NAIROBI, Kenya — Famous economists, tech tycoons and rock stars have all sought a magic formula to bridge the gap between Africa's tiny Blackberry-tapping, SUV-driving elite and the continent's hundreds of millions struggling to get by on less than a dollar a day. They have suggested laptops for every child, green protein porridges and even text messages for peace.
Kenyan farmer Pauline Gichuhi found a more straightforward solution: She took out a $400 loan and bought a cow.
"I got 30,000 (Kenyan shillings) and I paid 20,000 for the cow and the other 10,000 bought the food," said Gichuhi, explaining how her first commercial bank loan changed her life. So far it looks like Gichuhi will manage to pay off that debt within the six months the bank has given her.
"She was expecting," said Gichuhi, matter of factly. "So I got the money for three months from selling the milk."
Gichuhi, who lives in Kiambu, a small town in Kenya's Central Province, has made the jump from small-scale farmer — growing bananas, pumpkins, squash and maize — to a dairy farmer. She makes more than $85 per month from selling the cow's milk. She was able to expand her farming business thanks to the bank loan.
Traditionally, loan payments have been the headache of the privileged, and most African banks have for decades cautiously hewn toward the elite side of the continent's socio-economic divide. But, on the plots of small-holder farmers across Kenya, there is evidence that all of that is changing.
By catering to the millions of rural Kenyans living on a few dollars a day or less — people long considered too risky and too poor for banks to consider — a bank called Equity Bank has managed to build itself into the third biggest bank in the country, with 3 million customers.
"We are able to know exactly what a potential customer is looking for," said Esther Muiruri, a manager with Equity. "We are able to reach the un-bankable. We have branches all over the place. We are also using IT — mobile phones and ATMs — so that we are able to reach as many as possible."
Savings accounts are free and loans for less than $10 are available at relatively low interest rates. The bank eschews traditional collateral, which may be prohibitive for farmers living in shanties on rented land with no equipment to speak of, and makes do by holding objects such as matrimonial beds or kitchen cupboards against a client's debt.
"You know what is the catch?" said James Mbogo, an assistant manager in trade finance with Equity. "The matrimonial bed. Nobody will let his matrimonial bed be sold. That is the catch. They will make sure the loan is liquidated before the bed is auctioned."
And the impact can be seen in small ways across Kenya. There is the small herd of black-hooded goats on the banks of Lake Victoria, a handful of chickens here and a tiny stand of sugar cane there. There is also that small black cow, belonging to Gichuhi, a widowed mother of three coaxing a living out of the rich red earth of Kenya's Central Province.
High-volume, low profit-margin business models have been earning fortunes and revolutionizing economies in the telecommunications sector across the continent for the better part of a decade, but banks have been conservative.
"Many of the big banks, they had untouchables, the poor couldn't reach them," said Ruth Oniang'o, founder of Kenya's Rural Outreach Project (ROP), an organization that supports small farmers. "The banks, they are clean, they are white and the farmer has just come from her farm. Many look at a farmer and they say, 'You are not good enough to enter our bank.'"
Last year, the rise in food prices worldwide touched off food riots from Senegal to Somalia. Suddenly, agriculture, grit and all, became eminently more bankable. Wealthy investors from the Middle East and Asia have leased out millions of acres across sub-Saharan Africa to produce food for growing appetites back home. In Kenya, the government of Qatar discussed financing and building a new seaport in exchange for 40,000 acres of prime agricultural real estate along the fertile coast.
But that kind of international interest in Kenya is rare these days. And, as the global financial crisis has brought on the threat of capital flight, banks are forced to look closer to home, where 75 percent of Kenyans work in agriculture.
"They have no choice," Oniang'o said. "If you say some people's money is too little, at the end of the day, what money will you be handling? Nowadays everyone has little money. The question is how do you bring together that little money."
Advocates of small-scale agriculture admit that lending to farmers can be risky.
"The risks involved in agriculture are more significant than other businesses," said Fred Muhukhu, a program officer with AGRA, an international organization set up to boost farm productivity in Africa. "With crops and planting, sometimes God will side with you and sometimes he will not."
There are signs though that other banks are taking on those risks. When Doris Anjawa, a field coordinator with Oniang'o's Rural Outreach Program, organized a meeting for members last month, she invited a number of banks and expected that farmers would sign up for accounts with Equity Bank as they have in the past.
"Funny enough, Equity Bank didn't turn up," Anjawa said.
It didn't much matter since, for the first time, another bank made its way out along a rutted dirt track to the remote western town where Anjawa works.
"When Equity missed, it's Kenya Commercial Bank that benefited," said Anjawa. "They managed to get more than 200 women to sign up with them."
Equity's Muiruri is happy for the competition.
"We are very happy to hear that we have been able to revolutionize banking," she said.