| dc.description.abstract | Microfinance programmes are one of the most important interventions in developing nation’s
efforts to reduce poverty. Recent years have seen slow growth of the sector in terms of numbers
and size of organizations, number of clients and provision of subsidized donor funding The
Kenyan microfinance sector has evolved over time to become commercialized, self-sustaining
and hugely profitable institutions. Microfinance is also rapidly becoming Kenya's most
accessible and affordable financial service. There has been extensive research carried out on the
growth of microcredit lending and the subsidized loan lending by non-governmental
organizations (NGOs) in Kenya. However, there is little understanding of the factors
constraining the financial performance of micro finance institutions MFIs other than competition
from commercial banks. This research study was conducted in order to identify specific
constraints to the financial performance of microfinance institutions in Nairobi County, Kenya.
The study was guided by the following objectives: to identify the main constraints to financial
performance of microfinance institutions in Nairobi County, to determine the effects of cost of
operations, client drop-outs, clients loan default rates and fraud cases on the financial
performance of microfinance institutions in Nairobi County. The study adopted a descriptive
survey research design to study the factors constraining the financial growth of the MFls. A
census of all the 59 MFIs registered with the Association of Microfinance Institutions of Kenya
AMFI (found on AMFI website) was carried out. The (unit of analysis) informants for the study
were drawn from the senior employees (general managers) of MFls. Data was collected using
questionnaires. Data obtained was analyzed using both inferential statistics-Multiple regression
and descriptive statistics by use of graphs and pie charts. From the findings MFls in Kenya still
face major constraints to efficiently and effectively deliver microfinance services in the country.
As the demand for MFIs services continues to grow, the sector faces many constraints, from the
findings of this study based on regression results: operational costs, client loan defaults and
Client drop-out had a negative and significant relationship with financial performance of MFIs
while fraud cases among the MFIs were found to have a negative but not significant impact on
the performance of MFIs. The way forward in tackling the constraints to MFIs growth include
:MFIs to increase operational efficiency and increase innovations in the products offered, convert
into deposit taking microfinance as this will enable them mobilize cheap savings from depositors
instead of taking loans from commercial banks which are expensive, stop relying on donors
contributions and borrow directly from financial markets. The government to come up with
friendly policies that favors growth of microfinance sector e.g tax holidays or lower tax rates in
marginalized areas. To reduce cases of loan default among clients the MFIs should have access
to credit reference bureaus to confirm clients’ credit history before giving out loans to avoid
cases of multiple borrowing. To reduce fraud MFIs should embrace concept of risk management
by continuously training their staff, acquire and use latest technology in their daily operations
and have internal audit report directly to the board and not senior management. | en_US |
