Lending Model and Loan Repayment Among Financial Institutions in Kakamega Municipality, Kenya

Abstract

Financial institutions have availed various Lending model concepts in their operations across the world and specifically in Kenya to individuals who seek loans. The available financial services have improved the economic activities of the population thereby resulting to poverty alleviation (Kingston, 2006). Scholars have indicated that there is a relationship between lending model and loan repayment, which is determined by the internal policies adopted by the FIs. However, this relationship is not clearly defined as different scholars report conflicting results from their studies. Moreover, financial institutions in Kakamega are faced with non-performing loans regardless of the lending model adopted. Coupled with the fact that no inferential study has been done on the same issue, it against this backdrop that this study sough to investigate the effect of lending models on loan repayment in Kakamega Municipality-Kenya. The objective of the study was to establish the effect of lending model on loan repayment among financial institutions in Kakamega Municipality. In order to achieve this objective, this study was anchored on theory of financial intermediation and uniting theory of microfinance. Research design adopted for this study was correlational study design. In order to carry out the research, this study targeted all the banks and microfinance institutions in Kakamega municipality he study used both qualitative and quantitative data. Questionnaire was used to collect qualitative data while quantitative data was collected from secondary source which is the Central Bank’s Bank Supervision Annual Report from 2007 - 2017. Data was analysed using SPSS version 2.0. Results were presented using tables. This study found out that group lending has no statistically significant effect on loan repayment while individual lending has statistically significant effect on loan repayment. This study recommends the formulation of policies that will reduce delinquencies and defaults for group lending. Researchers may also use the results of this study to further literature on lending models and loan repayments.