Impact of Microfinance awareness in Kenya

Introduction

Background of the Study

The need for development that saw the Kenya develop several strategies and plans such as the vision 2030 and the millennium development goals has led to development of the finance sector. The need for financing of the development projects has developed microfinance institutions in the country. Microfinance has received a lot of attention since its inception in the early 1970s perhaps, as argued by Okiocredit (2005: 30-32), due to the ability of microfinance to enable poverty alleviation and economic development through provision of credit and savings services to those earning low income.

The attention has seen development of different definitions to microfinance. According to Otero (1999: 8) microfinance is “the provision of financial services to low-income poor and very poor self-employed people”. On the other hand, Schreiner and Colombet (2001: 339) define microfinance as “the attempt to improve access to small deposits and small loans for poor households neglected by banks.” Independent of the definition provided to microfinance it is a general agreement in the economic field that micro financing alleviates economic development.

The money or funds that are provided by microfinance institutions in terms of credit and micro loans enables those who are poor to invest into productive activities that are bound to earn them income helping them boost their economic level and alleviate poverty in the entire economy. Microfinance institutions therefore are an opportunity for sustainable development.

The extent opportunities available to generate income and the ability of citizens to respond to the available opportunities are to a large extent determined by the degree or ability to access financial services that are affordable. Microfinance being able to provide such financial services is being pursued by every economy worldwide. Initially microfinance aimed at providing donor finances and financing experimental projects. This has developed to financial institutions that provide a wide range of services and several routes to opportunities that are significant for economic development and expansion (Khan, 2005:131-142).

The concept of microfinance in most instances has been used interchangeably with microcredit imploring that they have the same meaning. However microcredit and microfinance are two different concepts. In an attempt to describe the difference between microcredit and microfinance, Sinha (1998: 2) states that, “microcredit refers to small loans, whereas microfinance is appropriate where non-governmental organizations (NGOs) and microfinance institutions (MFIs) supplement the loans with other financial services (savings, insurance, etc)”.

This definition indicates that microcredit is part of microfinance since it involves providing credit to the poor. Microfinance is an overall concept as it involves both credit and non-credit financial services such as insurance, savings, pensions and other payment services. Microfinance institutions, given the nature of their objective of ensuring that the prop are able to access financial services, operate in several models.

The most commonly identified models of operations of microfinance institutions include the Rotating Savings and Credit Association (ROSCAs), the Grameen Bank and the Village Banking models. Rotating Savings and Credit Association are formed when a group of individuals come together and form an agreement to make regular cyclical contributions with an aim of developing to a common fund. After some period of specified time the lump sum of the contributions is given to one member of the group in each cycle.As argued by Schreiner (2010: 112-119), this model is a very common form of savings and credit. The solidarity group model is based on based on group peer pressure. Loans are made available to individuals who are in organized groups of four to seven peoples (Berenbach and Guzman, 1994: 119).

The advantage of being in groups is that the members collectively guarantee loan repayment. They are therefore able to access subsequent loans depending on successful repayment by all group members. These payments are usually made after a specific period of time, usually one week (Ledgerwood, 1999: 137). This model of micro financing is the most commonly used by banks. It has proven to be more effective in the long run as there are few loan defaulters as each member of the group is a guarantor of the other.

Berenbach and Guzman (1994: 119-139) argues that, solidarity groups have proved effective in deterring defaults as evidenced by loan repayment rates attained by organizations. Village banking model are based on village banks which are normally community-managed. The banks are established and managed by credit and savings associations established by NGOs to provide access to financial services, build community self-help groups, and help members accumulate savings (Schreiner, 2003: 118–136). This is perhaps the oldest model of micro financing, considering their formation in the mid-1980s. Usually these village banks normally consist of 25 to 50 members who majorly low-income earning individuals are seeking to improve their lives through self-employment activities.

In Kenya, the need for economic development has seen the development of micro finance institutions which in normal cases start as Chamas. Chamas are small groups of individuals, who come together, collect money in a pool through continuous contributions with an aim of accomplishing an investment objective. According to Onumah (2002), the development of Chamas has led to the development of banks in Kenya.

For example, equity bank developed from a micro finance institution where its major purpose was to help customers get mortgage loans for individuals who are low income earners in the society. It was initiated as equity building society (Coetzee, Kamau and Andrew, 2003). There has been other current deposit taking microfinance institutions in Kenya such as Rafiki and Jammii Bora who are also in the same path. The rapid development of micro finance institutions in Kenya has helped the country develop economically with the current rate standing at 5% improvement annually(CGAP, 2004). This has shown that there are several impacts of the financial institutions to the economy.

There are also business that were majorly part of the institutions that have flopped in the economy. Independent of the connection of economic development to these financial institutions many Kenyans residents are not members of the microfinance institutions, let alone being aware of their existence (Kodhek, 2003). It is in line with this background that the study wishes to determine the level of awareness and impact on microfinance institutions among the residents of Nairobi County.

Statement of the Problem

Microfinance institutions have been identified to be the major component to economic development. In her study on Rural Financial Services in Kenya: What is Working and Why? Betty (2006) possess that micro financing institutions have in a large extent helped the development of the Kenyan rural community; “microfinance institutions will continue serving the rural people and will transform themselves into community based micro-credit units. This will most likely reduce unemployment in the rural areas”.

Development practitioners and policy makers have as well identified efficient microfinance services as important for a variety of reasons; helping the poor manage their risks, build their assets, enhance their income earning capacity, be able to develop small enterprises to generate income, and these in turn will ensure improved life.

Microfinance has also positive impacts on poverty alleviation and specific economic indicators such as nutrition status, women empowerment and children schooling. Despite the several merits attributed to micro financial services, the level of poverty in Kenya is still high with 40% of Kenyans leaving below a dollar, businesses are performing poorly and this is indicated by the slow economic development of below 5%, many Kenyans are still not members of any microfinance institution.

This may be attributed to lack of information on the positive impacts of micro financing and the lack of awareness by the general public on the existence of microfinance institutions and the services such institutions offer. Few studies have been done in Kenya revolving around microfinance. However none of these studies provide direct information on the impacts of microfinance institutions in Kenya.

Mjomba (2011) studied micro-finance in Kenya by specifically considering micro finance on financial empowerment of women in Kenya. This study though identified the impact of micro financing as empowering women positively, it majored on Kenya Women Finance Trust and was also bias to women only. Therefore it lacked evidence on other impacts of microfinances in Kenya. A similar study by Joy (2007) majored on the impact of microfinance on rural development with a setting of Makueni County.

