THE EFFECT OF LENDING METHODOLOGY ON PERFORMANCE OF LOAN PORTFOLIO AMONG SELECTED MICROFINANCE INSTITUTIONS IN KENYA (Review Completed - Accepted)
This paper examines the impact that lending methodology on the performance of loan portfolio based on a study of microfinance institutions in Kenya. The specific objectives of the study were to establish the effect of group and individual lending on performance of loan portfolio in micro-finance institutions, and to establish the effect of moderating factors on performance of gross loan portfolio. Secondary data was used in the study of 8 out of 56 microfinance institutions under umbrella Association of Microfinance Institutions of Kenya (AMFI). This was motivated by availability of data. Panel data analysis was applied to test hypothesis that there is no relationship between group lending on performance of loan portfolio. After running a regression in which loan portfolio performance is the dependent variable, the study found a positive significant coefficient of 0.79 and (p=0.42) on group lending without moderating factors. When moderating factors were included the coefficient becomes 0.38 and (p=0.19). The null hypothesis was therefore rejected. There was no significant relationship of individual lending on performance of loan portfolio in the regression despite finding a positive coefficient of 0.41 and (p=0.27) without moderating factors and 0.16 and (p=0.58) when moderating factors were added. Therefore, the author accepted the null hypothesis which states that there is no effect on individual lending on performance. The third hypothesis which stated that moderating factors do not affect performance of loan portfolio was also rejected, since the study found significant relationship between moderating factors and lending methodology on loan portfolio. From the regression results, transaction cost and credit risk have a negative relationship on the performance of gross loan portfolio/assets. The researcher recommends to MFIs to use group lending as a result of security/collateral as it reduces adverse effects. Furthermore managers should improve business performance through cost minimization strategies. It is further recommended that MFIs managers should consider diversifying their revenue generating activities rather than concentrating on only one source of income
Keywords: Kenya, Lending Methodology, Loan Portfolio, Microfinance Institutions, Performance
Determinants of Growth Of Microfinance Organisations in Kenya. (A Case Study of Small Micro Enterprise Programme – Smep, Voi.) (Published)
The main objective of this study was to determine the key factors that determine the growth of the microfinance institutions. The target population was the people that participated in these MFI’s which in many cases were found to be women groups, middle and low income earners in Voi, however concentration was mainly on the individuals / groups that were registered with the SMEP in Voi.
The method used for this research was exploratory survey. Data collection methods such as questionnaires, observation and interviews were used. Sampling technique was used and results analyzed qualitatively and quantitatively in terms of descriptive statistics. Pie charts, bar charts and frequency distribution tables were incorporated in data presentation. Finally, conclusion on the factors determining the growth of microfinance institutions in Kenya were arrived at and areas for further research pinpointed. Recommendations for better operation and handling of the microfinance were noted
Keywords: Descriptive, Earners, Exploratory Survey, Microfinance Institutions, Sampling