Factors Affecting the Growth of Microfinance Institutions


23 Mar 2015 18 Dec 2017

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1.0 Introduction

This chapter introduces the problem statement which the research proposes, the objectives that the research seeks to address, the questions that it seeks to answer and the scope of the research as well as the significance of the study.

1.1 Background of the Study

There are many types of microfinance institutions depending on structure, function or philosophy. In many instances, the microfinance market is segmented according to the clients involved i.e. micro-enterprises, women, agriculturalists and so on. A main goal of many micro finance institutions is to provide sustainable micro finance facilities to the poor to facilitate income generation and reduce poverty (Baumann, 2001). The genesis of this is that the poor lack access to financial services, credit and savings facilities.

The goal of microfinance institutions as development organizations is also to service the financial needs of unserved markets as means of meeting development objectives (Ledgerwood, 1999). The development objectives generally include reduction of poverty, empowerment of the poor and other disadvantaged groups, employment creation, development of new businesses and helping existing businesses to grow by diversifying their activities. In a world bank study of lending for small and micro enterprise projects, three objectives of microfinance institutions that were most frequently cited were, to create employment and income opportunities through the creation and expansion of micro enterprises, increase the productivity and incomes of vulnerable groups especially the poor and women, as well as reduce rural families dependence on drought prone crops through the diversification of their income generating activities (Webster et al, 1996).

The microfinance revolution was introduced into the development economics arena slightly more than two decades ago. However, the widespread adoption of the microfinance model did not occur until the early 1990s. Since the mid 1990s, microfinance programmes and institutions have become an increasingly important component of strategies to promote micro-enterprise development in developing countries and specifically to reduce poverty (Colin, 2006).

Microfinance was defined by the United Nation in 2005 as basic financial services, like credit, savings and insurance, which give people an opportunity to borrow, save, invest and protect their families against risk (UN, 2005). This definition was used in the context of microfinance and the Millennium Development Goals (MDGs). It was therefore observed that microfinance promotes not only credit, but also inculcates savings that accumulate assets for poor people.

Besides the major attributes of microfinance, namely; credit and savings, the concept of joint or shared liability has been highlighted by other researchers. According to Harper (2003), the concept of microfinance originated in Bangladesh, around 1976 through the pioneering experiment by Dr Muhammad Yunus, who was then a Professor of Economics. The primary difference between microfinance and the conventional credit disbursal mechanism lies in the "joint liability" concept. Whereby a group of individuals get together to form an association of persons called Self Help Groups (SHG) of which all the members undergo a training programme on the basic loan procedures and borrowing requirements. Loans to individuals within the Self help groups are approved by the others members of the group, who are also jointly responsible for its repayment in case of default. The members of the self help group save regularly through monthly contributions to the group's fund.

Formal microfinance lending has been in existence in Kenya since the 1950s through the Joint Loan Board Scheme developed by the colonial government (Hondo, 2001). After independence in 1963, the Kenyan government went on to provide subsidized rural credit programs as a development strategy. There are many organizations both informal and formal which also offer these financial services. The informal channels are characterized by lending family, friends and neighbours. Rotating savings and credit associations (ROSCAs) are also very common. They hold regular meetings and each member contributes a fixed amount and an agreed amount is given to one member at a time (CBS et al, 1999).

Commercial banks traditionally lend to medium and large enterprises which are judged to be creditworthy and tend to avoid doing business with the poor and the micro enterprises because the associated costs and risks are considered to be relatively high. Microfinance institutions (MFIs) have therefore become the main source of funding for micro enterprises in Africa and in other developing regions (Anyanwu, 2004).

Microfinance institutions have become an important contributor to the Kenyan economy. The sector contributes to the national objective of creating employment opportunities, training entrepreneurs, generating income and providing a source of livelihood for the majority of low income households by financing the businesses that they run. The government and its development partners have spent considerable amount of resources in crafting policies and programs to build the growth of micro finance institutions. However results to date have been largely unsatisfactory (Gichira, 1992).


Provision of microfinance services that can have a sustainable impact on clients well being and reduced vulnerability is not an easy endeavour, microfinance institutions face many risks that can adversely affect their long term growth, operational and financial sustainability (Jeyanth, 2003).

With regard to sustainability and growth, a study conducted by Omondi (2005) revealed that few microfinance institutions had attained sustainability and growth and had sound financial cost control and good loan portfolios. A good number of microfinance institutions had not attained financial stability and growth and were relying on subsidies from donors.