Although this study was a great milestone to the studies on the field of impact of micro financing services, it narrowed down to poor households, income and poverty eradication. The setting was also rural. This study therefore lacks enough evidence to ascertain the awareness and impacts of microfinance in Kenya. Therefore, we remain unable to judge the validity of this tentative explanation. That is, there remains insufficient empirical evidence to assess this claim. Several questions therefore remain unanswered.

Who largely benefit from micro financing services? What is the level of awareness of microfinance services in Kenya? What are the impacts of microfinance in Kenya? What strategies are employed by microfinance institutions to ensure they meet their objectives? What kinds of policy questions do these findings raise for microfinance institutions and for national government? This study proposed to interrogate the data that was collected in residents of Nairobi County in relation to these broad questions that are emerging around the issue of awareness and impacts of microfinance in Kenya, and suggests areas of purposeful focus for policy attention.

Research Questions

• What is the level of awareness of Nairobi County residents on microfinance institutions and the services they offer?
• What are the impacts of microfinance to Nairobi County residents?

Hypothesis

• Nairobi County residents are unaware of microfinance institutions within the county and the services such institutions offer
• Microfinance has positive impact to economic and social development of Nairobi County residents

Significance of the Study

To the government

In line with the ability of micro financing services to ensure economic development by providing savings and credit to low income earners, the government has been pushed to support the development of microfinance institutions. This has seen a lot of investment by the government in providing financial support to the microfinance institutions. The information from this study on the impact of microfinance may help the government in determining the viability of their investments.

Microfinance institution’s management

The microfinance institutions are formed with the objective of ensuring that low income earners have access to financial services. There are several Kenyans who fall under the bracket of low income earners. Microfinance institutions aim at ensuring that all these citizens who are low income earners are catered for in terms of provision of financial services. It is therefore necessary for the institutions to understand the perceptions of the citizens on the impact of the microfinance services they are offering and the level of awareness of the public on the existence of microfinance institutions and their services. This information may be used by the management of the microfinance institutions in determining areas for improvement so as to ensure their success.

Academicians/ researchers

Little research has been done in sub-Saharan Africa to directly identify the impacts of microfinance. Considering the benefits attributed to microfinance institutions in economic development and the rapid development of these institutions, impact of microfinance has received attention of researchers and academicians. Therefore a study on the awareness and the impact of microfinance in Kenya, with major focus on Nairobi County, may therefore attract researchers and academicians who are in need of educating more and providing solutions to lack of access to financial services in sub-Saharan Africa. The information from the study will also form basis for literature for other researchers and academicians who are willing to carry out studies in the same field in Sub Saharan Africa. Next, the study will be a starting point for further studies on microfinance in Kenya.

Scope of the Study

The study was carried out in Nairobi County. The respondents included the Nairobi County residents. Data was collected from the Nairobi residents who formed the population of the study, with an aim of determining their level of awareness to microfinance in Kenya and the impacts of microfinance in Kenya.

Assumptions of the Study

The researcher made the following assumptions regarding this study:

• Respondents answered the survey questions about the awareness and impacts of microfinance truthfully.
• Respondents were familiar enough with the microfinance services to answer the survey questions.
• The researcher expected the entire exercise to move on smoothly relying on the maximum cooperation of all those who were involved.

That the sample properly represented the population, the data collection instruments had validity and measured the desired parameters and that the respondents truthfully and correctly answered the questions.

Limitations of the Study

Limitations are potential weaknesses or problems with the study identified by the researcher. The limitations often relate to inadequate measures of variables, loss or lack of participants, small sample sizes, errors in measurement, and other factors typically related to data collection and analysis. These limitations are useful to other potential researchers who may choose to conduct a similar or replication study (Creswell, 2005). The limitations of this study include;

• The study involved the perception of residents on the impacts of microfinance. The data was collected from individuals who are self-reporting their perceptions.
• Perceptions of those who participated are not factual information and are biased based on the respondent’s own experiences and attitudes.
• The geographical expanse of the study area, inadequate financial resources and time constraints also reduced the chances of contacting more respondents.

These limitations were mitigated by making sure that, there is purposive sample selection, piloting and careful scrutiny of the perceived parameters of measurement in the microfinance institution, population and sample.

Delimitations to the Study

Delimitation narrows the scope of the study. The follow were delimitations of this study:

• Participation in this study was voluntary.
• The population was limited to microfinance institutions in Nairobi County
• Respondents involved in the study were from the same large urban area
• There could be other impacts of microfinance that may not be exclusively addressed in this study.

The study was bound to have a reasonable degree of success because the population and the sample are readily available in Nairobi County. The use of the SPSS programme in analyzing the collected data was helpful in making reasonable deductions. Some of the respondents’ concerns connected with the impacts of microfinance were quantitatively measured and appropriate records made. Such parameters included number of people registered with the microfinance institutions and the number of microfinance institutions within the county.

Definition of terms

Microfinance Otero (1999: 23) defined microfinance as the provision of financial services to low income poor and very poor self-employed people. On the other hand Schreiner and Colombet (2001:339) argues that microfinance is generally the attempt to improve access to small deposits and small loans for poor households which have been neglected by banks. Microfinance in this study is the concept by which financial institutions avail savings and credit opportunities to the poor or those who cannot access bank services.

THE LITERATURE REVIEW AND THEORETICAL FRAMEWORK

 Definition of microfinance

Microfinance is a form of financial development that has primarily focused on alleviating poverty through providing financial services to the poor people in the country (Sinha, 2008). Most people view microfinance as being about micro-credit i.e.it is involved in lending small amounts of money to the poor in order to uplift their living standard. Microfinance is not only this, but it also has a broader perspective which also includes insurance, transactional services, and importantly, savings (Brenna, 2008).

According to Schreiner (2010), microfinance is a bit of a catch all-term. In the broad perspective, it refers to the provision of financial products which are usually targeted at low-income groups. These financial services include credit, savings and insurance products. A series of neologisms has emerged from the provision of these services, name micro-credit, micro-savings and micro-insurance. The Canadian International Development Agency (CIDA) defines microfinance as, the provision of a broad range of financial services to poor, low income households and micro-enterprises usually lacking access to formal financial institutions (Graheen, 2000).

Microcredit, or microfinance, is banking the unbankables, bringing credit, savings and other essential financial services within the reach of millions of people who are too poor to be served by regular banks, in most cases because they are unable to offer sufficient collateral. In general, banks are for people with money, not for people without.” (Oikocredit, 2004)

Characteristics of microfinance

Microfinance gives access to financial and non-financial services to low-income people, who wish to access money for starting or developing an income generation activity. The individual loans and savings of the poor clients are small (Kodheka, 2003). Microfinance came into being from the appreciation that micro-entrepreneurs and some poorer clients can be ‘bankable’, that is, they can repay, both the principal and interest, on time and also make savings, provided financial services are tailored to suit their needs. Microfinance as a discipline has created financial products and services that together have enabled low-income people to become clients of a banking intermediary.

