International Journal of Management and Commerce Innovations ISSN 2348-7585 (Online) Vol. 7, Issue 2, pp: (304-311), Month: October 2019 - March 2020, Available at: www.researchpublish.com
DETERMINANTS OF PERFORMANCE OF MICROFINANCE INSTITUTIONS IN NYAHURURU SUB-COUNTY, KENYA Richard S. Mbithi1, James N. Kung’u2, Zakayo Onyiego3 1
MBA Student at Laikipia University, Department of Commerce, School of Business 2
Lecturer, Department of Commerce in the School of Business, Laikipia University
3
Lecturer, Department of Commerce in the School of Business, Laikipia University Email of corresponding author: josciaro@gmail.com
Abstract: Increased competition and associated deterioration of lending portfolios are growing concerns that face micro finance institutions (MFIs) in Kenya. Some micro finance experts have expressed frustration regarding the subsequent upward trend in defaults and over indebtedness that are inhibiting growth of the MFIs. The study adopted a descriptive research design and a sample of 39 respondents was taken out of the target population of 62 respondents using stratified random sampling technique. Questionnaire was used to obtain data. Descriptive and inferential data analysis was done. All the null hypothesis were rejected and alternative hypotheses accepted. The study revealed that customers are the main players in the success of MFIs in Kenya. Regression results showed that customer orientation was significant with F-value=21.65, at p-value=0.000<0.05, physical facilities with Fvalue=8.264, p-value=0.000<0.05, technology adoption with F-value=9.035, p-value =0.000<0.05 and legal framework with F-value=33.842, p-value =0.000<0.05. Overall, all the variables investigated had a statistically significant influence on performance of MFIs in the study area. However, there are other factors that explain the variability of the financial performance in small businesses in Kenya that were not included in the model. Keywords: (Customer orientation, Physical facilities, Technology, Legal framework, performance).
I. INTRODUCTION A microfinance institution is a financial institution that is involved in provision of small-scale financial services to low income clientele who have no access to conventional banks (Kagwiria & Wachira, 2016). Poverty has highly contributed to the 2 billion unbanked populations where we have 767 million individuals worldwide living below US$1.90 per person per day (World Bank, 2016). Internationally, 59% of adults did cite lack of adequate funds as the major reason to their financial exclusion. This is a clear indication that financial services are not yet affordable or designed to fit the lowincome earners. Additionally, poor individuals are ignored by commercial banks and are regarded as “unbankables” (World Bank, 2016). However, Professor Muhammad Yunus, The Nobel Prize winner in 2006, using Grameen bank model attested that poor people are viable customers. Since then the micro finance market has grown at a high rate and has enlarged its portfolio of financial services beyond pure microcredit (Schmidt, 2008). In Africa 350 million adults are financially excluded with significant opportunities to expand affordability, accessibility and usage of formal financial services (Villasenor, West, & Lewis, 2015). Since about a decade ago, microfinance has received a focused attention from the United Nations, including the declaration of the year of microfinance in 2005, and the associated studies and publications, the strengthening of the activities of its specialized fund for small scale investment (UNCDF) and more recently, the designation of the UN Secretary General’s Special Advocate for Inclusive Finance (Anderson & Baland, 2002). The UN’s intense interest reflects the fact that, despite the challenges of microfinance, it has emerged as an important tool for poverty reduction in
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