Growth in the microfinance industry may be characterized by an increase in the breadth and depth of outreach of existing microfinance institutions, heightened competition among microfinance service providers, diversification of product and service offerings, and the presence of private and commercial funds for microfinance activities.

There is little information on a standard blueprint to show us how to achieve these characteristics and to ensure the growth of the microfinance industry. To a large extent, the growth should be market driven and is yet to be achieved (Amando, 2005).

Tilman, (2006) highlighted that although microfinance activity has increased considerably in recent years, significant growth was lacking and microfinance institutions are still far from reaching a significant portion of the population that lacks access to formal financial services.

Further, studies conducted in Kenya have shown that even though the microfinance sector has been growing over the past few years, majority of the individual institutions have not experienced much growth. Moreover much of growth of the microfinance institutions has been spontaneous (G.O.K 1997). It is therefore against this background that the aim of the study is to assess factors affecting the growth of micro-finance institutions in Kenya.


1. To assess the factors affecting the growth of microfinance institutions in Kenya.


This research seeks to answer the following question;

1. What are the factors affecting the growth of microfinance institutions in Kenya?


This study will benefit a number of groups among them managers of microfinance institutions who will use the study to gain an insight into factors that affect the growth of their businesses and how. This will in turn help them develop modalities to mitigate those factors that adversely affect the business and enhance those that promote growth of their microfinance institutions.

The government too will benefit from this study. The government will use the findings of this study to craft appropriate policies that would promote the growth and stability of the microfinance institutions.

Further the findings will help the Kenya government's development partners, NGO's, Donor communities and other stakeholders to effectively and efficiently target their assistance to the microfinance sector.

Moreover, microfinance strategists, policy makers, aspiring microfinance researchers, university and college students pursuing a career in entrepreneurship or microfinance spheres will also benefit.


Microfinance institutions have a wide coverage in both rural and urban areas of the country. This study focuses on microfinance institutions operating in Kenya. The study therefore covers the registered institutions.



2.1 Introduction

This chapter presents a review of various literature materials related to the study. It extensively looks at the factors that affect the growth of microfinance institutions. This review also highlights past literature that relates to this study, summary of gaps to be filled by the study, previous research findings, various papers and government publications on the subject.

2.2 Growth in the microfinance industry

Amando, (2005) observed that growth in the microfinance industry may be characterized by an increase in the breadth and depth of outreach of existing microfinance institutions, heightened competition among microfinance service providers, diversification of product and service offerings, and the presence of private and commercial funds for microfinance activities.

Outreach and sustainability are two critical objectives for microfinance institutions (MFIs). As defined by Christen et al (1999), outreach is the ability to provide quality financial services to large numbers of people, especially the very poor. Outreach is also an indicator of the institution's social mission to scale up and provide services to as many people as possible. Sustainability, in contrast, requires operating at a level of profitability that allows sustained service delivery without dependence on subsidized inputs. This represents the institution's commercial strategy. For microfinance institutions growth is the process of balancing the objectives of outreach and sustainability; balancing the social mission and the commercial strategy.

Despite the increase in number of MFIs in operation, their growth is constrained, especially in rural areas, because of their limited resource base and lack of institutional capacity to provide a wide range of financial services. MFI outreach is predominantly through group based programmes, which have limited absorptive capacity for financial resources. The focus of most microfinance institutions is lending to the informal economy MSEs (“Jua Kali') and often women who are conducting trade in small goods or providing services (Stevenson, 2007).

Craig (1997) on the other hand observed that many microfinance institutions experience cycles of growth followed by periods of consolidation where they are forced to solve operational challenges such as decline in portfolio quality, client desertion, untrained and burned-out staff, and administrative challenges including loan processing and information systems. In addition, many smaller credit programs never experience growth because they lack the resources; technical and or financial and a commitment to the financial systems approach.

In Tanzania, a survey of 136 small firms found that 63 per cent of them consider difficulties in accessing finance from larger financial institutions as the major constraint to their growth (Satta, 2003).

Even though micro finance bodies are meant to serve those who have been left out of the formal banking system, there is a growing concern that many Kenyans still lack credit facilities. Statistics from Association of Microfinance Institutions (AMFI) indicate that over 60 percent of Kenyans lack access to formal banking services. This is because most micro-credit companies are concentrated in cities and towns. Most of the people who lack credit are in rural areas. The question now is how to facilitate growth of microfinance institutions to cover all areas (Tilman, 2006).

