Effects of Transformation on Outreach Performance of Microfinance NGOs in Kenya

Abstract

This research examines how transformation affects the outreach performance of microfinance NGOs in Kenya. Specifically, it analyzes the impact of various transformation indicators on outreach performance. Utilizing a quantitative research approach, the study utilizes unbalanced panel data spanning 19 years (1997 to 2015) obtained from the Microfinance Information Exchange (Mix) Market databank, focusing on six surveyed transformed microfinance NGOs in Kenya. Panel data regression models and instrumental variables estimation methods are employed for model specification. The findings reveal that outreach, measured by the average loan balance per borrower, is significantly and negatively influenced by the debt-to-asset ratio but not significantly affected by the debt-to-equity ratio or deposits-to-total assets ratio. The percentage of female borrowers is significantly influenced by the debt-to-equity ratio and debt-to-asset ratio, while the number of active borrowers is significantly influenced by the debt-to-asset ratio, deposits-to-total assets ratio, institutional size, and institutional age. These results suggest a necessity for microfinance NGOs facing capital funding challenges to devise policies that facilitate the utilization of commercial capital sources to expand outreach to impoverished individuals. Nonetheless, the management of transformed microfinance NGOs must implement safeguards ensuring that the pursuit of commercial funding options and public deposits does not compromise their mission of serving the most vulnerable populations.