Oral East Africa>How paying school fees for small scale farmers paid Family Bank with a kes149 million cheque At the hut of the story

Written by Oral East Africa

A KES 200 school fees loan product introduced by Family Bank in the 1980s attracted thousands of smallholder tea farmers to join the Bank. This market share grab led Kenya Tea Development Agency (KTDA) to pay farmer bonuses through Family Bank, providing the lender with its major breakthrough.

When Family Finance Building Society was set up in 1984, their first choice of customer was the retail client segment where they hoped to build a niche market of small businesses that had been overlooked by bigger banks.

However, the challenges faced by retail clients and their limited capacity to pay had been reasons why big banks had previously ignored them and when Family Bank opened its branches at the time, they also struggled to get customers.

Opening of Family Bank Eldoret West Branch

While marking Family Bank’s 40 years anniversary, the Bank’s Founder T.K Muya recalled how they innovated a school fees product which helped them penetrate this market and compete against the big banks.

The product was simple and easily accessible, all you needed was to be a small-scale tea, coffee or dairy farmer and guarantee the payment of your loan from the proceeds of your tea milk or coffee.

Strategy rewarded

“Some of the loans we were giving as school fees was as little as KES 200, you may think it is nothing today, but that was a lot of money. This product proved very popular and before long we saw hundreds of customers coming to our banking halls in great numbers,” Family Bank Founder T.K Muya said.

This strategy paid off handsomely. The entry into the lower market quickly brought in quick returns as Family Bank branches were making profits barely two years in operations.

The Bank was not only making sizeable profits but rapidly expanding, and Mr. Muya said they moved to Thika to cover more farmers, growing tenfold, and in the process the lender became a leading banker to tea farmers.

The 1993 bonus

In 1993, when KTDA sought to pay farmers' bonuses, most preferred to have their money deposited in Family Bank, which was suddenly entrusted with the largest deposit it had ever handled in its history.

The Bank received a cheque of KES 149 million, representing the bonus payment to KTDA farmers who were banking with Family Bank Building Society at the time.

Mr. Muya said that during that time, the political environment was very hostile to indigenous financial institutions, and parastatals were forbidden to give banks like Family Bank deposits.

Getting access to the payout from Kenya’s largest manufacturer would set off the Bank into a growth spurt, growing across the country and proving to regulators the building society that was once just an idea in a young man was ready for a banking license.