The characteristics of microfinance products include:

• Little amounts of loans and savings and short- terms loan (usually up to the term of one year).
• Payment schedules attribute frequent installments (or frequent deposits) and Installments made up from both principal and interest, which amortized in course of time.
• Higher interest rates on credit (higher than commercial bank rates but lower than loan-shark rates), which reflect the labor-intensive work associated with making small loans and allowing the microfinance intermediary to become sustainable overtime.
• Easy entrance to the microfinance intermediary saves the time and money of the client and permits the intermediary to have a better idea about the clients’ financial and social status.
• Application procedures are simple and short processing periods (between the completion of the application and the disbursement of the loan).
• The clients who pay on time become eligible for repeat loans with higher amounts and the use of tapered interest rates (decreasing interest rates over several loan cycles) as a n incentive to repay on time. Large size loans are less costly to the MFI, so some lenders provide large size loans on relatively lower rates.
• No collateral is required contrary to formal banking practices. Instead of collateral, microfinance intermediaries use alternative methods, like, the assessments of clients’ repayment potential by running cash flow analyses, which is based on the stream of cash flows, generated by the activities for which loans are taken.

Micro finance services

Micro finance Services refer mainly to small loans; savings mobilization and training in micro enterprise investment services extended to poor people to enable them undertake self employment projects that generate income (Onuaman, 2002). Micro finance came into being from the appreciation that micro entrepreneurs and some poorer clients can be ‘bankable’, that is, they can repay both the principal and interest, on time and also make savings, provided financial services are tailored to suit their needs (Coetze, 2003)).

Micro finance is perceived as the provision of financial and non financial services by micro finance institutions (MFIs) to low income groups without tangible collateral but whose activities are linked to income generating ventures (Sinha, 2008). These financial services include savings, credit, payment facilities, remittances and insurance. The non-financial services mainly entail training in micro enterprise investment and business skills. There is also a belief that micro finance encompasses micro credit, micro savings and micro insurance (CGAP, 2004).

Micro finance is not a new development. Its origin can be traced back to 1976, when Muhammad Yunus set up the Grameen Bank, as experiment, on the outskirts of Chittagong University campus in the village of Jobra, Bangladesh. The aim was to provide collateral free loans to poor people, especially in rural areas, at full-cost interest rates that are repayable in frequent installments. Borrowers were organized into groups and peer pressure among them reduced the risk of default (Khan and Rahaman, 2007).

In many cases, basic business skill training should accompany the provision of micro loans to improve the capacity of the poor to use funds (UN, 20005). Micro financing should addresses capital investment decisions, general business management and risk management. In the world over, provision of micro finance services to the youth has been considered an innovative and sustainable approach to youth financial and micro enterprise activities empowerment leading to generation of income so as to improve their livelihoods and contribute to economic growth.

Debates on extending the reach of microfinance to the very poorest people increasingly focus on savings facilities. For many youth, savings facilities are essential in increasing the amount of income under their control and in building assets. In remote areas, mobilization and intermediation of member savings may be crucial first steps before accessing external loan funds. A number of studies have observed that savings-led groups perform better than credit-led ones (Allen 2005; Murray and Rosenberg 2006; Ritchie 2007).

Access to micro-finance has the potential to assist the poor in earning income from microenterprises, smooth their income and consumption (Brennan, 2008), help households diversify their income sources. (Anand et al., 2005).According to Kodheka (2003) microfinance makes a considerable contribution to the reduction of poverty. It helps increase income earning and asset building opportunities which make households less reliant on a single asset type and consequently deal with disasters. (Anand et.al., 2005).

According to Hassan (2002), many Grameen Bank borrowers were actually building larger houses. Sinha (2008) advances that the income of borrowers has risen and their assets base has widened. Investments made by loans appear to have been extremely productive and to have contributed significant improvements in household output, income and consumption (CGAP, 2004).

In Tegucigalpa and Cholteca in Honduras in 2003, effect assessment studies revealed that 60% and 50% of the recipients had their sales and incomes increase respectively one year after receipt of credit for working capital. Agricultural Finance Cooperation Limited in 2008 in India, assessed development effect of microfinance programmes. Clients reported increase in income from 76% of activities. There is therefore reason to believe microfinance services in its entirety should report effect on savings, income and investments alongside non financial effect such as change in skills through training. This study was specific in investigating these aspects.

Microfinance Services in the World

The current global youth population is very large. Of the world’s more than 3 billion people estimated to be under the age of 25, approximately 1.3 billion are between the ages of 15 and 24. Just under half of these young people live on less than two dollars a day, as estimated by the UN (Youth Save, 2010). Yet young people the world over are aware of the inequities of the global system, which leaves them vulnerable in many ways. Unemployment, especially amongst them, also leads to high risk behaviour – crime, drugs and spread of HIV/AIDs.

Moreover in line with most cultures in developing countries, the employed have to look after the unemployed extended family members, thereby reducing their ability to save and opportunities for wealth creation that is needed to spur economic growth. To this end, microfinance, the provision of a wide range of financial services, has proved immensely valuable to poor people, especially the youth and women on a sustainable basis. Access to financial services has allowed many families throughout the developing world to make significant progress in their own efforts to escape poverty (Onuman, 2005).

The provision of credit has increasingly been regarded as an important tool for raising the incomes of youths, mainly by mobilizing resources to more productive uses. As development takes place, one question that arises is the extent to which credit can be offered to the youths to facilitate their taking advantage of the developing entrepreneurial activities.

The generation of self-employment in non-farm activities for example, requires investment in working capital. However, at low levels of income, the accumulation of such capital may be difficult. Under such circumstances, loans, by increasing family income, can help the youth to accumulate their own capital and invest in employment-generating activities (Schreiner, 2010).

Microfinance Services in Africa

Many diverse institutional models of micro financing are functioning in Africa, but most clients are served by credit unions and co-operatives members sell (e.g. coffee, tea, cotton etc.) or the nature of their employment (Onuman, 2005). In West and Central Africa however, savings and credit cooperatives are generally more community-based. In contrast to Asia, the lack of population density means that rural and agricultural finance is particularly challenging, and thus many MFIs are urban-based and focused.

Perhaps as a result the July 2003 Micro Banking Bulletin identified only 8 sustainable institutions and estimated that only around 25 million clients are being served throughout the continent. However, these numbers may under-estimate or ignore the large numbers being served by cooperatives and postal banks. Nonetheless both international and domestic banks are starting to take an interest in the potential of the low-income market in Africa.

