The effect of lending technologies on the financial performance of micro finance institutions in Nairobi county

Abstract

Microfinance has been regarded as one of the most promising means to alleviate poverty around the world. As the Kenyan economy grows, the need of credit for individuals and small business expansion grows like wise. Microfinance Institutions have been lending to very few individuals and small medium enterprises while side lining the rest due to perceived risks in small business financing. The objective of the study was to determine the effect of Lending technologies on financial performance of Microfinance Institution in Nairobi. The study adopted the Descriptive Design and applied both multiple regression models on both primary and secondary data to determine the effect of lending technologies on performance of Microfinance Institution in Nairobi. The Asset based lending, Financial statement lending, Small business rating system and Relationship lending were used as independent variables. Financial performance was used as dependent variable. The population of this study comprised of 30 Microfinance Institutions in Nairobi and data was analyzed using SPSS. According to the regression equation established, taking all variables constant at zero, ratio of financial performance will be 0.063%. At 5% level of significance and 95% level of confidence, the researcher established that the collinearity statistics of asset based lending had a tolerance factor of 0.525, financial statement lending had tolerance factor of 0.484, small business rating system toler performance with an adjusted R2 of 0.207. This means that 20.7% of variation in the dependent variable in the regression model is due to independent variables while 61.3% are due to standard error of estimate. The F- Statistics of 0.141 was also significant. The model was therefore considered robust or fitted well to the actual data of the variables. There is need for the Government to initiates measures that will control the choice of lending technologies in Kenya. The study further recommends that there is need for the microfinance institutions to initiate policies that will control the type lending technology which is appropriate for them to operate efficiently.