THE ROLE OF MICROFINANCE INSTITUTIONS IN POVERTY

ALLEVIATION IN KENYA

BY:

BELLONCE NYAMBURA MUTHONI D33/83202/2017

VALERIE LISA ADHIAMBO D33/83399/2017

OPIYO MELANIE ACHIENG D33/83391/2017

DINAH E BRENDA D33/83318/2017

NELLY NJOKI IRUNGU D33/83265/2017

A MANAGEMENT RESEARCH PROJECT SUBMITTED IN PARTIAL FULFILMENT

OF THE REQUIREMENTS FOR THE AWARD OF THE DEGREE OF BACHELOR OF

COMMERCE IN FINANCE, FACULTY OF BUSINESS AND MANAGEMENT

SCIENCES,

THE UNIVERSITY OF NAIROBI

2022
 DECLARATION

We declare that this research proposal is our original work and has not been presented for any
award in any university or any other college, university or institution.

Date:

Name Registration No. Signature

Bellonce Nyambura Muthoni D33/83202/2017 __________
Valerie Lisa Adhiambo D33/83399/2017 __________
Opiyo Melanie Achieng D33/83391/2017 __________
Dinah E Brenda D33/83318/2017 __________
Nelly Njoki Irungu D33/83265/2017 __________

This research project has been submitted to me for examination as the university’s appointed
supervisor.

Signature Date:

Prof. Mirie Mwangi

Department of Finance and Accounting
The University of Nairobi

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 LIST OF ABBREVIATIONS

AIM: Amanah Ikhtiar Malaysia.................................................................................................................16

CPIA: Country Policy and Instituitional Assessment.....................................................................12, 13, 14
FAO:Food and Agriculture Organization..................................................................................................16
IFAD: International Fund for Agricultural Development..........................................................................12
K-REP:Kenya Rural Enterprise Programme..............................................................................................18
MFBs:Micro-Finance Banks.....................................................................................................................20
MFIs:Microfinance Instituitions.........................................................................................................passim
NGO:Non-Governmental Organization...............................................................................................15, 18
PLS:Profit and Loss Sharing.....................................................................................................................15
SMEs:Small and Medium-sized Enterprises........................................................................................19, 24
UN:United Nations......................................................................................................................................1
USAID:United States Agency for International Development..................................................................18
USD:United States Dollars..........................................................................................................................1
WB:World Bank..........................................................................................................................................3

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 TABLE OF CONTENTS

DECLARATION.............................................................................................................................ii

LIST OF ABBREVIATIONS........................................................................................................iii

CHAPTER ONE..............................................................................................................................1

INTRODUCTION...........................................................................................................................1

1.1 Background of Study.............................................................................................................1

1.1.1 Micro-Finance Institutions.........................................................................................2

1.1.2 Poverty Alleviation..........................................................................................................3

1.1.3 The Role of Microfinance Institutions in Poverty Reduction.........................................4

1.1.4 Microfinance Institutions and Poverty Alleviation in Kenya..........................................5

1.2 Research Problem..................................................................................................................6

CHAPTER TWO.............................................................................................................................9

LITERATURE REVIEW................................................................................................................9

2.1 Introduction............................................................................................................................9

2.2 Theoretical Review................................................................................................................9

2.2.1 Welfarists Theory............................................................................................................9

2.2.1 Institutionalists Theory..................................................................................................10

2.2.3 Minimalist Theory.........................................................................................................10

2.2.4 Financial Integration Approach.....................................................................................11

2.3 Determinants of Poverty Alleviation...................................................................................12

2.3.1 Empowerment of the Poor.............................................................................................12

2.3.2 Opportunities Offered to the Poor.................................................................................13

2.3.3 Security Enhancement...................................................................................................14

2.4 Empirical Review.................................................................................................................15

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 2.5 Summary of Literature review.............................................................................................19

CHAPTER THREE.......................................................................................................................20

RESEARCH METHODOLOGY..................................................................................................20

3.1 Introduction..........................................................................................................................20

3.2 Research Design...................................................................................................................20

3.3 Population............................................................................................................................20

3.4 Sample Design.....................................................................................................................21

3.5 Data collection.....................................................................................................................21

3.6 Data analysis........................................................................................................................21

3.6.1 Diagnostic test...............................................................................................................21

3.6.2 Analytical model...........................................................................................................22

REFERENCES..............................................................................................................................23

APPENDICES...............................................................................................................................26

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 CHAPTER ONE

INTRODUCTION

1.1 Background of Study

Poverty is a global, not a national, issue: poverty alleviation is the eighth Millennium
Development Goal (MDG), and women account for 75 out of every 100 poor people worldwide,
according to the 2018 report on sustainable development goals (UN, 2018). Despite the failure of
many prior methods, policymakers continue to strive for better ways to combat poverty. In 2015,
the World Bank established an international poverty line at 1.90 USD per day. Those who live on
a lower daily rate should be regarded to be living in severe poverty, according to the Global
Extreme Poverty Reporting in Sustainable Development Goals (SDGs) report 2019 (UN,2019).
In absolute terms at the global level there are currently between 1.2 and 1.5 billion people still
living in extreme poverty and 162 million children still suffering from chronic under-nutrition, a
figure the UN deems ‘unacceptable’ (United Nations Development Program, 2014).

