participations. These challenges ranged from illiteracy, complexity of products and services, lack of awareness, lack of trained staff, nomadic lifestyle, politicization of poverty alleviation programs, cost, distance, lack of cashing facilities in remote areas and religious reasons. Perhaps more significantly is that 54% of the respondents cited concerns about the impact of the drought season on interest and loan repayments. Hence, bearing in mind the these challenges and the challenge of basic infrastructures, the adoption of mobile banking technology that support wireless microfinance in the NEP might help greatly to enhance participation and microcredit outreach considering that 76% of the respondents indicated their interest in micro-financial services providers. Figure 5: Sustainable County Development and MFI Poverty Alleviation Programmes

Microfinance is an intensive jobs creator. Due to the weakness of the education in the NEP, more efforts are needed to develop people in order to carry on productive activities when they have access to finance. The survey has addressed the human capital development issues to pinpoint the shortcomings. The respondents acknowledged that major investment is required if the MFI poverty

alleviation programs are to be sustainable. This lack of human capital particularly for the women was attributed to the lack of high-quality education and training institutions in NEP. Hence, microfinance in general and Islamic microfinance in particular might help in alleviation alleviating poverty in this poor Kenya region only after overcoming the challenges faced by this essential livestock production area. More efforts are needed on the part of the government to improve the literacy of the community and raise their awareness through formal education and capacity building programs, particularly targeted to the women and the youth. As found in the previous study (Ali 2013), the improvement of the basic and financial infrastructures is another challenge for effective development of microfinance sector in NEP of Kenya. These may include financing of mega infrastructure projects such as roads, telecommunications network, abattoirs, holding and auction grounds, tanning and canning factories and irrigation schemes. Since the NEP, communities live under severe tribalism conflict and instability due to the local clashes, strong social support systems is highly recommended to mitigate the causes of dispute and the bloody conflict.

4.

Conclusion

Given the high level of destitute people, estimated at more than 50% living under the absolute poverty line, microfinance might be one of the strategic tools to help in raising the living conditions of the people of North East Kenya. Despite the numbers of poverty alleviation programs already implemented by the government and NGOs, the area remain prone to food insecurity and to all factors that lead to more poverty. Considering the potentiality of the contribution of NEP in building Kenya’s economy through the development of livestock production and other available local resources, microfinance might be one of the most recommended facilitators of previous poverty alleviation efforts. Despite the potentiality of the conventional and Islamic microfinance to boost development and alleviate poverty, the region inherited more challenges that might represent big constraints for the introduction of microfinance providers. The region is facing the challenge of illiteracy due to the weakness of education, which lead to low quality of human capital. Other most important challenges that may affect microfinance programmes is the bad basic and financial infrastructures such as roads, telecommunications network, abattoirs, holding and auction grounds, tanning and canning factories and irrigation schemes. The weakness in the basic infrastructures would raise the cost of access to finance and hence will hinder financial inclusion 15

among the people of NEP. Since the North East Kenya depends on the livestock, unfavorable climate and drought are another challenge.

Beside all the mentioned constraints, the government needs to take steps to provide security through settling bloody tribal conflicts in the region. After reducing the above microfinance challenges, then the Kenya government needs to encourage microfinance providers to contribute in the development of the poorest area in the North Eastern Kenya. This will be possible by making NEP a microfinance incubator. Moreover, the government may encourage the microfinance providers to establish a Livestock Enterprise Fund, which meets the needs of livestock producers and traders. To avoid the basic infrastructure barriers the government regulator may encourage the introduction of mobile wireless microfinance technology to enhance outreach. Since the majority of the residents are Muslims, the regulator may ensure that small-scale entrepreneurs have access to integrated Shari’ah-compliant microfinance packages that combine hands-on training and small business development support with access to credit, value addition, market analysis, and investment in conservation-based income generating schemes. In addition to that, the government and the relevant donors need to undertake a major investment in human capital to ensure MFI poverty alleviation programs are sustainable through education and capacity building of women and the youth in the county of NEP.

Finally, the Kenya government needs to develop mechanisms to attract long-term capital inflows to finance large-scale investments such as roads, ICT infrastructure, irrigation schemes, abattoirs, livestock holding and auction grounds in the region, and then implement aggressive awareness initiatives for the poor nomads and farmers to comprehend and deal with the MFIs. In addition to that, the government may needed to improve the microfinance regulation (Ali 2015) to enhance the sector and to introduce M. branchless banking that assist in improving the reach of the poor in NEP of Kenya.

References Ali, A.E. (2013). The Challenges of Islamic Trade Finance in Promoting SMEs in IDB Member Countries, European Scientific Journal, 11(10): Ali, A.E. (2015). Islamic Microfinance: Moving Beyond Financial Inclusion, European Scientific Journal, 11(10): Ali, A.E. (2015), The Impact of Regulatory and framework of Microfinance in Kenyan, International Journal of Social Science Studies, 3(5): Demirguc-Kunt A., Klapper L., Randall D, (2013), Islamic Finance and Financial Inclusion; Measuring Use of and Demand for Formal Financial Services among Muslim Adults; The World Bank Development Research Group Finance and Private Sector Development Team http://famis.comesa.int/pdf//CAADP_Pol_Brief2_Cross_Border_Livestock_Trade.pdf http://www.responsability.com/funding/data/docs/es/1872/rA-Microfinance-Market-Outlook2014-DE.pdf http://www.wvi.org/kenya https://www.humanitarianresponse.info/en/operations/kenya/document/garissa-countygovernment-county-integrated-development-plan https://www.opendata.go.ke/Poverty/Poverty-Rate-by-District/i5bp-z9aq Kenya National Development report http://hdr.undp.org/sites/default/files/kenya_2006_en.pdf Maitri Morarji (MALD Candidate, May 2005); Arid Lands Development Focus (ALDEF) Wajir, Kenya, Alchemy Internship Final Report, the Fletcher School of Law and Diplomacy, Tufts University, Boston, USA www.crakenya.org http://www.resakss.org/sites/default/files/pdfs/investment-opportunities-for-livestock-in-thenort-39395.pdf

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