2.2.1 Constraints facing micro finance institutions.

The microfinance sector in Kenya has faced a number of constraints that need to be addressed to enable them to improve outreach and sustainability and grow. The major impediment to the development of microfinance business in Kenya has been until recently poor legislation and set of regulations to guide the operations of the microfinance sub-sector. This has contributed to a large extent to the poor performance and eventual demise microfinance institutions because of a lack of appropriate regulatory oversight. This has also had a bearing on a number of other constraints faced by the industry, namely: wide diversity in institutional form, inadequate governance and management capacity, limited outreach, unhealthy competition, limited access to funds, unfavorable image and lack of performance standards, Poverty reduction strategy paper (PRSP 1999).

Providing financial services to poor people is costly, in part, because they have small amounts of money, often live in urban slums and remote rural setups, and rarely have documented credit histories. During the past decade, microfinance institutions (MFIs) started addressing this problem by developing techniques that permit safe lending in the absence of borrowers' credit history. Still, MFIs usually charge relatively high interest rates to cover the administrative costs of handling small transactions for dispersed populations (Gaulum, 2006).

Mutua et al (1996) highlighted that a problem facing NGO's running microfinance institutions is the ability to balance traditional welfare objectives with the goals of maintaining sustainable credit programmes. This is because when credit policies are based on humanitarian rather than financial considerations, inefficiency and ineffectiveness can follow which hampers sustainability and growth of microfinance institutions.

A study by Anyanwu (2004), on Microfinance institutions policy practice and potentials in Nigeria revealed that the sub sector in Africa faces a number of challenges which include the urgent access to medium to long term sustainable sources of funding.

2.2.2 Importance of the microfinance sector

The first attribute that distinguishes microfinance institutions from others is what has come to be called its dual mission of balancing a social agenda or social impact with its financial objectives. Most microfinance institutions (MFIs) are institutions that combine a social development mission; provision of financial services to the lowest income population possible with a financial objective that drives the institution to achieve self sufficiency and thereby accomplish sustained service delivery without dependence on subsidies (Humphrey, 2006).

The government appreciates the importance of microfinance institutions in the development of SMEs. In G.O.K (2005) policy paper the government sates "lack of access to credit is a major constraint inhibiting the growth of the entrepreneurs". The same paper further states that "the government recognizes that access to credit and financial services is key to the growth and development of any enterprise and more so the SMEs" The government therefore has its own programmes and projects targeting the sector. Some of them are the Kenya Industrial Estates, the Joint Loan board both under the Ministry of Trade and Industry and the recently established Kshs. l billion youth fund under the Ministry of Youth Affairs in the office of the Vice President.

According to an evaluation study on microfinance programmes in Kenya Supported through the Dutch co-financing programme, (Hospes 2002) concludes that the impact of the financial service provision by Kenya Women Finance Trust (KWFT) at the enterprise level is positive in many respects: Enterprise size and employment generation, both the quantitative and qualitative assessment show that the provision of loans by KWFT has helped women to keep them going even in the most difficult times, as well as contribute to providing continued employment to the women and their families, and to increase the number of employees in their business, either on temporary or permanent basis.

It is now widely acknowledged that the MFIs, with their innovative program packaging, have enlarged the financial market, increased the volume of household financial savings and induced financial independence among rural families (Sajjad et al 1999).

According to the Poverty Reduction Strategy Paper (PRSP) of 1999, a large number of Kenyans derive their livelihood from small and micro-enterprises. Therefore, development of this sector represents an important means of creating employment, promoting growth, and reducing poverty in the long term. However, in spite of the importance of this sector, experience shows that provision and delivery of credit and other financial services to the sector by formal credit institutions, such as microfinance institutions has been below expectation. This means that it is difficult for the poor to climb out of poverty due to lack of finance for their productive activities. Therefore, new, innovative and pro-poor modes of financing low income households and SMEs based on sound operating principles need to be developed.

The United Nations acknowledges microfinance as a key instrument to achieving Millennium development Goals (MDGs), which seeks to reduce poverty by 2015. They include reducing child mortality by two thirds, eradicating extreme poverty and hunger, achieving universal primary education, promoting gender equality and empowering women, as well as combating HIV/AIDS, malaria and other diseases (UN, 2005).

As microfinance institutions in Kenya continue to increase in numbers, their survival in the market economy will greatly be influenced by the impact their products and services have to their recipients. This will include; the empowerment of family, generation of income and improvement of welfare, the increase in business performance, training and business skills provided to clients, terms and conditions for loan repayment and servicing among others.

Microfinance institutions are critical to Africa's quest for solutions to the continent's development challenge. The area of their greatest potential impact, rural Africa, is not only home to the bulk of the continent's population, but also the vast majority of Africa's poor. MFIs with examples from Zambia, Kenya, South Africa, Mali and Zimbabwe, establish a link between MFIs and both poverty eradication and the empowerment and equality of women, two of the major Millennium Development Goals (Kaoma, 2001).