Microfinance, or the provision of small loans to the poor with the goal of pulling people out of
poverty, is a fundamental poverty-reduction approach that has grown swiftly and widely over the
last 20 years, with more than 60 nations now participating (Bateman, 2010). Many researchers
and policymakers believe that microfinance encourages entrepreneurship, increases income-
generating activity, and thus reduces poverty. It also empowers the poor (particularly women in
developing countries), improves access to health and education, and builds social capital among
poor and vulnerable communities (Khandker, 2005; Westover, 2008). Studies of market-based
poverty alleviation are also gaining popularity in the management literature, with ideas such as
'base-of-pyramid' and 'creating shared value' being established to address what businesses can do
to relieve poverty and improve social welfare (Porter and Kramer, 2011; Prahalad, 2004).

There has been considerable disagreement over some critics' claims that microfinance, rather
than reducing poverty, actually works to aggravate poverty in some circumstances (Bateman,
2010; Karim, 2008). Such concerns raise important questions: Does microfinance really enable
Entrepreneurship among underprivileged communities to start businesses that will help them get

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out of poverty? Our research therefore aims to demonstrate a positive relationship between
microfinance institutions and poverty alleviation. According to Espinoza-Delgado and López-
Laborda (2017), microfinance allows people with low incomes to have access to the resources
they need to get out of poverty locally. Nonetheless, MFIs have increasingly examined their
national potential, particularly in light of Muhammad Yunus' 2006 Nobel Peace Prize, which was
presented to him for pioneering microfinance for the impoverished who are too poor to be
eligible or traditional bank loans but capable of working to develop themselves (Donou-Adonsou
& Sylwester, 2016; Khan, 2009; Khan,2010; Sugiyanto, Yolanda, & Business, 2020).

1.1.1 Micro-Finance Institutions

Microfinance gateway, (2012), Describes Microfinance as the provision of financial services to
the poor and low-income clients, both employed and self-employed. It refers to a movement that
envisions a world in which low-income households have continuous access to a variety of high-
quality and affordable financial services to finance income-generating activities, build assets,
stabilize consumption, and protect against risks. Microfinance should not be confused with
Microcredit which refers to a small loan provided, at a low-interest rate, to the persons of below
poverty line to make them self-employed, i.e. to help the small entrepreneurs start their own
business while Microfinance means the broad spectrum of financial services such as loans,
insurance, savings etc. provided to the people of low-income groups.

Hassan, (2002) states that the precedent for microfinance may be seen in the numerous
traditional and informal lending systems that have existed in underdeveloped nations for
generations. Many modern practices are inherited from community-based cooperative credit
transactions that were founded on trust, peer-to-peer lending, non-collateral borrowing, and
payback. Microfinance Institutions are a diverse group of providers with varying legal structures,
missions, and methodologies. However, they all have one thing in common: they all provide
financial services to those who are poorer and more vulnerable than regular bank customers. The
microfinance institutions provide both financial and non-financial services. Savings, credit,
insurance, and transfer payments are among the financial services offered while health services,
company growth, self-confidence building, and financial literacy training are among the non-
financial services provided (Microfinance gateway, 2012).

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Emerging research on bottom-of-the-pyramid (BoP) methods to poverty reduction and poor
population empowerment, suggests that market-based initiatives aimed at disadvantaged
communities can harness their social capital to generate capacities that can pull people out of
poverty (Ansari et al., 2012). Microfinance advocates stated that providing credit to
impoverished areas would give a source of additional income and employment, as well as access
to low-interest loans, allowing poor communities to escape the clutches of local moneylenders
and loan sharks and their exorbitant interest rates. The provision of financial services to
underprivileged sectors of the population might assist them deal with the vulnerabilities that
come with poverty, while also empowering women who may face a lack of entrepreneurial
prospects due to patriarchal control structures (Bateman, 2010; Matin et al., 2002).

