Relationship Between Outreach and Financial Performance of Deposit Taking Micro Finance Institutions in Kenya
Abstract
The main purpose of the study was to establish the relationship between outreach and
financial performance of deposit taking MFIs in Kenya. This study applied descriptive
and correlation methods to study using secondary data, where it examined the
relationship between outreach and financial performance of Deposit taking MFIs in
Kenya whereby both qualitative and quantitative approaches to data analysis was
employed. The target population was the nine deposit taking MFIs members in Kenya
(the official association of Deposit taking MFIs institutions in Kenya, 2012) registered at
end June 2013 at the Central Bank of Kenya (CBK) which supervise the activities of
Microfinance sector in Kenya, moreover lending as the analysis on average loan sizes and
share of borrowers is on the account. Secondary data was collected for this study. The
dataset was drawn from the Financial Statements of each of the deposit taking MFI under
study throughout the period of study 2009 to 2013 and sourced from the Management of
the institutions. Quantitative data collected was analyzed by the use of descriptive
statistics using SPSS and presented through percentages, means, standard deviations and
frequencies. The study established the relationship between outreach and financial
performance of microfinance sector in Kenya is determined by average loan size, net
borrowers and hence yielded a positive significant relationship to outreach. A strong
positive relationship was also established between outreach and financial perfomance of
the DTMFIs as result of the effort put in place by the MFIs in extending loans and
financial services to draw an even more wider audience. The study further broke down
the MFIs sample into two segments based on their size to assess whether there were any
differences in the response of outreach to the explanatory variables between the largest
MFIs (Top-tier) and their relatively smaller counter parts (bottom-tier) in terms of
customer lending base. In the case of the top-tier MFIs, relative performance to industry
ROE and net number of new borrowers were found to be positively and significantly
related to outreach. The study between outreach and financial performance of DTMIs
established positive relationship thus more training should be offered to the clients who
are being serviced with loans; use of outreach to draw a more wider audience and policies
to be put in place to weed out fraudsters. The study recommended that more training
should be offered to the clients who are been serviced with loans; use of outreach to draw
a more wider audience and policies to be put in place to weed out fraudsters.