Evaluation of the Effect on Conversion From Non Deposit Micro Finance Institutions to Deposit Taking Institutions on Financial Performance in Kenya

Abstract

The study aimed at evaluating the effect on conversion from non deposit micro finance institution to deposit taking institutions on financial performance in Kenya. DTM is a microfinance institution that deposits as day-to-day basis and any other activity of the business financed wholly or to a material extend. With the conversion the MFIs shall be able to reach their full potential by enhancing deposit mobilization which is in accordance to vision 2030.The study focused on the fully converted DTMs which included Faulu Kenya, Kenya Women Finance Trust, Smep and Uwezo. One year before conversion and one year after conversion. In the analysis and evaluation of the determinants of financial performance were analysed by use of the two ratios R.O.A and R.O.I .This sought to determine the DTM efficiency by use of its assets while the institutions competitiveness and sustainable growth was determined by use of equity.The finding of the study shows decrease in R.O.A and R.O.I for Faulu Kenya and K. W.F.T indicating that there is fluctuation of the net income or interest margins as a result of the increased cost of operation and infrastructural cost. Therefore a high R.O.A and R.O.I is needed for the institution to attract private capital. SMEP showed increase in R.O.A and R.O.I which could be as a result of financial funds received from national and international organizations. The study concludes that micro finance has been an important tool in poverty alleviation, empowerment of women and in bringing about financial inclusion. There exists a great opportunity for the microfinance sector to provide credit to the low income population thereby reducing poverty and thus in the development of the country as a whole. Although the micro finance sector has reported an impressive growth, with the ordinances v passed by the government, there IS lack of capital for some of the microfinance institutions in the country. The study recommends that micro finance institutions have faced a lot of issues about its performance and sustainability. Microfinance institutions have been viewed as an important tool in poverty alleviation and financial inclusion. It is an important sector which would improve the living conditions of the poor and lead to the development of the country. Some of the issues faced by microfinance institutions include high interest rates, multiple lending, coercive methods of recovery and lack of transparency.