The Linkages Between Micro Finance Institutions (Mfis) and Commercial Banks in Kenya
Abstract
Over many years commercial banks have not been involved in provision of micro credit to
the small and micro enterprises. The sector has remained the preserve of micro finance
institutions (MFIs). Liberalization of the financial sector has increased level of competition;
hence banks are looking for avenues to expand their revenue base. The presence of a large
underserved as well as unserved market in the small and micro credit sector has provided the
opportunity to the commercial banks to enlarge their revenue.
This paper highlights ways in which the commercial banks have tried to link with the micro
finance institutions so as to reach the small and micro enterprises in provision of funds. The
paper observes that commercial banks lend directly to the micro finance institutions and
indirectly to the small and micro enterprise through the MFIs.
The study finds that the commercial banks also receive services from the micro finance
institutions which include savings and deposit mobilization among others. The study finds
that in establishing the linkage, commercial banks are faced by challenges like loan
repayment and low interest rate unlike the micro finance institutions whose greatest
challenge is geographical location of the small and micro enterprises.
The study concludes that both categories of institutions are optimistic that there is high
potential in lending to the small and micro credit sector therefore Association of
Microfinance Institutions and commercial banks should establish a structure that will
accommodate both financial and facilitating linkages.
Citation
Masters Of Business Administration (MBA) Degree, University of NairobiPublisher
University of Nairobi School of Business
Description
A management research project submitted in
fulfillment of the requirements of the Degree of
Master of Business Administration, (MBA), School Of
Business, University Of Nairobi