Determinants of Loan Repayment by Borrowers from Micro-Financial Institutions in Nakuru County Kenya

Wafula Nathan Wamalwa

doi:10.11648/j.jim.20160505.14

Abstract

Many financial institutions in developing countries provide financial services such as saving and Credit to aid several smallholder enterprises including farmers. This is an effort in line with the Millennium development goals which seeks to reduce poverty by 50% by the year 2015. However, the sustainability and continuity of the financial institutions to increase the volume of credit to stimulate the poverty reduction goal depends on the repayment rates. However many of the financial institutions have not been able to carry out these services effectively perhaps because of loan defaults of previous advances. The study used descriptive type of design. This is the design whose purpose is to provide a description of affairs as they are. The main objective of the research was to identify the determinant of loan repayment by borrowers in micro financial institutions in Nakuru County. Specific objectives were to determine the significance of level of education, level of income and age of borrowers as a determinant of loan repayment in Micro Financial Institutions in Nakuru County. The target population comprised a total of 590 loan borrowers and employees of Micro Financial institutions out of which a sample of 10%was picked using stratified random sampling on each stratum out of which a simple random was done to pick the respondent from the list of borrowers and employees, which enable every member of the population have an equal and independent chance of being selected as respondents and also simplest, most convenient and bias free selection method. The cross sectional data was collected by use of questionnaire. The data was analyzed using linear multiple regression model which quantified the determinants while the descriptive statistics was analyzed by use of frequency tables and percentages pie charts. The results showed that education level, income level and age negative were significant determinants of loan repayment. The study recommends that borrowers with low levels of income and education should be encouraged to take up loan since they are associated with loan repayment than their counterparts respectively. The study from the sample also recommends that youths should be taken serious because they are also associated with loan repayment. Nevertheless Most MFLs were going concern.

Highlights

The micro finance industry in Kenya has developed over since the 1970s when group lending methodology was adapted by most of the institutions as a way of empowering the local rural; community both for leadership development and access to financial services
From the sample the results showed that many borrowers have low education levels and yet they are associated with loan repayment better than those educated counterparts
The results reveal that age of borrowers is a determinant of loan repayment since increase in age is associated with increase in loan repayment

Summary

Introduction

The micro finance industry in Kenya has developed over since the 1970s when group lending methodology was adapted by most of the institutions as a way of empowering the local rural; community both for leadership development and access to financial services. The initiative was dominated by the faith-based organizations and international NGOs who used credit to start and group their enterprises as either group projects e.g. for women groups or as individuals of entrepreneurs This stage in the development of microfinance in the country significantly changed the model of community development from purely relying on grants to credit finacing.it helped develop individual’s entrepreneurs business skills while providing services needed for the local levels. It’s at this stage that some entrepreneur’s group e.g. voi women group started a bakery and Githuguri women group among other such as Kiambaa women group started large business in transport and poultry keeping respectively This stage had many challenge due to the loose way groups were formed funded and managed. Later in the 80s professional microfinance institutions were started e.g from Corporative of Assistance and Relief Everywhere (CARE), the National Council of Churches of Kenya (NCCK) and World Vision international Association of Microfinance Institutions of Kenya (Ministry of Trade Kenya, 2013)

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Results

Conclusion