Determinants of Loan Repayment Default in Micro-finance Institutions in Kenya

Abstract

The purpose of this survey was to determine the loan repayment determinants examine the determinants defaults in MFI(microfinance institutions) in Kenya. Specifically the research sought to establish the effect of lenders, characteristics, borrowers’ characteristics, loan characteristics and business characteristics on repayment of loan default in MFI(microfinance institutions) in Kenya. A CSD(cross-sectional design) was used to collect information from a sampled population which representated a larger population of the study area. The target population of this research study was 49 MFIs operating and registered in Nairobi County in Kenya as per the AMFI-K 2016 Annual Report. These MFIs are regulated and licensed by CBK under the microfinance Act of 2006 and the Microfinance Regulations for Deposit Taking MFIs of 2008. The study used a census method and involved all the MFIs based in Nairobi County. The study applied purposive sampling technique to select one loan officers from every institution and one customer from the MFIs giving a sample size of 98 respondents. Questionnaires were used to gather primary data that was analyzed using regression model and SPSS(statistical package for social sciences software). The study showed that there was a significant relationship between lenders characteristics, borrowers’ characteristics, loan characteristics and business characteristics and loan repayment default in microfinance institutions in Kenya. However, loan characteristics had an insignificant relationship with loan repayment default. It was concluded that there was a significant relationship between lenders characteristics, borrowers’ characteristics, and business characteristics and the repayment of loans among clients in Kenya. The survey saw it fit that MFIs require supervision for the repayment and utilization of loans. MFIs should apply CRM(credit risk management) that is effective and effecientand that ensures that loans are given in a way that their payable by the owners. They should pool together and create a CIB(credit information bureau) to a ct as a reference platform as the loan is disbursed. MFIs should finally apply strict policies loans advancements to make sure their given to those able to pay back and to make sure that insider lending and other moral hazards don't occur.