Factors Affecting Loan Repayment Performance By Youth In Kenya: A Case Study Of Youth Enterprise Development Fund Between 2008 And 2011

Abstract

This study was conducted to determine factors affecting loan repayment performance among youths who were beneficiaries of the Youth Enterprise Development Fund (YEDF) scheme, through partner financial institutions (FIs). The YEDF is one of the key initiatives of the Government of Kenya under the social pillar of the Vision 2030. The YEDF is mandated to economically empower the Kenyan youths through credit provision, enterprise development, market access and linkages, commercial infrastructure and labour export. The credit mandate of the YEDF constitutes 80% of its youth empowerment programmes. After its establishment and launch in 2006, the YEDF developed the FI loan on lending component. Thirty-two (32) FIs were selected and contracted to disburse the Youth Fund loans to the deserving youths across the country. However, initial reports presented to YEDF by some of these FIs between 2009 and 2010, depicted a very' disturbing scenario where loan repayment rates registered by FIs falling under the categories of SACCOs and NGOs (an average of 65%) were below the rate accepted by the Association of Micro Finance Institutions in Kenya (AMFI) - 95% repayment rate. It is from the above background that the study set to not only provide empirical results on factors affecting loan repayment performance, but also present policy recommendations on how the YEDF can be sustained as a revolving fund. We employed probit regression on data from 400 youth beneficiaries randomly selected from six purposively sampled FIs partner with YEDF. Estimation results show that age of a youth, nature of business in which a loan was invested, and loan type were not statistically significant in determining the probability of loan repayment performance (default). Regarding the finding on the nature of business (whether subsistence or commercial), loan type (initial or refinance), the study recommends appropriate business training, and proper follow-up to ensure necessary business advisory and support services are availed to overcome any eminent challenges. Given the findings of this study, we recommend that provision of essential business training and provision of smaller loans for business start-ups coupled with balancing the gender of loan beneficiaries and execution of adequate business follow-up should be key to ensure better loan repayment performance. Policy makers should ensure that these well integrated within loan/credit administration and management mechanisms. Key Words: Loan repayment performance, partner FIs, loan default, on lending, leverage financing, business training, economic empowerment, sustainability