The institution of microfinance as observed by Jan and Larry (2012) had reached over 200 million clients by December 2010. Of these, 82 per cent were women. Most people in developing countries like Kenya live in rural areas. Majority of these are poor with no or limited resources to save and require help. To the poor, all what matters is a safe place where they can accumulate the savings. Hans (2006) posits that the most unsafe place for savings is in the house particularly under the mattress where other family members can
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easily access the money and at any time. Microfinance organizations and/ or groups within Kiambu County offer to the rural poor man or woman a forum to save money. It also offers them transformation, where they able to move from mere subsistence to a better life.
Generally, community based microfinance services focus on the marginalized rural or urban population with the intention of helping them climb out of poverty with the short- term loans for small business investments. In the rural areas, the poor tend to invest their small-scale loans in a variety of agricultural and non-agricultural activities, with the objective of livelihood security. The establishment of microfinance, although not a stand alone solution, avails different options to the marginalized. Beatriz and Jonathan (2010), suggest that microfinance services provide numerous opportunities for extending the markets, reducing poverty and fostering social change. Ndiaye (2006) supports this proposition by positing that ‘microfinance is not a mere financial instrument but a powerful tool for addressing multiple dimensions of poverty’.
There are many advantages of CBMFOs in Africa and particularly in Kiambu County. These groups are easy to form, transparent and sustainable with the ability to survive without any ongoing outside support (Fowler et al., 2011). Additionally, Paul and Ben (2011) indicate that these organizations are simple, cost efficient, easy to replicate and enable members accumulate profits among themselves. They provide entry level financial services to those who are poor or live in very remote rural areas not served by other financial service providers such as banks or microfinance institutions (Jeffrey, 2011). The social transformation brought about by CBMFOs at individual, household and community level is a strong indicator of the benefits of microfinance services. These groups also conveniently facilitate a safe way for people to provide financial services to themselves. Most importantly, they keep resources circulating within the rural communities unlike the savings in the conventional banks. Jeffrey attributes this to the use of group’s networks for other development inputs. The groups are also self- regulating, which enables them to mobilize resources locally without infringing on the
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regulatory framework that prohibits public financial intermediation by microfinance institutions (Mokoro et al., 2010).
On the other hand, the microfinance organizations also have some limitations. Kristin
et.al (2009) point out that limited resources in the rural areas makes it difficult for them to develop new and relevant products. A good example as observed by WB (2013) is the South African’s microfinance clients. These clients receive small loans to start small micro-enterprises with small upfront capital. However, to keep their business in operation, they require frequent infusion of capital which is rarely available. Such businesses just keep going, providing a stable but a small source of income.
Besides limited resources, the means of gaining a livelihood within the rural areas may be seasonal, particularly if dependent on agriculture. Generally, the fund each group manages tends to be small and members requiring larger loans cannot secure them through the group. The small loans generate small incomes which are often unreliable and irregular, thus, presenting a need to make sure there is enough money to meet the daily food requirements. Those requiring larger loans secure them from the intermediary Microfinance Institutions (MFIs). These institutions charges high interest rates of between 10~40% on the micro-loans condemning the clients to deeper poverty than they were before they received the micro-loan.
Other factors inhibiting the organizations’ capability as mentioned by Marion and Marek (2013) are low levels of literacy and education among its members and lack of access to complimentary support which may fail to translate access to financial services into improved livelihoods A common assumption is that once members of CBMFOs receive loans, they automatically start small enterprises. However, not everyone can be an entrepreneur. Thus, loans not channeled into IGAs affect the repayment capabilities. Sometimes, this lands the clients of microfinance into debt, causing them to default on loan repayment or borrow new loans to repay the old ones, posing a great risk to all members. Some resort to extreme measures such as reducing food consumption and selling productive assets to make their payments (WB, 2013). These coping strategies
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lock the borrowers into a downward spiral increasing their financial and social vulnerability, thus threatening the sustainability of CBMFOs in Kiambu County.
Environment influences the livelihoods of the rural poor households whereas their livelihoods affect the environment through uptake of various micro-enterprises. Micro- enterprises, is a term the study uses to include rural IGAs which include crops and livestock production as farm enterprises and managing small shops and boda boda (bicycle) taxis as non-farm enterprises. The negative impacts of the farm micro- enterprises often pose direct threats to human life (IFAD 2009). When activities supported by community SGs impact negatively on the environment, they pose challenges to the greater community (Joan et al., 2008). The negative impacts are pollution (air, land, water), land degradation, deforestation and destruction of natural protective barriers such as swamps that help mitigate effects of natural disasters. The impact of non-farm enterprises is often insignificant.
Poverty and environmental degradation are closely interrelated. According to Poverty Eradication Commission Report by GoK (2009), destruction of environment is a direct contributor of high levels of poverty. On the other hand, poverty can result to a certain kind of environmental stress. The major cause is linked to the continued deterioration of the natural resource base due to unsustainable pattern of consumption and production. Environmental degradation in the rural areas of Kiambu County is evident in the activities leading to farm expansion along river banks, encroachment of forests and wetlands, overgrazing and improper use of herbicides and fertilizers. Destruction of forests leads to deforestation and loss of fertile topsoil through erosion. Encroachment of wetlands results to loss of biodiversity. Overgrazing causes soil to compact, leading to loss of vegetation. The consequence is soil erosion. High concentration of animal wastes causes contamination of sources water. Improper use of herbicides and fertilizers pollutes arable land and water sources. Explicitly, the demand for natural resources generated by unsustainable consumption and the inefficient use of the resources deplete the natural resource base.
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Additionally, population growth and production combined with unsustained consumption patterns places severe stress on the life-supporting capacities of our planet (UNEP, 2006). Environment is a source of natural capital and a sink for by-products generated by human activities. The state of well-being for the rural communities is thus dependent on the environment in terms of livelihoods, health, vulnerability and empowerment to have control of their lives. A healthy environment for the rural people is that which comes with arable land, safe drinking water, crop and livestock diversity, forests products and biomass for fuel. Such an environment is able to support various social and economic activities being undertaken my communities members in a sustainable manner. Thus, integrating of sustainable environmental practices into activities supported by CBMFO: - an accessible and people oriented organization is an important step in addressing the environmental challenges within Kiambu County.
2.4 The Role of Community Based Microfinance Organizations in Supporting