Anywanu, (2004) observes that microfinance institutions aim to improve the socio-economic conditions of women, especially those in the rural areas through the provision of loan assistance, skills acquisition, reproductive health care service, adult literacy and girl child education. They also aim to build community capacities for wealth creation among enterprising poor people and to promote sustainable livelihood by strengthening rural responsive banking methodology as well as eradicate poverty through the provision of microfinance and skill acquisition development for income generation.

2.2.3 Promotion of Microfinance institutions growth.

As an enterprise grows, different needs arise to correspond with every stage of its development. The level of sophistication of knowledge, skill and attitude change, inputs will vary with this every stage. It should however reflect that the needs are demand driven because they can be correlated with the problems and opportunities that micro financiers face in managing the business (Murumbutsa, 1998).

Oikocredit International, a social investor increasingly engaged in microfinance, expressed that channeling commercial capital to microfinance institutions is key in establishing the conditions for sustainability and for the scaling-up of microfinance institutions. Commercial capital pushes microfinance institutions to have more rigorous financial discipline and management (Amando, 2005).

Microfinance institutions in Kenya need to adopt and subscribe to performance standards in their operations so as to measure and ensure growth. In the Philippines the Central Bank as a member of the National Credit Council worked very hard in finalizing a set of performance standards that can be used by microfinance institutions across the banking, non-governmental and cooperative sectors to facilitate assessment and evaluation of their performance. The standards go by the acronym P.E.S.O, which stands for Portfolio Quality, Efficiency, Sustainability and Outreach.

MFI growth includes diversification, such as the introduction of new financial products, training needs to be designed to gradually provide staff with new skills, thus increasing their flexibility and productivity. Credit bureaus are useful in reducing risks in lending and in encouraging a more responsible attitude towards credit by borrowers which will ultimately lower delinquency and strengthen the credit and financial system. In addition, the presence of credit bureaus will foster lending to the previously neglected sector such as the micro, small and medium enterprises due to less reliance on collateral based credit decisions. The other necessary condition is the presence of a comprehensive credit information system. With more and more players engaged in microfinance, the problem of credit pollution and multiple borrowings is also increasing. The sharing and disseminating of credit related information will be able to address this problem (Kitabu, 2007).

To be successful an organization should have special features over and above being new and small in an industry. If any developments have to take place among microfinance institutions then the rate of their growth would depend on accumulation of physical and human capital. This however would require an effective allocation of resources and ability to acquire and apply modern technology (Biggs et al, 1996)

Growth of the microfinance sector however, is very much dependent on a host of factors among them, the policy and regulatory environment, which consists of broad, high level policies that affect the economic and regulatory conditions in which micro finance institutions have to operate. Such are macro-policies for the stabilization and growth of the economy. Other factors include provision of technological capabilities and skills upgrading, competition. These factors promote higher business productivity and growth through improved techniques, and the related introduction of better quality products and services that yield the institutions high added value and larger markets. The provision of financial services, technology upgrading, complements the beneficial effects of a truly enabling policy environment (Ronge, et al, 2002)

The government is struggling to thrust the country into a state of economic recovery by integrating the microfinance sector into the national economic grid, by seriously looking at the potential of the microfinance institutions sectors for driving SMEs, creating employment and economic growth, further the Kenya government has taken major steps in the development of this sector by passing a regulatory framework in the form of the micro-finance bill which will enable their registration and regulation of micro finance institutions (Munguti, 2005).

For a growing business to continue growing, it has to be a learning organization that monitors the market and scans the horizon looking for clues or trends. It needs to be proactive by regularly analyzing how it can do better. There may be a tendency in mature MFI's to assume that, because their current financial products are so successful, they should continue to operate the way they are and just increase the scale of their operations. Successful firms are constantly innovating and upgrading, and they spend a significant percentage of their budget on research and development. Donor organizations should consider how their resources may fund the imagination of microfinance institutions to enhance their growth (Tomasko, 1996).

Businesses need to have an effective management information system in place prior to an explosive growth phase to enable it to manage growth. Most emerging firms get into trouble because the management team either does not have the information it needs to make the right decisions or chooses to ignore the information that is available. For microfinance, information is even more important than in most businesses. It is the lifeblood of an MFI. Microfinance relies an information based lending technology, as opposed to commercial banks that use a collateral-based approach. Microfinance information must focus on financial as well as non-financial indicators, such as productivity, efficiency, average loan size, and client retention. The management information system should provide information about factors and forces that need to be monitored closely as well as insights into what should be changed. This early warning system can scan the horizon for trends, and identify threats and opportunities (Craig, 1997).