Microfinance impact assessments yield mixed findings, both in terms of its effectiveness in
reducing poverty and its long-term viability as a financial model. While some studies suggest
that microfinance boosted disposable income and helped impoverished families escape poverty
(Khandker, 2005), others found no evidence of such a link (Kah et al., 2005; Morris and Barnes,
2005), and others even showed a negative impact (Bateman, 2010; Dichter and Harper, 2007;
Karim, 2011; Roodman, 2011). Despite the multiple problems that the institutions confront, the
World Bank, a significant proponent of microfinance, maintains that there is a strong and
positive association between the usage of microloans and poverty reduction (World Bank, 2007).

1.1.2 Poverty Alleviation

Poverty is a wide, comprehensive, and multidimensional notion that encompasses people's
economic, social, political, and environmental well-being (WB, 2006). The idea of poverty is
defined differently by different authors. For instance, the World Bank Development Report,
(1998) indicates the most commonly used definition of poverty which is the inability to achieve a
basic level of living, which is characterized by lack of food, a poor life expectancy, a higher rate
of infant mortality, a low educational standard, insufficient health care, and unsuitable housing
conditions. According to the World Bank, the 'extreme poor' are those who live on less than
$1.25 per day and the merely 'poor' are those who live on less than $2 per day based on
consumption per capita (Banerjee and Duflo,2007)

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A World Poverty Clock report (2018), reveals that Kenya ranks as the eighth poorest country in
the world and the sixth poorest in Africa. Specifically, the Kenya Bureau of Statistics Poverty
Index Report of 2017, stated that 14.62 million Kenyans are currently living in extreme poverty,
many of whom are illiterate or reside in remote locations. Professor Yunus Mohammed (2006)
pointed out that sustainable development cannot be accomplished until vast populations discover
means to break free from poverty. Microfinance has been proposed and is being utilized as a tool
in this endeavor all over the world since it helps to mainstream the poor into economic
involvement by providing loans and other financial services. Kenya has not been left behind,
thanks to the efforts of the government and the private sector of the donor community and this
has raised most Kenyans into self-employment in turn raising their standards of living above the
poverty line.

Microfinance is a concept and practice that has recently gained a lot of urgency in Kenya. This is
due to the realization that there is an urgent need to empower the disadvantaged by providing
them with cheap loans for long-term economic growth. This is evidenced by laws and the efforts
of key government officials. In Kenya, the Microfinance Act (2006) establishes a framework for
the licensing, regulation, and supervision of microfinance institutions in their attempts to provide
low-income earners with access to credit as a crucial aspect of poverty alleviation initiatives. The
core concept of microfinance is straightforward: If disadvantaged individuals are given access to
financial services, including financing, they may be able to start or build a micro-enterprise that
will allow them to support themselves and break out of poverty (Yunus, 2006). Some of the
notable programs locally and internationally that have identified micro-finance as one of the
solutions to poverty includes: Millennium Development Goals (MDGs); Poverty Reduction and
Strategy Paper (PRSP); Economic Recovery Strategic Paper for Wealth and Employment
Creation; and Kenya Vision 2030.

1.1.3 The Role of Microfinance Institutions in Poverty Reduction

The usefulness of microfinance as a poverty reduction technique has been endorsed or critiqued
by theorists all around the world. For example, economists Adams and Von Pische (1992)
believe that debt is not an effective instrument for helping most individuals improve their
economic circumstances, whether they own small farms or small businesses or are poor women.
In most situations, the absence of official loans is not the most serious issue that these people

4
confront. Mohammad Yunus (1994), on the other hand, argues that "if we are seeking for one
single action that can assist the poor to escape their poverty, I will go for credit." Empirical
research in many places have been conducted over time to validate these hypotheses. The most
commonly used impact indicators are house hold income, expenditure patterns, vulnerability, and
women empowerment.

The empirical evidence on the influence of microfinance on poverty reduction worldwide is as

contradictory as the theories themselves. At the household level, most impact assessment studies
have shown that microfinance institution borrowers enjoy positive outcomes in terms of asset
accumulation and consumption (Sebstad and Chen, 1996). Hulme and Mosley (1996) discovered
a trade-off between changes in income and vulnerability: borrowing can alleviate poverty as
measured by income, but such debt can make the poor more susceptible due to the additional
risks connected with borrowing. Many qualitative and quantitative studies have shown how
access to financial services, particularly those aimed at impoverished women, has benefited
women's welfare within the family and community, making them more assertive (Mayoux,1999).

A research conducted in El Salvador discovered that the creation of profitable businesses and the
increase of the income of the extremely poor were competing aims. Programs that choose the
most likely-to-succeed businesses for loans and training shifted away from the poorest clients
(Tomlison,1995). According to Johnson and Rogaly (1997), "from five case studies in Mexico,
Pakistan, the United Kingdom, Gambia, and Ecuador, as well as case studies conducted by other
researchers," most microfinance programs are unlikely to improve the income of the poorest
people but do have an impact on better-off but still poor people. A research from India supports
the hypothesis that the poorest people's capacity to accept and use loans is severely limited.
Among such limit were lack of skills, technology and marketing opportunities (Mayoux, 1997).

