Relationship Between Outreach and Financial Performance of Deposit Taking Micro Finance Institutions in Kenya

Abstract

The main purpose of the study was to establish the relationship between outreach and financial performance of deposit taking MFIs in Kenya. This study applied descriptive and correlation methods to study using secondary data, where it examined the relationship between outreach and financial performance of Deposit taking MFIs in Kenya whereby both qualitative and quantitative approaches to data analysis was employed. The target population was the nine deposit taking MFIs members in Kenya (the official association of Deposit taking MFIs institutions in Kenya, 2012) registered at end June 2013 at the Central Bank of Kenya (CBK) which supervise the activities of Microfinance sector in Kenya, moreover lending as the analysis on average loan sizes and share of borrowers is on the account. Secondary data was collected for this study. The dataset was drawn from the Financial Statements of each of the deposit taking MFI under study throughout the period of study 2009 to 2013 and sourced from the Management of the institutions. Quantitative data collected was analyzed by the use of descriptive statistics using SPSS and presented through percentages, means, standard deviations and frequencies. The study established the relationship between outreach and financial performance of microfinance sector in Kenya is determined by average loan size, net borrowers and hence yielded a positive significant relationship to outreach. A strong positive relationship was also established between outreach and financial perfomance of the DTMFIs as result of the effort put in place by the MFIs in extending loans and financial services to draw an even more wider audience. The study further broke down the MFIs sample into two segments based on their size to assess whether there were any differences in the response of outreach to the explanatory variables between the largest MFIs (Top-tier) and their relatively smaller counter parts (bottom-tier) in terms of customer lending base. In the case of the top-tier MFIs, relative performance to industry ROE and net number of new borrowers were found to be positively and significantly related to outreach. The study between outreach and financial performance of DTMIs established positive relationship thus more training should be offered to the clients who are being serviced with loans; use of outreach to draw a more wider audience and policies to be put in place to weed out fraudsters. The study recommended that more training should be offered to the clients who are been serviced with loans; use of outreach to draw a more wider audience and policies to be put in place to weed out fraudsters.