The last twenty years have seen significant improvements in micro financing through advances in understanding and providing financial services to better advance development and eradicate poverty. This includes providing the financial means to save, access credit, and start small businesses, with the potential to enhance community development, as well as local and national policy making. When properly harnessed and supported, microfinance can scale-up beyond the micro-level as a sustainable part of the process of financial empowerment by which the poor can lift themselves from poverty.

The micro financing revolution effectively demonstrates that when poor households have access to financial services, not only do they save, but, they also have high repayment rates when they borrow. It is noted that, microfinance institutions have made financial services available to millions of poor households worldwide but this still represents a tiny fraction of the population in developing countries where the majority lack access to formal financial services. 2.6 Microfinance Services in Kenya

In Kenya, the youth is defined within the age 15-35 years are about 13 million which is equivalent to 56% of the population (Ministry of Youth and Sports, 2008). Of the 13 million youth, less than 50% are in gainful economic activities in the formal, informal and public sectors of the economy while majority are unemployed, (Simeyo et al.2011). They comprise 61% of the unemployed. This trend is worrying and calls for intervention measures. Micro finance lending and associated services are one such intervention.

However, lack of collateral and high interest rates are an impediment to access to loans from Micro finance institutions (MFIs) by the youths (Mushimiyimana, 2008). The youths who secure funds from such institutions spend the bulk of their returns on investment in paying the cost of capital, thus leaving them with none or little savings for reinvestment. As a result, majority of the youths in the youth investments fail to grow into Small and eventually Medium enterprises.

Therefore, to bring the youth on board, the Kenyan government with the support of development partners in 2006 established a youth enterprise development fund that is channeled to Micro finance Institutions and other financial intermediaries for onward lending to the youth without collateral. Such a fund attracts a greatly reduced cost of capital which stands at 8% per annum as a strategy to make the fund affordable to the youth who in many cases do not have collateral and therefore ideal for start-ups.

Given that the vision of micro finance is to promote the growth of micro enterprises, MFIs and other financial intermediaries have experienced rapid growth to support the youth financial requirements. Institutions such as the Kenya Rural Enterprise Program (K-REP), a non-governmental organization that was started in 1984 under the funding of the USAID are some microfinance institutions. Today, K-REP is fully licensed as a bank and offers a wide range of banking services in addition to its micro finance specialty (Dondo, 1991).

K-REP operates two major loan programs for micro and small entrepreneurs, Jihudi and Chikola. Each Jihudi group consists of three to eight individuals. The Chikola loan program works through existing rotating savings and credit self help groups (ROSCAS) that comprise of individual micro entrepreneurs (Kioko, 1995). A number of MFIs and financial intermediaries including K-REP, Equity bank, Kenya Women Finance Trust (KWFT), Fauluetc have since then come up to provide micro finance services to the low income groups for purposes of
starting or developing income generating activities.

These groups include youth and women. Related to this is the indication that MSEs access to credit has increased greatly from 7.5% in 2006 to 17.9% in 2009. (Simeyo et al. 2009) In view of the increasing microfinance services in the world targeting the poor with anticipation of an increase in positive outcomes, particularly in developing countries, as is evidenced by the efforts above; this research sought to establish the effect of micro finance lending and related services on financial empowerment of youth in Nairobi County.

Impact of Microfinance

Microfinance institutions offer several services to their clients who in most cases are the economically less privileged. According to Bennett (1994) and Ledgerwood (1999) microfinance clients who are mostly men and women slightly below or above the poverty line can be able to access variety of products and services which are mostly financial. Microfinance institutions offer services to the low income earning groups because these groups are ignored by large financial institutions since they are considered less profitable.

Olaitan (2001) and Akanji (2001) argue that products and services that make microfinance institutions different from large financial institutions include increased provision of credit, increased provision of savings, repositories and other financial services to low income earners or poor households. The impact of microfinance can be described in a triangle where it has effect on financial sustainability, outreach to the poor, and institutional performance/impact.

Economic impacts

Income is one of the important elements of living standard of the poor people as well as saving. Mohammed and Mohammed (2007) The Microfinance Banks are to provide loans to the poor not only the increase their income but also to mobilize their savings CBN, (2005). According the report by the United Nations Development Programme, microfinance has over the years proven to be a major tool which is effective in alleviating poverty (UNDP, 2001). Microfinance therefore empowers those individuals who are financially disadvantaged.

Morduch et al. (2003) and Alegiemo and Attah (2005) also asserts that microfinance institutions help in financial empowerment of the economically activebut poor individuals by the providing microcredits and other assets to enhance production. Micro financing therefore enhances the latent capacity of the poor for entrepreneurship, enabling them engage in economic activities, be self-reliant and also enhancing the household income as well as creating wealth.

According to Christabell (2009), when reaching out to those who are poor, there are costs that every financial institution expects to incur especially when reaching them with small loans. To every finance institutions it is viable only if these costs are kept to the minimum as possible. However when the targeted people are in a vast geographical area, the cost of reaching them increases. The provision of financial services to the poor is expensive and to make the financial institutions sustainable requires patience and attention to avoid excessive cost and risks (Adam and Fitchett, 1992).

The economic impact of microfinance originate from the assumption that those who are in need of economic support (borrower) are sole operators of an income generating activity and the output of their businesses is constrained by lack of enough capital or the high marginal cost of credit relative to the marginal returns from the credit. In a bid to increase their financial capability and ease their capital constraints, the business operators will work hard to improve on their output, net income, profits, and hence their own welfare (McKernan, 2002).

The economic impacts of microfinance stretch to the livelihoods of the targeted individuals. Microfinance institutions target poor individuals whose management of livelihood related to resource allocation, uncertainties and risks cannot be completely separated from their decisions about their household’s production (Gertler et al. 2009).Moreover since credit is a factor affecting the management of diversified and is seasonally volatile to household economic portfolios (Sebstad et al. 1995),by a large extent it has effect on the promotion of enterprise (Morduch1995, Rutherford 2001, Collins et al. 2009).

According to Shahidur (1998), poverty is regularly the effect of low economic growth, high population growth, and exceptionally uneven spreading of resources. The determinants of poverty can be traced to unemployment and low productivity amongst the poor. This type of poverty requires to be solved by the creation of jobs (Cameron and Trivedi, 2005).

Poverty is as well a result of low productivity and low income which can only be alleviated by putting more investments on human and physical capital so as to be able to increase the productivity of the workers’. In many countries, such as Bangladesh, poverty is caused by lack of both physical and human capital. From the above analysis solving the problem of poverty therefore demands the increase in productivity by creating employment and developing human capital as well.

