Factors Influencing the Establishment of Micro-finance Schemes in Kenya

Abstract

The purpose of this study was to determine the major factors that influence the establishment and sustainability of micro finance schemes in Kenya. The study was guided by the following research questions: (1) What policies regulate micro finance Schemes in Kenya? (2) What are the major implementation issues affecting micro finance schemes in Kenya? (3) What are the major factors affecting the sustainability of micro finance schemes in Kenya? Primary data were collected from thirty micro-finance institutions in Nairobi, Kenya. The institutions included Kenya Women Finance Trust (KWFT), Faulu Kenya, Pride-Africa and Kenya Rural Enterprise Program (K-REP) among others. Structured questionnaires were administered to the managers and the program administrators in these institutions. The findings of this study revealed that there were no clear policies regulating micro finance institutions (MFIs) in Kenya. The findings indicated that most micro finance institutions were registered under different Acts of Parliament. The findings also revealed that some of the MFIs had more than one registration while others had not been registered at all. On implementation issues, the results indicated that the most commonly implemented MFI design was the solidarity group. However, few MFIs were extending loans to individuals. Most MFIs were taking deposits to cushion the risks associated with non-repayment of loans. With regard to sustainability, the study revealed that there were a few MFIs which had attained financial sustainability as a result of their sound financial cost control and provision of quality portfolios. However, a number of MFIs had not attained financial sustainability and were relying on subsidies from donor