2.3 Summary and Gap

From literature reviewed the information available indicates that the number of micro finance institutions in Kenya is gradually increasing and dominant market players are growing, most microfinance institutions however register slow growth and further the reasons for this with respect to Kenya are not conclusive.

Despite their success so far microfinance institutions only reach a fraction of the estimated underlying demand. There is huge latent demand for micro-credit around the country. Even though micro-finance bodies are meant to serve those who have been left out of the formal banking system, there is a growing concern that many Kenyans still lack credit facilities. This is because despite the growing number of microfinance institutions in Kenya, their outreach is constrained especially in rural areas, the study therefore seeks to establish the factors affecting their growth.

Most studies have focused on the small and micro enterprises growth to show how successful they have been after receiving micro-credit, few have tried to analyze the factors affecting the growth of microfinance institutions themselves.

Although microfinance activity has grown considerably in recent years, it is still far from reaching a significant portion of the population that lacks access to formal financial services. Microfinance institutions despite their success over the past few years, have only grown to reach a fraction of the estimated underlying demand, extensive study is yet to be done on factors affecting their growth.


3.0 Introduction

This chapter discusses the research method that was applied in carrying out the study. It covers the following areas; Research design, target population, sampling design, data collection procedure and data analysis.

3.1 Research Design

This study adapted a descriptive research design. The research aimed to collect data on the factors affecting the growth of microfinance institutions in Kenya. Descriptive research design is used when data collected describes persons, organizations, settings or phenomena. This approach was appropriate because the data collected mainly involved descriptions of the variables in the study. This descriptive research design enabled the research capture quantitative data to provide in depth information about the factors affecting the growth of microfinance institutions in Kenya.

3.2 Target Population

The target population in this research were microfinance institutions registered and operating in Kenya. There are 56 registered microfinance institutions, this was the group of interest. Questionnaires were administered to finance managers of these microfinance institutions.

3.3 Sample Design

The census method was used in this study. In this method of study, all registered microfinance institutions were surveyed. For the purposes of this study all 56 registered microfinance institutions.

3.4 Data collection methods

Data was collected from microfinance institutions using structured questionnaire.

Primary data was collected by use of questionnaire method in this study. Primary data are those which are collected fresh and for the first time and thus happen to be original in character (Kothari, 2004). In this study, the research made use of a questionnaire to solicit ideas related to the research problem from respondents. The questions sought to address the research objective and question related to the study.

A drop and pick method was used in administration of the questionnaire.

3.5 Data Analysis and Presentation

The results obtained from data collected were summarized under common themes and presented in form of frequency tables, percentages and pie charts. According to Cochran (1989) results from research findings are often presented in these forms. Data was analyzed by frequency distribution and percentages to show the frequency of institutions citing common factors and the percentage of them identifying similar factors affecting their growth. Written explanations are provided to interpret data, to draw conclusions and make recommendations. The purpose was to measure and provide information on factors affecting the growth of microfinance institutions.



4.1 Introduction

This chapter deals with the results and findings of the study. It presents and descriptively analyzes the data gathered from respondents and summarizes the major findings from the respondents. These responses were analyzed using excel computer package and the results summarized in form of tables, bar graphs and pie charts as appropriate.

4.2 Results and Data Analysis

The primary objective of the study was to assess the factors affecting the growth of microfinance institutions in Kenya. A census was undertaken where all 56 registered microfinance institutions were presented with questionnaires, 34 of the 56 respondents returning their duly filled up questionnaires. This represented a 60.7% response rate which was deemed sufficient for derivations of conclusions covering the entire population under the study.

4.3 General Findings.

4.3.1 Years of operation

On the number of years that the organizations have been in operation, the results showed that majority (55.9%) were between 10 and 15 years old since they started operating. 14.7% of the organizations were the oldest being over 15 years old, while 11.8% of the population being the youngest having being in operation for less than 5 years. The remaining 17.6% of the respondent organizations were between 5 and 10 years.


4.3.2 Customer segments.

In response to the question regarding to which customer segments the organizations provide microfinance facilities to, 5.9% said they provide services to women, 11.8% indicated micro enterprises, 79.4% provide services to all segments, while 2.9% said the cater for agriculturalists.


4.3.3 Client base

From this study it was established that 50% of the organizations that responded had a client base of over 10,000 clients. 32.4% of the microfinance institutions had between 5,000 and 10,000 clients and 17.6% of the respondents indicated having a client base of less than 5,000 customers.