Microfinance institutions which in the past were considered to be informal lenders therefore play an important role in many low-income countries (Adams and Fitchett 1992; Ghate 1992), by providing the poor with enough capital to start off and expand their business and improve on their livelihoods. Microfinance institutions, such as such as Rotating Savings and Credit Associations, can meet the occasional financial needs of rural households in many societies (Webster and Fidler, 1995).

Since microcredit programs from microfinance institutions are able to reach the poor at affordable cost, the programs are in a position to ensure that the poor become self-employed. Microcredit services are supported by microfinance institutions so as to enable the poor access institutional credit hence playing an important role in alleviating poverty (Yunus, 1983).

They argue that by virtue of their design such programs can reach the poor and overcome problems of credit market imperfections. In their view improved access to credit smoothens consumption and eases constraints in production, raising the incomes and productivity of the poor. Empirical studies support the view that microfinance institutions provide credit market interventions that ensure that the consumption and production of the poor is improved and the lack of credit do not deter them from improving their livelihoods (Foster 1995; Rosenzweig and Wolpin 1993).

Several researches in Bangladesh have shown that microfinance institutions have positive effects on the economic lives of the poor people. For example, in his study on participants of Grameen Bank in Bangladesh, Hossain (1988) found significant impacts of the effect of microcredit programmes on alleviating poverty in Bangladesh. This was reflected in higher income, capital accumulation and employment among loan recipients.

Khandker (1998) carried out a similar study in Bangladsh. From his study he found that 5% of those who received the loans were able to get out of poverty. Another research in Bangladesh was carried out by Mustafa (1996). He found out that microcredit programmes enabled the loan recipients to enhance their economic wellbeing which was reflected in indicators such as wealth, revenue earning assets, the level of cash earned, value of house structure, per capita expenditure on food, and total household expenditure.

Similarly, Zaman (1999) found out that credit from microfinance institutions aim at enhancing the abilities of the recipients to build assets while reducing their vulnerability to poverty by ensuring that their consumption is smooth through balancing of their consumption and spending.

In Thailand, Kaboski and Townsend (2005) found the positive impacts of microcredit when they evaluated the impacts of microfinance institutions in rural Thailand. They found out that micro-financing enhances asset growth, consumption smoothing and occupational mobility. The microfinance services as well help in decreasing borrowers’ vulnerability, especially if women are the main recipients.

Another study by Kaboski and Townsend (2005) found that income, consumption and agricultural investment increased among recipients as well as overall wages levels in a village in Thailand. In Mexico a study by Bruhn and Love (2009) identified the positive impacts of havng a microfinance institution as improving business ownership, income and employment. Positive impacts of microfinance on the economic wellbeing of the people have been documented by researchers who determined the effects through randomized experimental research.

Karlan & Zinman (2009) carried out their randomized experimental research in Manila Philippines and found out that microfinance institutions increased business profits but only for male entrepreneurs not females. Another study by Banerjee (2010) using similar approach in India also indicated that found that only the expenditure on durable goods and number of new businesses increased in the treated areas while expenditure per capita per month did not change.

Social Impacts

Studies indicate that microfinance programs do not have a positive impact on the poor household income and consumption level only but on their social wellbeing as well. The improvement in the social well-being is reflected on recipients’ level of education, health and children nutrition. Furthermore it extends to women feelings of empowerment and independence. For example a study by Khander (1998) found that there are significantly higher levels of schooling for children especially that of girls for credit program participants.

According to Ghalib (2007), all microfinance program targets one thing in general; human development that is geared towards both the economic and social uplift of the people they cater for. Ghalib (2007) argued that tackling poverty points to multidimensional concepts that emphasizes on reducing unemployment, infant mortality, maintaining essential healthcare, sanitation, food, nutrition basic hygiene, and establishing gender equality. Microfinance programs have positive impacts on households’ wellbeing which is indicated in the recipient of the microcredit’s children’s education, health and household nutrition especially when the recipients are women (Zaman, 1999; Panjaitan-Drioadisuryo & Cloud, 1999; Pitt et al., 2003).

Health

Health intervention has been an integral part of the MFIs. Different organizations apply different or similar policy to identify the health problems, undertake rigorous experimentation and try to explore and then apply suitable, affordable and culturally acceptable technology. Throughout the work process, they measure and monitor its implementations and recommends corrective actions to modify methods of implementation of program, health message, training and management, where needed (Annual Report, 2005).

Education program

Another important goal of all MFIs is to spread the light of education throughout the society. Development through this program, along with the health program, indicates human development among the people. Their effort and mission is to build up a society free of poverty, illiteracy and disease. Their goals are to expand education opportunities for disadvantaged children and provide them with necessary technical and financial support (Annual Report, 2005). Generally provision of credit demands a lot of knowledge on credit by the borrower. This is because the imperfect knowledge from the borrower and their limited capacity to compute changes when they borrow credit since the forms of credit will have an important impact on the mental models that guide their business decisions (Nino-Zarazua and
Copestake, 2009).

Food security programe

In the developing countries, achieving household food security remains a critical objective of rural development. This can be done in principle by escalating agricultural productivity and off-farm income, thus improving the capability of households to steady their income and food purchasing power. Food security, at the household level, is defined in its most basic form as access, by all people at all times, to the food needed for a healthy life (Zeller M. & Meyer L. (2002).

The literature review in this study will cover the previous studies that have been done on microfinance and its effects. However there will be need to have a clear understanding on microfinance which will call for concise definition to microfinance concepts such as microfinance itself, microfinance institutions, economic development and SACCOs.

METHODOLOGY

Research Design

A descriptive survey design was adopted. Both qualitative and quantitative techniques were applied. Descriptive research design is connected with providing solutions to the problems. (Mugenda and Mugenda, 2003). This design was appropriate for exploring the effect of micro-finance services on the people in Nairobi County. 3.2 Target population, Sample and Sampling Techniques

The population of this study comprised of all people accessing micro-finance services and are beneficiaries within Nairobi County. The sample size will be derived as follows;
n = Z2pq /d2

Where:

n = the desired sample size (if target population is greater than 10,000) z = the standard normal deviate at the required confidence level. P = the proportion in the target population estimated to have characteristic being measured. q = 1-p

d = the level of statistical significance set.
Assuming 50% of the population have the characteristics being measured, q=1-0.5 Assuming we desire accuracy at 0.05 level. The Z-statistic is 1.96 at this level Therefore n= (1.96)2(.5)(.5)/(.05)2 =385

The study however adopted a sample size of 384 as shown in the sampling frame above. Beneficiaries of micro-finance in the County will act as the sampling frame. The study treated people from on micro-finance as one cluster. It proceeded to pick individual respondents by simple random sampling from the individual microfinance beneficiaries and picked the interview groups in a similar way from the list of micro-finance.