1.1.4 Microfinance Institutions and Poverty Alleviation in Kenya

Microfinance is a relatively new idea that has risen tremendously in the last decade as investors,
charities, and banks see the capital potential of lending to the poor. Poor individuals were
previously thought to be unbankable since they could only take out tiny loans and had no
collateral (Simanowitz and Walter 2002). Grameen Bank, the first bank to open its doors to the
poor in Bangladesh, demonstrated that not only are the poor bankable, but that microfinance in
the informal sector can be extremely profitable (Brandsma and Chaouli 1998). Since then,

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millions of poor individuals have benefited from microfinance organizations that have sprung up
all over the world (Simanowitz and Walter 2002).

In Kenya, MFIs are regulated under the Microfinance Act (2006). Under section 3 of the Act,
there are deposit-taking MFIs such as Faulu Microfinance Bank Limited and Kenya Women
Microfinance Bank otherwise known as KWFT. Since the first microfinance bank was licensed
in 2009, the sector has experienced substantial expansion. There are now thirteen licensed
microfinance banks, eleven of which are countrywide and two of which are community-based.
The Central Bank of Kenya has granted all of these institutions licenses to provide financial
services to low-income clients. The main objective of these institutions is to reduce poverty.
People living in extreme poverty often lack access to basic necessities such as food, clean water,
clothing, and adequate housing. The majority are illiterate and disease-prone (Lindvert 2006). In
most developing nations, like Kenya, poverty is not solely a rural problem; it can also be seen in
urban areas. Opportunities for wage employment in the formal sector are severely limited and the
great majority of the poor rely on self-employment to make ends meet.

Studies have shown that microfinance has been successful in many situations. Targeting women
in the society who constitute the majority of the poor, microfinance helps to reduce poverty by
creating wealth which leads to an increase in the levels of incomes of the vulnerable.
Microfinance has been proven again and again to be an effective method of poverty alleviation
(Murdoch and Haley 2002). Microfinance clients have benefited through increased household
income, improved nutrition and health, the opportunity to pursue higher education, reduced
vulnerability to economic shock, greater empowerment, and, in some cases, the ability to
completely lift themselves and their families out of poverty.

1.2 Research Problem

Microfinance may be an important part of a successful poverty-reduction strategy. Improved
access to and efficient provision of savings, credit, and insurance facilities, in particular, can help
the poor smooth out their spending, better manage their risks, gradually build their assets,
develop their microenterprises, increase their income earning capacity, and enjoy a higher quality
of life. Institutional commercial microfinance, if widely available, might help hundreds of

6
millions of individuals in poor countries enhance their economic activities and their quality of
life (Ali, Hatta, Azman & Islam, 2017).

The Kenyan government has recognized poverty together with disease and illiteracy as the major
constraints to human development. Since then, the government has identified the causes,
restrictions, and processes that cause and perpetuate poverty. Despite these advances, poverty
reduction has proven difficult, particularly since the 1980s. Poor economic performance has
resulted in an increase in absolute poverty, defined as those who lack appropriate food and
nutrition, as well as insufficient access to fundamental amenities such as education, health care,
safe drinking water, and suitable housing. Poverty represents the lack of necessary goods and
services (Kathleen Short, 2016). Poor policy design, planning, and implementation of poverty
reduction programs have been criticized for this.

It is for this reason that different microfinance institutions such as Faulu Microfinance Bank
Limited, Kenya Women Microfinance Bank Limited, Uwezo Microfinance Bank Limited, Rafiki
Microfinance Bank Limited etc. were formed. Poor farmers, mama mbogas, boda boda
operators, poor single mothers, and unemployed or self-employed people with very low earnings
are among the people who benefit from microfinance services. Microfinance institutions help
these people establish their businesses. In the long run, this is beneficial to the individual because
they will have a way to earn money and improve their socioeconomic situation. However,
microfinance institutions also face some challenges. They include: over-indebtedness due to
multiple borrowings and inefficient risk management, high rates of interest as compared to
mainstream banks, limited funding, government regulations etc. This research seeks to answer
the following question: what is the role of microfinance institutions in poverty alleviation?

1.3 Research Objective

The objective of this study is to establish the role of microfinance institutions in poverty
alleviation in Kenya.

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1.4 Value of the study

The findings of this study will aid the government in determining the extent to which MFIs in
Kenya are assisting in poverty reduction. The government would be able to establish better
policies to aid in increasing the level of services that Kenyans receive from MFIs once it has
determined the scope of the problem. Also, the government will be able to identify areas that
require immediate attention as well as those that can have a long-term impact on Kenya's poverty
level as a result of the research recommendations.

