Factors influencing sustainability of microfinance institutions in Kenya
Githinji, Beatrice W
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The study sought to establish the factors that influence sustainability of microfinance institutions (MFIs) in Kenya and to establish the direction of such influence on financial sustainability of MFIs. The challenges facing MFIs were also sought. A descriptive survey design was used. The population of interest in this study consisted of all the 30 microfinance that operate within Nairobi. Since the study was a survey and the number in the population was not so large, all the 30 MFIs operating in Nairobi were selected for the study. This study was facilitated by the use of both primary and secondary data. Primary data were collected from the managers of the institutions using structured questionnaires. The questionnaires collected data on the factors influencing sustainability of MFIs in Kenya and on challenges facing MFIs. A pilot test was used to test validity and reliability of data collection instruments on a sample of microfinance firms outside Nairobi. The results of the pilot survey were used to amend the questionnaires appropriately. The questionnaires were administered using the drop and pick method. Secondary data helped in calculating the financial sustainability. Operational sustainability, as component of financial sustainability measurement, was measured using return on assets (ROA) and return on equity (ROE). This information was found from the financial statements of various MFIs selected for the study. The data obtained from the questionnaires were grouped into different classes and analyzed using factor analysis to show magnitude of influence of the variables on the sustainability of the institutions. Regression analysis was also run to establish the direction of influence of each of the factors on financial sustainability. The results revealed that majority of microfinance institutions in Kenya are below the market mean sustainability as measured by both the return on assets as well as the return on equity. The study found that the average size of savings had a positive influence on return on assets and that this relationship was positive. The rest of the variables did not have a significant influence on either ROA or ROE. On the challenges, the study found that the major challenges facing microfinance institutions in Kenya are funding, repayment default and government regulations. Low profits and number of clients were not found to be major challenges facing the sector. The study therefore concludes that majority of microfinance institutions in Kenya are not financially sustainable if measured by the return on assets or return on equity. It is also concluded that the most significant factor that influenced sustainability of microfinance institutions in Kenya is the size of savings. The study further concludes that the major challenges facing microfinance institutions in Kenya re funding, repayment default and government regulations. The study recommends that the microfinance institutions in Kenya need to work on being financially sustainable. The study also recommends that since the levels of sustainability are positively influenced by the average size of savings, the microfinance institutions need to explore ways of increasing ember savings. It is also recommended that since there are a couple of challenges facing MFIs in Kenya especially in terms of funding, repayment default and regulations. There is need to carry out further research in Kenya on sustainability of microfinance institutions. An angle which should be explored by future researchers is the relationship between outreach and financial sustainability of microfinance institutions.
University of Nairobi