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Influence of micro economic factors on financial sustainability of informal finance groups in Kiharu constituency-Kenya

Author

Listed:
  • Emily Kawira

    (Scholar & Senior Accountant KPLC Lecturer, Karatina University, Kenya)

  • Richard Kiai

    (Scholar & Senior Accountant KPLC Lecturer, Karatina University, Kenya)

  • Esther Maina

    (Scholar & Senior Accountant KPLC Lecturer, Karatina University, Kenya)

Abstract

This article considers the influence of macro-economic factors as integrated factors in financial sustainability of Informal Finance Groups. Informal Finance Groups (IFGs) have become critical in poverty eradication around the world in enhancing access to finance. Despite acknowledgement of this fact, IFGs have been faced with financial constraints as a result of micro factors that affect them. This puts the financial sustainability of the IFGs at risk. In this study, financial instability in informal finance groups iscaused by these factors: loan pricing and loan repayment period. This study required to examine the connection between macro-economic factors and financial sustainability of informal finance groups in Kiharu Constituency in Murang’a County. Both primary and secondary data were collected. Findings indicate that there is relationship between macro-economic factors and financial sustainability of informal finance groups. The R value of 0.238 portrayed a positive linear relationship between the loan pricing practices and financial sustainability of Informal Finance Groups, and the R value of 0.354 portrayed a positive linear relationship between the loan repayment period and financial sustainability of Informal Finance Groups. Therefore,the study concluded that the macro-economic factors have an influence on financial sustainability of informal finance groups. The study recommends that the IFGs should devise a standard criteria for optimal pricing of loans to avoid charging exorbitant rates which worsen the poverty situation of the rural residents. Further, the IFGs should also set up loan monitoring systems in place to avoid diversion and defaults. Key Words:Macro-economic, Financial Sustainability, Informal Finance Groups

Suggested Citation

  • Emily Kawira & Richard Kiai & Esther Maina, 2020. "Influence of micro economic factors on financial sustainability of informal finance groups in Kiharu constituency-Kenya," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 9(1), pages 88-93, January.
    • Handle: RePEc:rbs:ijbrss:v:9:y:2020:i:1:p:88-93
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    References listed on IDEAS

    as
    1. Beatriz Armendáriz & Jonathan Morduch, 2010. "The Economics of Microfinance, Second Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262014106, April.
    2. Deininger, Klaus & Liu, Yanyan, 2009. "Determinants of repayment performance in Indian micro-credit groups," Policy Research Working Paper Series 4885, The World Bank.
    3. World Bank, 2014. "Global Financial Development Report 2014 : Financial Inclusion," World Bank Publications - Books, The World Bank Group, number 16238.
    4. World Bank, 2018. "World Development Report 2018 [Rapport sur le développement dans le monde 2018]," World Bank Publications - Books, The World Bank Group, number 28340.
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