Forms of Utilization of Finances Obtained From Micro Finance Institutions and Their Effects on the Living Standards of the Recipients: a Case of Murang’a Town

Abstract

The provision of financial services to the low-income households, provide an enormous potential to support the economic activities of the poor and thus improving their living standards. Though proper utilization of finances from financial institutions may lead to improved standards of living, the effectiveness in attaining this noble objective may be hindered by improper utilization of the funds and the consequences thereof of such money. The purpose of the study was to examine forms of utilization of finances obtained from micro finance institutions and their effects on the living standards of the recipients. The objectives were to establish reasons for obtaining finances from micro finance institutions by recipients, determine the different forms of utilization of finances obtained from micro finance institutions by recipients, examine factors that influence decision on the expenditure of the acquired finances and finally assess the effects of the expenditure on the standards of living in the households of the recipients. Descriptive survey design was used to establish forms of utilization of finances obtained from micro finance institutions and their effects on the living standards of the recipients of Murang‟a town. Simple random sampling was used to identify 10 MFIs operating in Murang‟a town. Purposive sampling was used to reach240 recipients of loans from MFIs in Murang‟a town. The study established loan recipients in Murang‟a town choose MFIs over other financial institutions like commercial banks because of low interest rates. Items of expenditure of recipient‟s loans included marital life, medical expenses and housing. Key factors affecting decisions on expenditure at recipients‟ households include emergencies, necessities and pressure from spouses. Overall, MFI loans have improved recipients households, because they got profits from their investments made from loans which help them to improve their standards of living as well as expanding their business, save for those who defaulted in payment of the loans. The study recommends that an inclusive comprehensive framework of stakeholders‟ engagements must be formulated so as to ensure business collaboration with all stakeholders to enhance customer awareness. This is because, from the study, most of the recipients have multiple accounts in MFI‟s. In order to improve usability of the loans and thereby ensuring improved customer loyalty, the study recommends that financial institutions should devise proper mechanisms and seminaries to educate their customers on the best alternative of investment to ensure maximum gains from the loans. By doing so will lead to improved performance in financial institutions as well as improved livelihood to the recipients with minimum cases of defaulters