4.3.4 Branch networks

From the study it was established that majority (52.9%) of the respondents had less than 5 branches nationwide. 20.6% of the microfinance organizations indicated they had between 5 and 10 branches, while 26.5% responded to having over 10 branches countrywide.

4.4 Research Findings

4.4.1 Section 1

This section represents results on the responses to statements concerning factors affecting the growth of microfinance institutions in Kenya.

Table 4.3 below summarizes the results of the responses to the statement that access to funds for on lending is a factor that affects the growth of microfinance institutions in Kenya. Majority (79.4%) of the respondents indicated that access to funds for on lending greatly affects the growth of microfinance institutions, while 5.9% indicated that access to funds for on lending only slightly affects the growth of microfinance institutions in Kenya.


Table 4.4 below summarizes the results of the responses to the statement that the range of financial products and services is a factor affecting the growth of microfinance institutions in Kenya. Over half (61.8%) of the respondents indicated that the range of financial products and services offered by a microfinance institution greatly affects its growth. 32.3% responded it affects, while the remainder (5.9%) indicated that the range of financial products and services offered by microfinance institutions slightly affects their growth.


The results from table 4.5 below show that 67.6% of the respondents indicated that competition affects the growth of microfinance institutions in Kenya. Representing a majority of the firms believe that competition affects their growth.


With regard to employee skills and training as a factor affecting the growth of microfinance institutions in Kenya, 73.5% responded it greatly affects, 20.6% said it affects, while 5.9% responded it slightly affects.


Further results from Table 4.7 show that with regard to technology use, 82.4% of the respondents indicated that the use of technology greatly affects the growth of microfinance institutions in Kenya.


When asked to respond on the effect of internal control and corporate governance on the growth of microfinance institutions in Kenya, majority (73.5%) of the respondents indicated that internal control and corporate governance greatly affects the growth of microfinance institutions in Kenya.


The results from table 4.12 show that with regard to the effect of legislation and regulatory regime, only 5.9% indicated that it greatly affects the growth of microfinance institutions in Kenya. 20.6% indicated it affects, with the majority (58.8%) of the respondents indicating it only slightly affects. 11.8% indicated it does not affect growth, with 2.9% not being sure.

With regard to corporate social responsibility 47% of the respondents indicated that corporate social responsibility only slightly affects the growth of microfinance institutions in Kenya. 26.5% responded it affects, 2.9% indicating it greatly affects, while 14.7% indicating that practice of corporate social responsibility does not affect the growth of microfinance institutions in Kenya. 8.8% of those who responded were not sure.

4.4.2 Section 2

In this section respondents were asked whether they agreed with certain statements in the questionnaire.

With regard to the statement that the distribution of microfinance products and services affects the growth of microfinance institutions 67.6% of the respondents indicated they strongly agree, 32.4% of the respondents indicated they agree, none disagreed with the statement.


Results in 4.5 below show that majority (55.9%) agree with the statement that the firms marketing activities affect the growth of the microfinance institutions. 35.3% indicated that they strongly agree, while 2.9% indicated they disagree with the statement. 5.9% of the respondents were not sure.

With regard to the statement that the skills and level of qualification of management affects the growth of microfinance institutions, 67.6% of the respondents indicated that they agree with the statement while only 8.8% disagreed.


On the statement that the quality of products and services offered by microfinance institutions affects its growth, none of the respondents disagreed. Majority (64.7%) of the respondents indicated they agree with the remainder (35.3%) indicating they strongly agree as well.


When asked to indicate how different factors contribute to growth of microfinance institutions in Kenya the following responses were obtained.


When asked to indicate business objectives in order of importance to the microfinance institution, 21% of the respondents indicated profitability as the most important business objective, 8.8% indicated competitive position, and 2.9% responded survival, while majority (52.9%) of the respondents cited growth as their most important business objective. The remainder (14.7%) indicated increased market share.



5.1 Introduction

This chapter contains a summary of the findings, conclusions and recommendations of this research project whose main purpose was to assess the factors affecting the growth of microfinance institutions in Kenya. The chapter also addresses the areas for further research.

5.2 Summary of Findings

The results of the study indicate that employee skills and training contributes to the growth of microfinance institutions with 70.6% of the respondents indicating that the contribution of employee skills and training to growth is significant.

The results revealed that government legislation and the regulatory regime only slightly affects growth of microfinance institutions in Kenya according to a majority of 58.8% of the respondents. In terms of contribution to growth, among other factors government legislation also was perceived to have minimal or least contribution according to majority (55.9%) of the respondents.