Data type and Collection Method and Instruments

Primary and secondary data were used. Structured and Semi structured questionnaire and interview were used to obtain information from the sample. The researcher gathered secondary electronic and hard data from several books, research literatures, articles, journals and micro-finance documents. Internet sources were also be used.

Research Instruments’ Reliability and Validity

Pilot Test

Pilot test assists in determining if there are flaws, limitations, or other weaknesses within the interview design and allows for make necessary revisions prior to the implementation of the study (Lokesh, 2004). Ledgerwood (2009) indicates that, pilot test is necessary for testing the reliability of the instruments and the validity of the study. The desirability of piloting research instruments is not solely to ensure that survey questions operate well but also ensure that the research instruments as a whole functions well (Bryman & Bell, 2011).

Validity

Validity refers to the issue of whether or not an indicator (or set of indicators) that is devised to gauge a concept really measures that concept (Bryman& Bell, 2011). Betty (2006) defined validity as the extent to which differences found with a measuring instrument reflect true differences among those being tested. There are two ways of establishing the validity of a research instrument, that is, logic and statistical evidence. Logic evidence implies justification of each question in relation to the objectives of the study, whereas statistical procedures provide hard evidence by way of calculating the coefficient of correlations between the questions and the outcome variables (Okio, 2005). This study adopted content validity.

Blaikie (2000) assert that, content validity of an instrument is improved through expert judgment. To evaluate the content validity of a research instrument, one must first agree on what elements constitute adequate average. If the data collection instruments adequately covers the topics that have been defined as relevant dimensions, the instrument is deemed to have good content validity (Cooper and Schindler, 2011).

To ensure content validity, the questionnaire was subjected to a panel of peers to assess whether each measurement question in the questionnaire is essential, useful or necessary (Saunders, 2009, Cooper and Schindler, 2011). Essential responses on each item from each panellist are evaluated by a content validity ratio, and those meeting statistical significance value are retained (Cooper and Schindler, 2011).

Reliability

Reliability refers to the consistency of the measure of concept (Bryman, 2012). It is generally understood to be extent to which a measure is stable or constituent and produces similar result when administered repeatedly (Mjomba, 2011 ). A measuring instrument is reliable if it provides consistent results ; if the quality of reliability is satisfied by an instrument, then while using it the researcher can be confident that the transient and situational factors are not interfering ( Kothari, 2009) . Cronbach’s alpha (α) was used to ensure that items have reasonably good internal consistency and measure the same underlying construct consistently. Cronbach’s alpha (α) is a coefficient (a number between 0 and  that is used to rate the internal consistency (homogeneity) or the correlation of items in a test (Mjomba, 2011).

It is used to test internal reliability, and it essentially calculates the average of all possible split- half reliability coefficients (Bryman, 2012). A computed alpha coefficient will vary between 1(denoting perfect internal reliability) and 0 (denoting NO internal reliability). (Bryman and Bell, 2011). Reliability of 0.8 is typically employed as the rule of the thumb to denote an acceptable level of internal reliability (Bryman, 2012).

Data Analysis and Processing

Data analysis usually involves reducing accumulated data to a manageable size, developing summaries, looking for patterns and applying statistical techniques. Data preparations includes editing, coding, and data entry and is activity that ensures the accuracy of the data and their conversion from raw form to reduced and classified form that are more appropriate for analysis. Editing detects errors and omissions, corrects them where possible and satisfies that maximum data quality standards are achieved.

Coding involves assigning numbers or other symbols to answers so that the responses can be grouped into a limited numbers of categories (Cooper and Schindler, 2011). Data entry converts information gathered by secondary or primary methods to a medium of viewing and manipulation. Statistical Package for Social Sciences (SPSS) version 18.0 was used as a tool to analyse the data. SPSS version 18.0 provides better reporting capabilities through improvement to the presentations graphics system (Khan, 2002).

The study employed descriptive statistics in the form of percentages, means and measures of dispersion which allows for presentation of data in a more meaningful way and thus simpler interpretation of data. Use of percentages is important because data is translated into standard form with the base of 100 for easier translation and comparison and they simplify data by reducing all numbers to range between 0 and 100 (Cooper & Schindler, 2003).

The analysed data was interpreted and presented in frequency tables, graphs, histograms, frequency polygons and pie charts. Responses from open ended questions were coded, interpreted and their frequencies determined through cross- tabulations on differences between respondents and the central tendencies of responses to each factor. Cross – tabulation was used to determine if association exist between various variables. Cross- tabulation is a technique for comparing two classification variables using tables with rows and columns that correspond to the level or values of each variable’s categories (Coopers and Schindler, 2011).

Analysis was descriptive in nature and normality test will be done for qualitative data to test for normal distribution for all dependent and independent variables (Khan, 2002). Normality is important in knowing the shape of distribution as the normality help to predict dependent variable scores (Onumah, 2002). To test the normality of the data, the study will use Kolmogorov-Smirnov One- Sample Test. It can be used with ordinal data to test for the degree of goodness –of –fit between an observed set of ranked scores and some theoretical distribution. This test checks the nature of a statistical population’s relative frequency distribution.

The theoretical distribution of population is the specified cumulative frequency distribution which represents the H0 (Creswell, 2003). Chi-square test of independence was done to establish existence of relationship between the variables. The Chi-square test is used to test the significance of difference between the two independent samples, when the data is in discrete frequencies. Usually the agreement or disagreement about some opinion can be measured more effectively by using such test (Creswell, 2003).

RESULTS AND DISCUSSION

The number of respondents who participated in this survey totaled to 94 with a response rate of 97.92%. Respondents’ demographics characteristics are presented in the first part of this chapter. The second part involved descriptive statistics to determine microfinance awareness and impact in Kenya.

Respondents Profile

Majority of the study respondents (59.3%) were male with female being 40.7%. Most of the study respondents (46.4%) were aged between 18 and 35 years while the minority (9.1%) were over 60 years of age. Majority of the respondents were in employment (33.8%) and business (33.2%). Most of the respondents (32.4%) were reported to earn a monthly income of less than Ksh.10,000 while minority of the respondents (9.9%) were earning above Ksh. 40,000.

Respondents that reported to have applied for loan to finance their business were asked to state where they had borrowed the funds and the majority (53%) had borrowed from microfinance institutions while the remainder 47% had borrowed from banks. Respondents that banked with MFI were asked to sate whether they received financial services from any other MFI (more than one MFI) where majority (73%) reported to be receiving financial services from more than one MFI.

