Role of microfinance institutions in financial deepening in Kenya

Abstract

Micro finance continues to play a significant role in the lives of the poor in Kenya by responding to their needs, concerns and voices by providing easy access of financial services. Microfinance is seen as a solution to include on a large-scale previously excluded poorer groups without access to capital into the financial system. The objective of the study was to determine how growth of MFIs has contributed to financial deepening in Kenya. To achieve the objective, descriptive survey was used. The target population comprised 59 MFIs who are members of the AMFI-K. The study adopted a census study approach and used exclusively secondary data. Data was analysed using descriptive statistics. Statistical Package for Social Sciences (SPSS version 21) was used to analyze the data and the findings presented using frequency tables and charts. Multiple linear regression was used to establish the relationship between financial deepening and the predictor variable. The study findings established that MFIs promote financial deepening in Kenya specially because they have contributed to steady increase in the number of depositors; this shows that more people have access to financial services. The study findings further established that gross loan portfolio, number of active borrowers and the returns on assets directly affects financial deepening .This therefore means that both financial growth and increase in outreach affects financial deepening(access) positively. Due to the important role played by MFIs in financial inclusion in Kenya, the study recommends that policymakers should come up with policies that promote the operations of MFIs like regular and mandatory reporting of performance and laws that govern DTMs as well as credit only MFIs. The policies should also be geared towards making financial services more accessible to all Kenyans both women and men .