The study also indicated that the skills and qualification of management affects the growth of microfinance institutions in Kenya, this is according to 91.1% of the respondents in the study. This shows that management competence in terms of skills and qualifications in running the firm greatly determines a firm's growth.

The study showed that the level of training and skills of employees greatly affects the growth of microfinance institutions, a majority of 73.5% respondent microfinance institutions indicating that employees skills and training greatly affect the growth of their organization.

The results obtained from this study also revealed that the extent of contribution of competition to growth was perceived differently across the respondents in the study. 41.2% indicated that its contribution is minimal, 29.4% view its contribution to be significant, and while 14.7% indicated it most contributes to growth. 8.8% indicated competition does not contribute to growth.

Findings from the study also indicated that use of technology affects the growth of microfinance institutions with 82.4% of the respondents indicating that technology greatly affects their growth.

The results from the study further revealed that despite the legal framework being a key aspect of any business, a majority (52.9%) of the respondents believe that the government's contribution to the growth of microfinance institutions in Kenya is minimal.

The study also showed that access to funding is critical to the growth of microfinance institutions in Kenya, with 79.4% of the respondents indicating that accessibility of funds greatly affects their growth.

Findings from the study revealed that the skills and qualification of management affects the growth of microfinance institutions, with 91.1% of the respondents indicating they agree. It was also established that management leadership contributes the most to growth of microfinance institutions in Kenya as per 89.1% of the respondents.

5.3 Conclusion

A number of conclusions can be drawn from the study. Compared to results of other similar studies carried elsewhere.

Technology use is a significant factor to growth of microfinance institutions. This concurs with literature review that the technological capabilities of microfinance institutions, determines its growth. Findings from the study indicated that use of technology affects the growth of microfinance institutions with 82.4% of the respondents indicating that technology greatly affects their growth. This outcome is in harmony with results obtained in a study by Biggs and Srivaslova in 1996, which showed accumulation of technological capability, is important to sustained microfinance growth and development.

Findings from the study reveal that the skills and qualification of management affects the growth of microfinance institutions. It was also established that management leadership contributes the most to growth of microfinance institutions in Kenya as per 89.1% of the respondents. These findings are in harmony with the literature review that indicates managerial skills, experience and qualification influences performance and leads to microfinance institution growth.

From the study it can be concluded that the quality of products and services offered by microfinance institutions affects growth, this is consistent with the literature review that the quality and variety of services offered by microfinance institutions affects its growth.

The study also revealed that access to funds for on lending not only forms the basis for the microfinance institutions operations but also determines the growth of the business.

The study showed that the level of training and skills of employees greatly affects the growth of microfinance institutions. A majority of the respondents from the microfinance institutions indicated that employees' skills and training greatly affect the growth of their organizations. This is consistent with findings by Kitabu, 2007 which revealed that training and skills of employees increases their flexibility, productivity and promotes growth of the firms.

Also from this study, internal control and corporate governance, distribution and quality of products and services, corporate social responsibility and marketing were also established factors affecting microfinance institution growth in Kenya.

5.4 Recommendations

The following recommendations are based on findings generated from the study.

The study recommends that to facilitate growth of the microfinance institutions employees should constantly receive training in new skills to improve their expertise in the business operations.

Microfinance institutions should be sensitized on the importance of corporate social responsibility and its contribution to growth and conduct periodic surveys among their clients and community members around with regard to the success of their corporate social responsibility programs.

From the study it came out clearly that the distribution of product and services is critical to the growth of the microfinance institutions. The institutions therefore need to develop continuous monitoring mechanisms to ensure that clients are able to access their services.

The government through its business development offices should strengthen the capacity of microfinance institutions by providing access to funds and legal and regulatory environment that promotes fair competition and promotes growth.

The opportunity exists to differentiate financial products and services and thus create a greater demand for their products. Microfinance institutions should develop more products and services to give its customers a variety to choose from.

Finally it is recommended that microfinance institutions in Kenya should fully utilize and increase the adoption of appropriate technologies to enhance growth. It is also recommended that the microfinance institutions invest in new information technologies as well as invest in an integrated system to connect its branches in order to provide effective and efficient services.

5.5 Suggested areas of Study

Further research should be done to establish ways of helping microfinance institutions survive and grow in a fully liberalized economy, this is in line with the advent of the increasing competition from banks.

In this study different organizations cited different business objectives such as competitive position, survival, market share, profitability, further research should therefore be done to establish how the different objectives a firm pursues affects its growth.

