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Factors Affecting Loan Default In Microfinance Institutions In Kirinyaga County

Author

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  • Cyrus Munyua

    (Karatina University)

Abstract

Many rural credit schemes and especially women groups, have sustained heavy losses because of loan Default. This has been in the public domain but little has been done because women groups are registered as social welfare groups which are not regarded as financial institutions or not registered at all and therefore not under the control of Central Bank of Kenya, or the Micro finance regulatory body. The main objective of this study was to find out the factors affecting of loan default in micro finance institutions in Kirinyaga County.It was also worth noting that Microfinance institutions are of two categories i.e. Formal and informal. Formal are those MFI?s which are registered as under the legal and regulatory frameworks, while the informal MFI?s are unregistered and operate like shylocks. This study concentrated on the formal MFI?s in investigating the factors affecting loan default among MFI?s in Kirinyaga County as a dependent variable, whereas the independent variables under this study were: Loan collection procedures, Loan diversion, financial management practices and the amount of loan borrowed by members of women groups affiliated to MFI?S under this study. A target population of 300 employees was used in the study. A sample of 30% was estimated to be picked using simple random sampling for each stratum, which enabled every member of the population have an equal and independent chance of being selected as respondents and also simplest, most convenient and bias free selection method. The data was collected by use of structured and semi-structured questionnaire. The data was then analyzed from questionnaires using both quantitative and qualitative techniques and tabulated by use of frequency tables. The study was intended to find out the factors affecting loan default in MFIs in Kirinyaga County. From the findings, the researcher recommends that strong policies should be implemented in micro-finance institutions for them to do away with the problem of loan default by borrowers. The institutions should put up efficient loan collection procedures which are easy to follow for both the employees and the borrower, also there should be avoidance of loan diversions, efficiency in financial management and the amount of loan borrowed should be strictly monitored and evaluated by the micro finance institutions from time to time.

Suggested Citation

  • Cyrus Munyua, 2016. "Factors Affecting Loan Default In Microfinance Institutions In Kirinyaga County," International Journal of Business and Management, International Institute of Social and Economic Sciences, vol. 4(3), pages 37-71, August.
    • Handle: RePEc:sek:jijobm:v:4:y:2016:i:3:p:37-71
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    References listed on IDEAS

    as
    1. Harold L. Cole & Patrick J. Kehoe, 1997. "Reviving reputation models of international debt," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 21(Win), pages 21-30.
    2. Joanna Ledgerwood, 1998. "Microfinance Handbook: An Institutional and Financial Perspective," World Bank Publications - Books, The World Bank Group, number 12383.
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    More about this item

    Keywords

    Loandefault; microfinance institutions; Kirinyaga County; financial management; Grameen Model;
    All these keywords.

    JEL classification:

    • M00 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - General - - - General

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