Furthermore, the recommendations will benefit stakeholders such as Kenya's development

partners, non-governmental organizations, and donor communities. They will focus their help on
improving the microfinance sector in an effective and efficient manner. Investors may also need
to know the challenges of financing MFIs and whether the goals are being achieved. This study
will help them make this decision and make informed choices

The outcomes of this study will also eventually help MFIs scale up and deliver better products
and services. In addition, it will benefit other donors such as microfinance strategists,
policymakers, aspiring microfinance researchers, and university and college students interested
in entrepreneurship or microfinance.

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 CHAPTER TWO

LITERATURE REVIEW
2.1 Introduction

This chapter reviews past literature in line with the research objective. First, a review of theories
that guide this study will be presented explaining for each other, its key propositions. Later,
empirical studies done on this research topic will be discussed followed by a conclusion on the
summary of the reviewed literature.

2.2 Theoretical Review

The study on the role of microfinance institutions in poverty reduction will be guided by the
following theories: Welfarists Theory, Institutionalists Theory, Minimalists Theory and the
Financial Integration Approach.

2.2.1 Welfarists Theory

Adam Smith (1776) played an important role in the development of the welfare theory. The
Welfarist theory views microfinance as one of the most effective tools for compacting poverty
and realizing a sustainable life. The theory supports the idea of subsidizing microcredit programs
in order to lower the cost of operating microfinance institutions to in turn lower loan interest
rates. This theory argues that credit is provided to poor borrowers below the market interest rates
in order to reach extremely poor people to help overcome or rather reduce poverty and empower
the poor people especially in the rural areas. The welfarist theory focuses on credit as a tool for
poverty reduction.

Welfarists emphasize on the depth of outreach. Welfarists are quite explicit in their focus on
immediately improving the well-being of participants. Welfarists are less interested in banking
per se than in using financial services as a means to alleviate directly the worst effects of deep
poverty among participants and communities, even if some of these services require subsidies.
Their objective tends to be self-employment of the poorer of the economically active poor,
especially women, whose control of modest increases of income and savings is assumed to
empower them to improve the conditions of life for themselves and their children. The center of

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attention is the "family." Like the institutionists, welfarists have assumed more impact than they
actually have been able to document. The most prominent examples of welfarist institutions are
the Grameen Bank in Bangladesh.

2.2.1 Institutionalists Theory

Institutionalism and institutional economics were coined by Walton Hamilton. Institutionalists
hold the view that the sustainability of microfinance institutions depends on profit maximization.
The institutionalists suggest that service recipients must not be the poorest but a little above
poverty line to ensure profitability and sustainability of lenders

Rajeev and Bhatt’s, 2013, initial study indicated that microfinance institutions with a profit
motivation had a higher chance of sustaining their business. Both achieving financial
sustainability and social objective of microfinance institutions at the same time have always been
a big challenge.

Initially microfinance institutions are supported by government and donor agency for the welfare
of the people. But subsequently there is need for a self-sustainable model to support for a long
time period as day by day there has been a reduction of government and donor funding. This
promotes a lot for the expansion of financially self-sustainable microfinance institutions without
dependency from outside resources. This development has raised the questions to serve for social
performance or financial performance competing with each other. It is apparent that a financially
sustainable microfinance institution may reach its social objective with tolerable risk.

2.2.3 Minimalist Theory

Minimalist MFIs typically provide only financial intermediation, but they may provide limited
social intermediation services on occasion. Minimalists believe that there is a single "missing
component" for business growth, which is commonly thought to be a shortage of affordable,
accessible short-term credit, which the MFI may provide.

MFIs offer financial services in form of credit. These MFIs are unwilling to provide non-
financial services due to multiple reasons ranging from high administrative costs to high
transaction costs. The primary focus of these institutions in profitability and viability. The
proponents of the minimalist approach argue that access to credit alone is enough for the poor to
work themselves out of poverty. For instance, Dr. Muhammad Yunus, a renowned pioneer of

10
microfinance, states that ‘rather than waste our time teaching them new skills, we try to make
maximum use of their existing skills. Giving the poor access to credit allows them to
immediately put into practice the skills they already know’ (Yunus 2007, 225). Another
argument for the minimalist approach is that, including ‘plus’ services will have a negative
influence on MFIs’ financial sustainability. This argument is related to the claimed trade-off
between social mission and financial sustainability

In terms of the first approach that is portrayed as minimalist approach it was adopted in the year
2002. Two main approaches on the role of microfinance intermediation in poverty reduction can
be identified (Remenyi, 2002)

Dr. Muhammad Yunus (2007, 225), a renowned pioneer of microfinance, states that ‘rather than
waste our time teaching them new skills, we try to make maximum use of their existing skills.
Giving the poor access to credit allows them to immediately put into practice the skills they
already know.’

