| dc.description.abstract | Since the introduction of banking services and in particular lending, banks in Kenya have
been offering loans against collateral to their customers. The requJrement of an asset
locked out a large number of potential clients who did not have collateral but rather had
the ability to repay the loans using their salary. In line with financial innovation, the
banking industry in Kenya has in the recent past introduced financial instruments and
processes in order to respond to the changing environments and customer needs. One of
the financial products introduced is the unsecured personal loan which the banks can lend
clients on the basis of their employment salary. The objective of this study was to
establish the features of unsecured personal loans and their implications on personal
finances. A better understanding of these issues will allow for better planning and
decision making by potential borrowers as well as provide for a safe and sound financial
environment.
The study targeted unsecured personal loan borrowers in 3 large institutions, namely the
University of Nairobi, Kenyatta National Hospital and Kenya Airways Ltd. A sample
survey design was used for the study due to the limitation of time and the large number of
existing unsecured loan borrowers.A random sample of 150 employees from these
institutions was used for the survey. Questionnaires were distributed through the
companies' human resources department and payroll office where together with an
introductory letter they were attached to 50 pay slips at random. Responding to the
questionnaires was voluntary. Data was also collected through the use of financial
publications to find out the features of unsecured personal loans. A response rate of 67%
was achieved from the number of questionnaires issued to respondents. Data analysis
employed the use of tables and percentages for collation and summarization of data
gathered as well as graphs for data presentation.
The findings of the study showed that personal unsecured loans are developed to finance
client's personal needs. They have a determined maximum repayment period, interest
rates and amount depending on the bank offering the loan. The amount that can be
offered to a client depends on one's salary capability and banks have different methods to
determine the maximum amount that a client can qualify for. The results of the study
showed that most respondents purchased vehicles, shares in the stock market and took
study loans. The findings of the study also showed that there was a general decline in
personal net worth and net cash flow and thus a negative effect on personal finances for
borrowers. | en |
