Effect of Membership Outreach on Operational Self-sufficiency of Microfinance Banks in Kenya

Abstract

Microfinance has become an important tool in providing financial access and safety net to the poor. Microfinance plays a key role in poverty alleviation across the world, both in policy, academic discussions and in general practice (Ghatak, 1999). Outreach of MFBs in Kenya has been inadequate with possible impact on their operational self-sufficiency. However, little is known on how membership outreach affects Operational self-sufficiency leaving a big knowledge gap that informed this study. The objective of this study is to establish the relationship between membership outreach and Operational self-sufficiency of Microfinance Banks in Kenya. This study is valuable to regulators, practitioners and policy makers in the microfinance space. The study implemented a descriptive survey research design on a target sample of 12 MFBs registered as at end December 2015. Secondary data was collected from data filled by the MFBs with CBK for a 5 year period (2011 – 2015). The study used stepwise multiple linear regression models to analyze the data. The findings showed that outreach as measured by deposit values of MFBs has positive and significant effect on operational self-sufficiency. Further, operational expenses ratio, non-interest income to total income ratio, nonperforming loans ratio, and operational expenses to total expenses ratios have negative but significance impact on operational self-sufficiency. The study further found that MFBs that have a wide membership outreach are generally self-sufficient and profitable. The study recommends that MFBs should employ rigorous strategies to build a quality loan book to impact positively on operational self-sufficiency. Besides they should deploy technology to enhance their deposit collections and reduce their operations cost, thus, enhance their operational self-sufficiency. The study recommends that for MFBs should focus on achieving operational self-sufficiency in order to cut on subsidies, survive and sustain growth. They should further attract new customers through promotions as this would improve MFBs outreach hence improve financial performance and profitability and lowering operating costs