Cull, Demirgüç-Kunt, and Morduch 2007; Cull, Demirgüç-Kunt, and Morduch 2011; Hermes,
Lensink, and Meesters 2011 who said that ‘including plus services will have a negative influence
on MFIs’ financial sustainability.’ This argument is related to the claimed trade-off between
social mission and financial sustainability. The minimalist approach has been reassessed (Lanao-
Flores and Serres 2009) with an increasing conclusion that the ‘microcredit, by itself, is usually
not enough’

Most of microfinance institutions deploy minimalist theory since it is cost saving with no after
plus services and little or no social outreach. Some of the microfinance in Kenya that deploy the
minimalist approach are Kenya Women Finance Trust (KWFT), Faulu Microfinance, Choice
Microfinance Bank Limited, Uwezo Microfinance Bank, Musoni Microfinance Institution,
Rafiki Microfinance Bank, Momentum Credit and Century Microfinance Bank. They mostly
prefer this approach since it is Cost effective as no funds are pumped into social outreach such as
loan training, loan monitoring among others.

2.2.4 Financial Integration Approach

Ledgerwood, 1999, presented a financial integrated approach of lending by Microfinance
institutions to their clients. According to Ledgerwood, the MFIs that followed the integrated

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approach provide a wide range of services such as financial, social intermediation, enterprise
development and social service. MFIs decide the suitable approach based on their objectives and
circumstances.

An integrated approach to microfinance involves providing additional financial services,

capacity building for livelihood and allied social services for empowering specific classes of
people such as women. Various studies on the differing approaches to microfinance lending to
the poor segment of the economy and poverty alleviation find successes and failures in both
approaches. Some researchers have found that an integrated approach is necessary to overcome
the problems associated with both approaches and to look into the weakness encountered in the
case of each of these approaches.

This approach emphasizes the importance of providing not only credit but also a range of
development-oriented services to the poor in order to attack the structural causes of poverty.
Rutherford, 2000, cited in IFAD, 2006 pointed out that MFIs that provide full range of services,
including a flexible money management or savings facility, would probably assist the poor
people better to anticipate and plan for their financial needs more effectively than credit-only
providers. It offers wider spectrum approach to solving the problems confronting the low-
income people.

This approach if properly managed taking into consideration socio-cultural, political, and
economic and the physical needs of the clients can result in efficient use of the financial services
extended to the clients. There is the likelihood of the few clients whose life has been improved to
impact on the life of others and the community as a whole.

2.3 Determinants of Poverty Alleviation

2.3.1 Empowerment of the Poor

As defined in the World Development Report 2000/2001, facilitating empowerment entails
improvements in governance that make public administration, legal institutions, and public
service delivery more efficient and more accountable to all citizens; and boosting impoverished
participation of the poor people in political and local decision-making processes; and reducing

12
social and structural barriers resulting from gender, race, and social position differences. Given
the scarcity of resources, because there isn't enough evidence to objectively quantify or measure
empowerment, this section looks at inequality evaluated and measured by Gini coefficient and
the World Bank’s CPIA of policies for social inclusion or equity in Kenya.

According to Radeny and van den Berg (2010), an unequal wealth distribution contributes to
inequality and lack of empowerment among the poor. The poor in this country see the small
percentage of extremely wealthy people living luxurious lifestyles, while they themselves can
barely afford food for their families. These disparities discourage poor people from participating
in political processes and the workforce, and also lower their self-efficacy.

The Gini index evaluates how unequally income is distributed among individuals or families
within an economy, with a Gini index of zero indicating perfect equality and a Gini score of 1
indicating that one person has all of the money and everyone else has none. As a result, the
greater the Gini index, the less likely poor people are to feel empowered. Kenya's income
distribution is significantly more unequal.

Social inclusion factors such as gender equality, equitable public resource use, human resource
development, social protection and labor, and environmental sustainability policies and
institutions are critical to individual empowerment because one must feel included to be
motivated to participate in society. The CPIA ratings show how Kenya's priority level of
inclusiveness and human resources has changed over time.

Providing education to women is also a key measure to facilitate empowerment, though there are
many other ways to empower people. Kenya and Vietnam can facilitate empowerment by
lessening the gap between the impoverished and the ultra-wealthy. People as individuals and the
community as a whole must have self-efficacy in order to fight their ways out of the cycle of
inequality and poverty.

