The relationship between financial literacy and loan performance amongst customers of deposit taking microfinance institutions in Kajiado county

Abstract

Depositing Taking microfinance institutions (DTMFs) have become important players in the Kenya economy, but at the same time they continue to face constraints that limit their loan performance. Financial literacy among their clientele is the one of the main constraint, and a number of factors have been identified to explain this problem. These include age, borrowers’ perception on repayment period, fines and penalties. This study sought to find out whether there is a relationship between financial literacy and loan performance among customers of deposit taking microfinance institutions in kajiado county, Kenya. The study employed descriptive analysis as well regression analysis to analyze data. The target population was DTMFs clientele in the six DTMFs in Kajiado County. Stratified sampling of clientele in the six DTMFs in Kajiado County was done based on the type of DTMFs they bank. A sample of 217 of DTMFs clientele within Kajiado County was selected for the study. Quantitative data was analyzed with the use of statistical package for social sciences (SPSS). Descriptive analysis as well as regression found that there was a negative relationship between financial literacy and loan performance .The study recommends that DTMFs should have loan systems in place to monitor and administer loan defaulters.