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Partner Description:

In a region severely lacking in commercial banks and banking regulations, Kaaba Microfinance Institution (K-MFI) is playing a crucial role in providing underserved communities in Somaliland with vital access to capital.

Since Somaliland declared independence from Somalia in 1991, its status as a 
self-declared sovereign state has deeply hindered the economy, creating an informal system that relies heavily on remittances. K-MFI aims to provide financial services to those who are financially excluded from the current system. In particular, K-MFI seeks to enable low-income and poor entrepreneurs in Somaliland (with a focus on women) to become self-reliant and serve as agents of change in their respective communities.

K-MFI was initiated as a small microfinance project by the Doses of Hope Foundation in 1998 and was later established as an independent microfinance institution in 2009. Doses of Hope (DOH) is a non-governmental development foundation that was set up in the late 1990s by Fadumo Alin, then a political refugee in the Netherlands who had fled Somaliland during the civil war. By saving a portion of the support payments that she received as a refugee, Alin was able to start the organization.

DOH’s microfinance project, K-MF has become the main channel for supporting the surrounding communities. What began as a small micro-credit project with 150 clients in 1999, has grown into a microfinance institution with about 5,000 clients at the beginning of 2013.

Currently, the MFI offers three Islamic loan products in the form either of assets sold to clients at a markup, or -- on rarer occasions -- profit-sharing investments in small and medium enterprises:

Murabaha: to finance working capital or investments for micro-businesses.

Musharaha: a profit-sharing quasi-equity loan for more-established businesses.

Ijarah: a lease-purchase loan product to fund machinery required by registered producer cooperatives.

 

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A unique lending approach:

With Kiva funding, K-MFI is proposing to create a new youth-targeted Murabaha laptop loan. This new product aims to provide students and recent graduates with laptops on credit, helping them to further their education or build successful businesses.

According to K-MFI staff, education providers have identified the lack of access to computers as limiting for high-potential students and graduates. Due to the country’s unique situation, consumer goods like computers are not readily available even for those who would have the means to purchase these items. The new Murabaha laptop loan will consist of a laptop purchased by K-MFI and resold to the client at a markup of 1.33% to 8%, depending on the loan term requested by the client, with repayments over a period of up to six months.

Since its inception, K-MFI has not received any debt funding. Numerous organizations, including 
Rabobank FoundationOxfam NovibUnited Nations Development ProgramUNHCR and USAID have provided grant funding to K-MFI. However, most of these donors have placed significant restrictions on funds that have prevented the institution from building savings and providing products on credit. In this way, Kiva’s risk-tolerant capital is the only option for funding the Murabaha laptop loan.
 
A Note on K-MFI’s Portfolio Yield:
 
We care deeply about the cost that Kiva borrowers pay for their loans, which is why fair pricing is a core part of our initial due diligence process for Field Partners. With Kiva's 0% capital, many of our Field Partners are also able to add additional value to their loans by reducing interest rates, offering non-financial services or creating new loan products.
 
For partners with reported portfolio yields or average APRs higher than 50%, Kiva takes steps to check that the high rates are justified by the impact of the loans. Kiva also verifies that the partner is not generating unreasonable profits or paying inflated salaries, and that the partner’s elevated operating costs are justified by its operating environment and/or the design of its loan products.
 
We seek to support loans that don’t impose an unjustifiable cost burden on hardworking borrowers. We nevertheless recognize that in order to reach vulnerable and excluded people with high-impact products and services, some of our partners incur high costs that necessitate charging higher-than-average costs to borrowers in order to allow for sustainability and scale.
 
Factors that drive up the costs that this partner organization charges its borrowers include:

     • They operate in Somalia, which is a conflict-affected region. This can greatly increase the cost of safely delivering financial services to borrowers.
     • They work in areas with very poor infrastructure, such as limited roads. This increases the costs of finding clients and maintaining branch offices.
     • They operate in an area with a limited or poorly functioning banking system. This makes it difficult to access funding locally, and makes it more challenging to send and receive payments on loans from outside the country.
     • They’re a small company or organization that hasn’t yet achieved the scale and efficiency necessary to reach sustainability and reduce pricing, but the impact of their services merits the opportunity to prove their business model.
     • They operate in a market where microfinance is highly underdeveloped. This means that finding, training and maintaining qualified staff is more expensive and difficult than in more-developed markets.

Repayment Performance on Kiva

    This Field Partner All Kiva Partners
  Start Date On Kiva Oct 22, 2013 Oct 12, 2005
Total Loans $118,375 $625,499,400
Amount of raised Inactive loans $3,900 $397,125
Number of raised Inactive loans 1 334
Amount of Paying Back Loans $51,100 $120,621,050
Number of Paying Back Loans 13 132,551
Amount of Ended Loans $63,375 $504,481,225
Number of Ended Loans 127 634,883
Delinquency Rate 0.00% 4.66%
Amount in Arrears $0 $3,619,396
Outstanding Portfolio $51,100 $77,690,214
Number of loanDelinquent 0 17,035
Default Rate 0.00% 1.11%
Amount of Ended Loans Defaulted $0 $5,607,074
Amount of Ended Loans $63,375 $504,481,225
Number of Ended Loans Defaulted 0 17,325
Currency Exchange Loss Rate 0.00% 0.11%
Amount of Currency Exchange Loss $0 $679,982
Refund Rate 0.00% 0.73%
Amount of Refunded Loans $0 $4,592,300
Number of Refunded Loans 0 5,127

Loan Characteristics On Kiva

    This Field Partner All Kiva Partners
  Loans to Women Borrowers 24.82% 74.18%
Average Loan Size $538 $418
Average Individual Loan Size $522 $654
Average Group Loan Size $4,591 $1,837
Average number of borrowers per group 8.2 8
Average GDP per capita (PPP) in local country $600 $3,409
Average Loan Size / GDP per capita (PPP) 89.68% 12.27%
Average Time to Fund a Loan 0.7 days 5.8 days
Average Dollars Raised Per Day Per Loan $766.98 $72.17
  Average Loan Term 6.09 months 10.52 months

Journaling Performance on Kiva

    This Field Partner All Kiva Partners
  Total Journals 0 313,681
  Journaling Rate 0.00% 42.14%
  Average Number of Comments Per Journal 0.00 0.07
  Average Number of Recommendations Per Journal 0.00 1.77

Borrowing Cost Comparison (based on 2012 data)

    This Field Partner Median for MFI's in Country All Kiva Partners
  Average Cost to Borrower 52% PY N/A 33.35% PY
  Profitability (return on assets) 18.8% N/A -1.49%
  Average Loan Size (% of per capita income) N/A N/A 38.01%

Country Fast Facts

Field Partner Staff

Yacquub Abdilahi
Fadumo Alin
Mahamoud Muhumed
Rashid Sulub
Omer Yusuf