Micro finance institutions: an analysis of the socio-cultural factors in loan repayment in mathira division, nyeri district, kenya.

Abstract

This study investigates the role of socio-cultural factors in loan repayment among the Kikuyu of Nyeri district in Kenya. This is based on the premise that loan groups, being embedded in the local culture of the community they operate in, bring numerous local institutions into the microfinance arena. These institutions influence the administration and management of these groups in terms of formation, leadership, loan repayment as well as their survival.

The objectives of the study are therefore to establish the power hierarchy within microfinance loan groups, to examine the socio-cultural sources of power and exercise within the group and to investigate the effects of these factors on loan repayment. The study makes use of both the social capital theory and New Economic Sociology paradigm as the theoretical framework. Data was collected from both primary and secondary sources. This was based on field interviews with borrowers, non-borrowers and loans officers in Mathira Division. Relevant literature on microfinance was also reviewed.

The study findings show that socio-cultural factors affect participation, loan repayment, leadership and the survival of the groups. In the first place, social hierarchy in society influences aspects of group formation, savings and even •loan repayment in MFI loan groups. Secondly, that the problem of unsatisfactory repayment rates is much more than a problem of poor economic conditions, rather a product of the intervention of various socio-cultural factors. Thirdly, that the exercise of power within the group does indeed influence leadership and group survival, whereby poor leadership it was concluded constitutes a barrier to the survival of any group.

The study recommends training of borrowers on financial management as a way of lessening the occurrence of default. Partnership needs to be encouraged between the borrowers and lenders for effective flow of information between loan groups as well as between MFIs. Greater community participation in microfinance is important as a means to overcoming the challenge of capital f01111ation,at the local level. Finally, there is need for further research to examine the means of appropriately incorporating cu Iture into savings -a_nd credit groups with a view to strengthen loan repayment.