To assess satisfaction of respondents with services provided by MFI, two questions were asked. The questions were “Overall satisfaction with service provided by your microfinance institution?” and “Observed service improvement in your microfinance institution in past 5 months?”. Most of the respondents (46.4%) reported that were very dissatisfied with services offered by their microfinance institution. Only 6.6% of the respondents were very satisfied with the services offered by their microfinance institution. Most of the respondents (33.5%) reported that their MFI had slightly improved its services in the past five months, while 6.6% felt that the services were much worse.

Level of development of microfinance institutions

To assess the level of development of microfinance institutions, respondents were presented with statements on 5 point likert scale and asked to rank the statements by indicating how much they agreed with the statements. The statements were ranked with ranks ranging from “5- strongly agree” to “1-strongly disagree”. Averages for every statement were calculated and the general average score evaluated. Scores were also converted to percentages for easy interpretation. It is observed that the scores were also distributed across gender of the respondents and level of income to provide comparative results.

From the results, generally the respondents ranked lowly the statements on development of their MFI in terms of the way the services were offered with an average score of 62.7%. Howerver, respondents unanimously agreed with the statement that they served on first come basis (77.2%). Service providers displaying name tags and counter satisfaction were ranked the least with average scores of 50.6% and 54.6% respectively.

Impacts of microfinance

To assess satisfaction with loan lending terms of microfinance institutions, respondents were presented with statements on 5 point likert scale and asked to rank the statements by indicating how much they agreed with the statements. The statements were ranked with ranks ranging from “5- strongly agree” to “1-strongly disagree”. Averages for every statement were calculated and the general average score evaluated. Scores were also converted to percentages for easy interpretation. It is observed that the scores were also distributed across gender of the respondents and level of income to provide comparative results.

From the results, the respondents were observed to rank the statements on MFI impact quite lowly with the average score of 50%. Respondents unanimously agreed that MFI had helped them develop their business with a score of 63%. Respondents strongly disagreed with the statements on “Am happy with loan repayment conditions given-35%”, “Interest rate offered was fair-37%” and “It was easy to be given loan-40%”.

To assess impact of microfinance institutions, respondents were presented with statements on 5 point likert scale and asked to rank the statements by indicating how much they agreed with the statements. The statements were ranked with ranks ranging from “5- strongly agree” to “1-strongly disagree”. Averages for every statement were calculated and the general average score evaluated. Scores were also converted to percentages for easy interpretation. It is observed that the scores were also distributed across gender of the respondents and level of income to provide comparative results.

Respondents were observed to rank averagely most of the statements with an average score of 55%. Respondents agreed with the statements; “Reasonable total time taken to complete a transaction-73%” and “Staff knowledge of products and services-65%” on the other hand the respondents disagreed with the statements; “Before any loan is given this organization conducts
analysis of the viability of the business-40%” and “Trainings are provided to customers geared towards increasing their knowledge on available products and services-47%”.

Across the gender, female respondents were observed to rank most of the statements higher than their male counterparts. Great discrepancies were not observed across income level.

Strategies employed by the microfinance institutions

To assess strategies employed by the microfinance institutions, respondents were presented with statements on 5 point likert scale and asked to rank the statements by indicating how important the statements were. The statements were ranked with ranks ranging from “5- most important” to “1-not important at all”. Averages for every statement were calculated and the general average score evaluated. Scores were also converted to percentages for easy interpretation. It is observed that the scores were also distributed across gender of the respondents and level of income to provide comparative results.

Respondents rated most of the statements a very important with the general average of 91%. Efficient telephone services (95%) and receiving quick and efficient counter service (93%) were ranked as the most important factors. The least in importance acoording to the respondents were “Being greeted by friendly and Courteous staff-87%” and “Privacy for discussing private matters-88%”.

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

In this chapter, key findings of our study have been discussed. In addition conclusions from the main findings have drawn and recommendations made. The goal of this research was to study the microfinance awareness and impact in Kenya. The research was guided by four objectives including: To determine the level of awareness to microfinance among Nairobi County residents; To assess the level of development of microfinance institutions within Nairobi County; To assess the impacts of microfinance to Nairobi County residents and To determine the strategies employed by the microfinance institutions in Nairobi County to meet their objectives.

Summary of major findings

Summary of the key findings have been discussed in the following subheadings:

Awareness to microfinance

Most of the study participants were poor people who reported to be a monthly income of less than ten thousands Kenya shillings. Most of the participants reported to have ever applied for a loan from MFI to finance their businesses. These results are consistent with those of Gertler (2009) who found out that microfinance institutions target poor individuals whose management of livelihood related to resource allocation, uncertainties and risks cannot be completely separated from their decisions about their household’s production.

Results also revealed that most of the study respondents obtained financial services from more than one MFI. This results contradicts those from Shahidur(1998), who found out that most of the beneficiaries of MFI were loyal to one MFI. From these results respondents were observed to be aware of the existence of MFI and their benefits towards improvement of living standards especially of the poor members of the society.

Since microcredit programs from microfinance institutions are able to reach the poor at affordable cost, the programs are in a position to ensure that the poor become self-employed. From the results almost three quarters of the respondents were in business or farming and were assessing the MFI services. This result is in agreement with the findings of Yunus (1983) who reported that microcredit services are supported by microfinance institutions so as to enable the poor access institutional credit hence playing an important role in alleviating poverty.

However, the study participants reported dissatisfaction with MFI services. These results contradicts those of Thailand, Kaboski and Townsend (2005) who found out that majority of the MFI customers were satisfied with the services rendered when they evaluated the impacts of microfinance institutions in rural Thailand.

Development of microfinance institutions

Respondents agreed with the statement that they were served on a first come basis at their MFI and the service provider made eye contact whenever they served them. These results are consistent with those of Karlan & Zinman (2009) who found out that MFI treated their customers with a lot of respect to earn their loyalty. Contrary, the respondents disagreed to the statements: – services provider greeting them before service; service provider smiling at them; being very satisfied with counter services and the service providers displaying name tags at work. These results contradicts the findings of Banerjee (2010) who found out that MFI service providers were trained on handling their customers with a lot of courtesy.

Impacts of microfinance

Most of the respondents agreed to conclude that MFI has helped them in developing their business. These results are in agreement with those of Ghalib (2007) who observed that all microfinance program targets one thing in general; human development that is geared towards both the economic and social uplift of the people they cater for. Most of the respondents also agreed to the fact that the criteria used by MFI are easy to be met. This is consistent with Hossain (1988) findings that MFI procedures are simple and customer friendly.