2.3.2 Opportunities Offered to the Poor

As detailed in the World Development Report 2000/2001, see World Bank, 2001, poor people
continually emphasize the centrality of material opportunities: jobs, credit, roads, electricity,
markets for their produce, and schools, water, sanitation, and health services. This area will look
at the evolution of the Kenyan people to having access to education, electricity, water, sanitation.

13
Given that many women do not have an opportunity to earn an income because of childcare
obligations, this will also review the evolution of female labor participation rates, fertility rates,
and access to modern contraceptives.

Opportunities can be encouraged in a variety of ways, including through education and,

particularly for women, through family planning. Family planning will help parents to have
children when they are ready and prevent unintended pregnancies, allowing potential parents to
work and generate an income. Education is a key chance for people to get ready to enter the
workforce and get a better paid job.

2.3.3 Security Enhancement

As pointed out in the 2000/2001 World Development Report, enhancing security implies
reducing vulnerability to economic shocks, natural disasters, ill health, disability, and violence.
As was the case for empowerment, there is very little data available to illustrate the level of
security in a country. This area provides first some general description of the government system
in the two countries, and then examines the evolution of maternal mortality, which could be
considered a very broad indicator about how much a country cares about the health of their
citizens, and the World Bank’s CPIA rating for social protection.

Kenya is a republic, yet political and economic uncertainty, as well as occasionally tough
business settings, have a negative impact on public trust. Kenya is mostly beset by ethnic strife.
For example, in 2007, political and ethnic turmoil erupted across the country, resulting in
widespread violence. The two coalitions contending for power in government were the Orange
Democratic Movement (ODM) and the Party of National Unity (PNU), both of which had
ethnically based political bases. The election between incumbent President Mwai Kibaki of the
PNU, ODM leader Raila Odinga, and ODM-Kalonzo Kenya's Musyoka saw a 70% voter
turnout. This high voter turnout reflects public confidence in the government at the time. Odinga,
however, contested the election results when Mwai Kibaki won, resulting in 1,000 deaths and the
displacement of over 500,000 civilians. Lack of legitimate government security and ethnic
tolerance within Kenya ultimately led to the initial conflict.

More security measures must be implemented in order for people to gain a sense of trust for the
government, and to lessen the vulnerability to violence and ill-health. Additionally, the
government should place more of an emphasis on prioritizing social protection. Kenya and

14
Vietnam are able to drastically reduce poverty if intensifying their efforts to promote
opportunity, facilitate empowerment, and enhance security. These efforts will offer ways out of
poverty and provide a better future for generations to come.

2.4 Empirical Review

Bhuiya et al., (2016) undertook a study on how microfinance contributed to poverty alleviation
in Bangladesh and discovered how instrumental it was since the 1970’s. Once microfinance
organizations developed to incorporate millions of clients, microfinance became a global
phenomenon. For the first time in history, a significant number of a major developing country's
low-income households benefited in some way. An empirical study on the impact of
microfinance programs in eight Bangladeshi districts found that the perceived change of
eradicating poverty by microfinance activities is more than 75%, and more than 50% of them
permanently overcame the poverty line (Khatun, Islam, & Majumder, 2012).

Similarly, at the time, another household panel data analysis revealed that microfinance had
generally good benefits and is significantly reducing poverty in Bangladesh (Imai & Azam,
2012). "In terms of volume of MFI activity, Asia is the most developed region in the world."
Lapeneu (2001) drew this hypothesis after studying over 1,500 organizations in 85 developing
nations. When MFls in Asia were compared to those in Africa and Latin America, the study
discovered that in the 1990s, Asia had the most MFIs that held the most savings and credit, and
serviced the most members of any region (Weiss, 2003).

According to the Indonesian Central Bureau of Statistics, approximately 9.22 percent of the total
population lived in poverty in September 2019, compared to 14.15 percent of the population in
March 2009. In just a decade, more than 12 million people broke free from poverty. Perdana
(2014), after studying Indonesia hails its efforts to alleviate poverty as a global success. The
Indonesian government set a goal of reducing poverty from 8%-10% in its medium-term
development agenda, which ran from 2009 to 2014.The poor were divided into three groups to
achieve this goal. Microfinance schemes were associated with Cluster 3 as a goal to alleviate
poverty. Most microcredit providers in Indonesia, including NGO-based, commercial-based, and

15
others, use an interest rate scheme. Currently PLS is widely used by Islamic microfinance
institutions such as Baitul Mal Wattamwil which is both government-based and informal. The
sharing system distinguishes the sharia system (Islamic law system) from the conventional
interest rate system in that a business can lose money or make money.

