The Effect of Outreach on Financial Performance of Microfinance Institutions in Kenya
Abstract
Across African regions, MFIs in East Africa are the most profitable while those in West
Africa generate positive returns. The question, however, remains as to whether this
profitability is because of increased outreach or not. Such knowledge is vital in
developing strategies that would enhance the expansion of outreach and hence alleviation
of poverty.The study aimed to investigate the effect of outreach on financial performance
of MFIs in Kenya.
This study used a descriptive survey method to achieve this objective. The population of
interest consisted of all the 52 MFIs (Appendix II) registered by AMFI (Association of
Microfinance Institutions-http://www.amfikenya.com) and operating in Kenya. Failure to
obtain primary data from most MFIs led to use of secondary data from
http://www.mixmarket.org. Data analysis was done using descriptive statistics and
regression analysis.
Most of the MFIs studied were established in 2001-2010. Majority of the MFIs were
Non-Banking Financial institution (NBFI) while others were Non-Governmental
Organizations (NGOs) and banks. Loans, savings, and insurance are the main products
and services offered by MFIs. The regression analysis has shown that 84.7% of the
dependent variable, net income before tax and donations, can be explained by the
independent variables, (number of borrowers, cost per loan, average loan balance per
borrower and number of products and services offered). However, only number of
borrowers was found to be a significant predictor of net income before tax and donations.
Based on the study findings, MFIs keen on enhancing their financial performance should
therefore focus on increasing the number of active borrowers. Number of active
borrowers is the breadth of outreach for MFIs and therefore outreach is seen to affect
financial performance of MFIs significantly. Although the other elements of outreach
such as cost per loan, average loan size, and number of products and services offered
affect financial performance of MFIs, they are not significant.
Citation
Masters in Business AdministrationSponsorhip
The University of NairobiPublisher
University of Nairobi, School of Business