Most of the respondents disagreed with the statements that it was easy to be given loan from MFI which concurs with Mushimiyimana (2008) who observed that lack of collateral and high interest rates are an impediment to access to loans from Micro finance institutions by the majority. Respondent who had borrowed from MFI in the past disagreed to being interested in obtaining another loan if need be from MFI. This is in disagreement with Mushimiyimana (2008) who found out that those who secured funds from such institutions spent bulk of their returns on investment in paying the cost of capital, thus leaving them with none or little savings for reinvestment which makes them borrow again and again.

Respondents disagreed with statement that interest rate offered by MFI was fair. In addition most of the respondents argued that they were not happy with loan repayment conditions given by the MFIs. These results contradicts findings of Olaitan (2001) and Akanji (2001) who found out that products and services that make microfinance institutions different from large financial institutions included increased provision of credit, increased provision of savings, repositories and other financial services to low income earners or poor households at affordable interest rates and friendly repayments conditions.

Strategies employed by the microfinance institutions

Respondents viewed efficient telephone services, receiving quick and efficient counter service, having staff available to answer questions, staff addressing you by name, publication of service charges and having information on products and services available as very important strategies employed by MFI. This results are consistent with UN (20005) findings that in many cases, basic business skills accompany the provision of micro loans to improve the capacity of the poor to use funds.

Most of the respondents did not value Having a clean and tidy environment and Privacy for discussing private matters as strategies employed by MFI which was consistent with Anandet.al. (2005) findings that most MFI interact with hundreds of customers daily making privacy for each of the customer a challenge.

Conclusion

From the above findings the following conclusions were arrived at: Poor people often had the perception that they do not have opportunities to influence their inferior situation; however micro-finance with neo-liberal priorities has given them self-confidence and also concrete tools to improve their lives. On the other hand, MFIs approach is focused on individual poor entrepreneurs who to some extent have enabled governments, NGOs and other responsible agents escape their duties and shift the responsibility onto the MFIs. MFIs typically focus on people’s individual aspects, such as engagement in economic activities, productivity and individual choice which has empowered the poor members of the society.

The expansion of the informal sector cannot continue infinitely, and not all people are able to be entrepreneurs. A sound national economy requires also the formal sector of the economy or the traditional industrial sector. Micro-finance cannot solve all the problems women and micro-entrepreneurs in the informal sector face. Some of these problems stem from more global socio-economic problems and inequalities. There are reasons for poverty both on the micro- and the macro-levels. Thus, eradicating poverty requires both micro- and macroeconomic measures. Micro-finance is a micro-economic measure; in this study macro-economic measures were not considered. On the micro-level micro-finance has some advantages compared to more traditional and welfare-oriented development intervention measures.

A micro-finance programme based on explicit empowerment strategies can empower both women and men by giving them resources for developing their work and enterprises towards a means of liberty and self-fulfilment. The policies of developing micro-finance and the informal sector should have a gender perspective and the gender impact should be studied. Even though the informal sector has been a form of exploitation or a feature of an unsound economy, for the poor it provides opportunities and often their only source of income. Thus governments should promote these opportunities and struggle against the exploitative features of the informal sector.

Furthermore, results of this research portray that a significant portion of the respondents deem the interest rate of micro-credit is reasonable despite the fact that the interest rate of micro-credit is higher than commercial banking. Yet microfinance is becoming popular day by day among the poor people. The major reasons that can contribute to such popularity of MFI can include the fact that all poor people can get loan from MFIs without any collateral. In addition, the loan taking procedure is less complex than that of commercial banks. Furthermore, from the findings most of the respondents were not aware of the interest rate of traditional banking system owing to not having easy access to information. What’s more! They cannot compare the interest rates between the MFIs and conventional banks because of lack of education. Another underlying reason is that the services of conventional banking are not available in the villages.

To sum up, it can be noticed from our overall analysis that there is significant impact of microfinance activities on improvement of the living standard of the family not only in economic term but also in social term. Amazingly, the relation between different factors of society and family became evident and clear, which were being neglected and not thought about during the period of existence of only conventional banking system. From our study and research, we have come to the conclusions that there is a noticeable and positive impact of microfinance activities on the living standards, empowerment and poverty alleviation among the poor people in the society.

Recommendations

From the study results the following recommendations were drawn:

1. As MFIs grow and some of them become part of the regulated financial system, banking authorities are facing the need to learn more about this important financial activity. In order to develop appropriate norms and regulations, policy makers must understand how microfinance differs from conventional banking and, in order to supervise microfinance effectively, bank supervisors need specialised training on assessing the performance of microfinance institutions (MFIs).
2. There is a geographical constraint which needs to be overcome, especially in rural areas. The physical infrastructure in the rural areas is perhaps the most critical support structure currently lacking. Groundwork has been done by some MFIs to think through what the main enabling factors are, one of them being enhancement of the payment systems in rural areas.
3. Access to capital is a major gap. The Central Bank does not recognize the loan book as collateral. Commercialisation moved the industry but brought with it its own problems (e.g., donor credit programs that were localised and are in some ways on their own with few grants available and without capital to grow). Most MFIs will be unable to raise the KSH100 million minimum capital requirement to become a deposit taking institution under the new Microfinance Bill and it will not be easy to meet supervision standards. Donors could help develop the local capital market for microfinance, including linking MFIs to banks so that they are not all dependent on deposits for capital.
4. The lack of adequate MIS and sector data. Most MFIs have just gone through or are going through an exercise of improving their MIS systems, some with more hiccups than others. AMFI intends to undertake initiatives to fill the void of the lack of information on the sector, including basic demand and supply estimation.
5. Credit referencing would strengthen the sector and is definitively needed.
   Survey findings indicate that almost all microfinance clients have loans from other MFIs as well. Although this happens in some other markets, the prevalence and scale is particularly high in Kenya.

The current study was based on small sample size taken from only Nairobi County. Therefore, the results cannot be generalized to other counties of Kenya especially in the analytical terms. Further research done on a bigger scale with large sample size could shed light on how microfinance activities affect the average living standard of people of Kenya, analytically. The current study did not consider the reasons of motivation to join the microfinance program. Another area that has not been investigated is the difficulties that the borrowers face to repay the loan. These areas deserve to be studied by future researchers in the field.

Future research should also undertake an in-depth study on the microfinance sector, including a formal estimation of total supply and demand estimation for the whole microfinance sector (enterprise and non-enterprise). Results from such a study shall assist the various public agencies involved to develop adequate prudential norms and enforceable guidelines as well as reporting procedures and help them liaise with MFIs.

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