Factors explaining loan default among off farm loan borrowers of microfinance programmes in Kenya. A case study of small scale enterprises in Nairobi, Kenya
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This study was about the causes of loan default among off farm loan borrowers of Microfinance programmes in Kenya.The study was meant to establish factors causing default of loan repayment among off farm borrowers. Although Microfinance programmes in Kenya have been recognized and accepted by the Government and development Agencies as effective tools for poverty alleviation, economic development.jobs creation and industrialization, loan default has been a major setback to these programmes. Generally, loan clients' failure to repay back loans extended to them by Microfinance programmes eventually affects subsequent loan disbursements to the existing and potential loan clients. Loan default problem has brought down many Microfinance programmmes in Kenya. Those programmes which have not collapsed but experiencing loan default problems are unable to grow and develop to be financially sustainable Organizations for their outreach is limited by inadequate loan capital due to defaulted loans.When a Microfinance programme collapse or fail to grow, the efforts of the Government and development promoters to alleviate poverty, economic growth.job creation and hence industrialization are totally affected.The major concern of this study was to find out the main causes of loan default among off farm loan borrowers in Microfinance programmes with an overall aim of proposing measures that can help in controlling and managing loan default in these Microfinance programmes. This research investigated a number of possible themes in relation to the causes of loan default among off farm loan borrowers of Microfinance programmmes such as: a)Institutional related factors b )Borrowers related factors c )Market related factors d)Environment related factors. The study was conducted in Nairobi. A sample size of 114 respondents was drawn using multi-stage cluster sampling procedure and information obtained through the use of interview schedules. Key informants consisting of Microfinance programme loan administrators were also interviewed. The data for the study was obtained from the respondents using interview schedules with both structured and unstructured questionnaires. The collected data was analysed and presented in form of tables, frequencies and percentages. Regarding the social characteristics of the respondents, the study found that 43% ofPAWDEP members were aged between 31 - 40 years, 25% were aged between 41 - 50 years, 19% were aged between 21 - 30 years, 11 % were aged between 51 - 60 years while only 2% were aged 61 and above years. This shows that 68% or majority of PA WDEP members were aged between 31 and 50 years. The study also found that 99% ofPAWDEP members were females while only 1 % of them were men. The Organization's original specific objective was to reach women only hence reason for high number of women than men. The study also establish that 63.1 % of P A WDEP members were married,29% were single, 4.4% were widowed,2.6 % were divorced while 1 % were separated. The study also found that 51.7% of these members had secondary education, 26.3% had college education, and 20.25% had primary education while only 1.8% had university education. The study also found that 78% of these members were in commerce.15% in service and 7% in manufacturing. The same study found that 32.4% of them had 3 dependants, 23% of them had 4 dependants, 17.5% of them had 5 dependants, 16.6% of them had 2 dependants, 4.4% of them had 8 dependants. 3.5% of them had 1 dependant while 2.6% had 6 dependants. Suprisengly, no member ofPAWDED had 7 dependants for reasons the researcher could not tell. In view of the findings of the study, recommendations were given to each of the identified cause of loan default.
University of Nairobi, Kenya