A study could be carried out to establish areas of opportunities that exist for microfinance institutions to consolidate and enjoy economies of scale through joint ventures, partnerships, mergers and so forth that can be utilized to enhance growth.


Amando, M. 2005, Stimulating the growth of microfinance in the Philippines .Central Bank of Philippines.

Anyanwu, C. M 2004, Microfinance Institutions in Nigeria: Policy, Practice and Potentials. Central Bank of Nigeria, Abuja, Nigeria.

Barclay, O. 2006, Valuing micro finance institutions. Opportunity international. Savings and development-NO. 3 - 2006

Baumann, T. 2001, Micro-finance and poverty alleviation in South Africa. Bay research and consultancy services Cape Town

Christopher, J. & Colin, H. 2006, Finance for Small Enterprises Growth and Poverty Reduction in Developing Countries. Journal of International Development J. Int. Dev. 18, 1017-1030 (2006)

Craig. F, 1997, Managing Growth: The Organizational Architecture of Microfinance Institutions. Accion International

Glenn, D. & Washington, K. 1996, Kenya Rural Enterprise Program: Directing credit to low income groups. Micro-Finance Series, AFTE1, Africa Region, Washington, D.C.: Findings Africa region Vol.8

Government of Kenya 1997, The Economic Survey, 1997, Ministry of Planning and National Development, Government printers, Nairobi.

Harper, M 2003, Key writings on Microfinance, ITDG Publishing, Samskriti, New Delhi, India.

Hospes, R. 2002, An Evaluation of Micro-Finance Programmes in Kenya as Supported through the Dutch Co-Financing Programme. A study commissioned by: Steering Committee for the Evaluation of the Netherlands Co-financing Programme

Humphrey, K. 2006, Growth of micro enterprises in Kenya: A case of automotive garage operators in Kariobangi, Nairobi.

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Thank you for taking time to complete this questionnaire. Kindly answer the following questions. The responses will be used for academic purposes only, and will be treated with utmost confidence.


(The purpose of this section is to get background information about the institution)

1. Kindly indicate the number of years of operation of your organization.

a) 0-5 years [ ]

b) 5-10 years [ ]

c) 10-15 years [ ]

d) over 15 years [ ]

2. To which customer segments does your firm provide micro credit facilities to?

i) Women [ ]

ii) Agriculturalists [ ]

iii) Micro enterprises [ ]

iv) All [ ]

v) Others (please specify). .

3. What is the estimated number of clients of the institution?

i) 0 - 5000 [ ]

ii) 5000-10,000 [ ]

iii) above 10,000 [ ]

4. How many branches does your microfinance institution have in the country?

i) 0 - 5 [ ]

ii) 5 - 10 [ ]

iii) Over 10 [ ]

Section B.

( This section aims to identify the factors affecting the growth of microfinance institutions).

5. Below is a table please indicate whether the factors listed affect the growth of your microfinance institution. Whether it greatly affects, affects, not sure, slightly affects or does not affect.


Greatly affects.


Slightly affects.

Does not affect.

Not sure.

Access to funds for on lending.

Range of financial services & products.


Employee skills and training.

Use of technology.

Internal control and corporate governance.

Legislation and regulatory regime to business operations.

Corporate social responsibility.

6. On a scale of 1 to 5 indicate whether you agree with the following statements in relation to the growth of micro finance institutions.



Strongly agree






Strongly disagree


Not sure

Distribution of micro finance products and services affects the growth of the microfinance institution.

The firms marketing activities affect the growth of the microfinance institution.

The skills and level of qualification of management affects the growth of the microfinance institution.

Quality of products and services offered affects the growth of the microfinance institution.

7. Are you satisfied with the level of growth of your microfinance institution?

Yes [ ] No [ ]

8. Kindly rank the following five areas with respect to which contributes the most to the growth experienced. Where 1 is the most and 5 is the least.

a) Competent Staff [ ]

b) Increased quality of service [ ]

c) Increased marketing [ ]

d) New technology [ ]

e) Management leadership [ ]

9. Please indicate how the following factors contribute to the growth of your firm. Ranging from most to least or no contribution. Please tick appropriately.

Contribution is Least

Contribution is minimal

Contribution is significant

Contribution is Most

Does not Contribute

Availability of funding e.g donors



Employee skills and training.

Government regulation

Management leadership.

Product and service development

10. The following are some business objectives, Please indicate the order of their importance to your firm. Such that 1 is the most important, 4 is the least important, while 5 indicates not an objective.

(Tick the appropriate box)

Business Objective







Competitive position



Increased market share

Thank you for your time


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