Al-mamun et al. (2014) study on the impacts of microfinance on economic vulnerability in

Malaysia found a positive impact among hard-core poor households. Amanah Ikhtiar Malaysia
(AIM) was Malaysia's first MFI, founded in 1987 in Selangor state as a non-government
organization with the social mission of assisting poor and low-income women. The Grameen
bank model of group lending was replicated by AIM, with the characteristics of microcredit
services adapted to the Malaysian context. The goal was to provide loans and other financial
services to women who are unable to obtain formal financial services with no collateral. The
reason for focusing on women is due to the important role that women play in the improvement
of their households. AIM serves approximately 82 percent of Malaysian poor and low-income
households (Al-Shami et al. 2013). Except for the 10% which was the operational and
management fees plus a 2% compulsory saving, the AIM loan is interest-free and based on
Islamic principles.

On a very basic level, the issuance of collateral-free loans is an illustration of how Islamic
banking and microfinance have similar goals in some circumstances. Despite the fact that they
are both relatively recent phenomena in the financial landscape, the integration of Islamic
finance and microfinance into the regular banking system progressed in a similar manner,
because they both started from a small base and grew. As a result, both ideologically and
practically, Islamic banking and microcredit programs may be complementary (Dhumale, 1999).
Segrado (2005) also states that, MFIs have demonstrated that they have enormous potential for
fighting poverty, financial and social exclusion, as well as expanding and enriching the pool of
clients of financial institutions in developing countries with an Islamic cultural substratum.

World Bank, 2007, illustrates that Pakistan is particularly concerned with many issues of
poverty. The poor in Pakistan not only have low incomes, but they also lack access to
fundamental amenities such as clean drinking water, appropriate sanitation, good education,
financial services, job prospects, efficient marketplaces, and adequate and timely health care.
FAO (2009), states that agriculture provides a living for approximately 66 percent of Pakistan's

16
population. As a result, the poor are dominantly concentrated in rural areas, where the poverty
rate is 27 percent, more than double that of urban areas. According to 2007-08 estimates, 22.3
percent of the country's population lives below the poverty line, with another 20.5 percent living
in vulnerable conditions (Haq 2008).

In the developing world, one of the major impediments to both revenue generating and social
protection is a lack of access to financial services. Nenova et al. (2009) deduced that
approximately half of Pakistan's population does not participate in either official or informal
financial institutions, and an estimated 30 percent is unwillingly excluded due to a lack of
understanding and awareness. Despite significant efforts, microfinance has been difficult to
expand, and outreach to women has been especially restricted. Only around 8% of impoverished
households obtain formal credit, according to estimates (World Bank 2007). The size of
Pakistan's population and the number of impoverished suggest that there is a big potential market
for microfinance in Pakistan, which according to PMN estimates, is close to 27 million people
(Haq 2008), bringing the current penetration rate to 6.97 percent. Ghalib (2013)'s research
stipulates that, MFIs in rural Pakistan are drastically underserving the poorest. Given the high
levels of poverty and low levels of service penetration, such financial services are projected to
grow in the future years. As a result, it is vital to systematically analyze the model's impact on
livelihoods in the Pakistan context.

On the contrary, the 'typical' client of the South African microfinance market is the government
and private sector employees, as opposed to the 'average' client in other developing countries,
who is usually rural, female, poorly educated, and without other sources of savings and credit
(Meagher 2002). "...lending to self-employed people for their micro enterprises has been
marginal in terms of overall penetration and impact," according to Porteous and Hazelhurst
(2004 pg. 78). In 1999/2000, the volume of loans disbursed by the microfinance sector was
estimated to be 2.08 percent of total credit extended by the entire finance sector. Daniels (2001)
describes this growth as "remarkable" because it occurred in just ten years from a virtually non-
existent industry.

Locally, a study by Hospes (2002) done on Kenya's economy concluded that Kenya relies
heavily on microfinance-related services. For financial services, an estimated 10% to 15% of the
population rely only on NGOs and informal groups. In the nationwide study conducted in 1999,

17
20% of the country's population is Microbusinesses that accounted for more than 25% of overall
employment. The Microfinance Bill, which regulates microfinance, was approved in Kenya in
2007 collaborating with the Association of Microfinance Institutions (AMFI). The bill's goal is
to safeguard those who aren't eligible for standard banking services provided by other financial
institutions.

In the study done by Kashangaki (1999) on Kenya's microfinance business, it is deduced that it is
one of the oldest and most established that has played a big role in poverty alleviation. For the
first time, the informal sector was acknowledged as a potential contributor to employment and
economic growth in Kenya and other developing nations in this research. The National Council
of Churches of Kenya (NCCK) and other church-based organizations were the principal
providers of loans to the informal sector in the 1970s and several smaller church-based non-
governmental organizations. These programs were extensively subsidized and were ad hoc
extensions to previous poor-targeted social outreach initiatives. There was only a little amount of
outreach and other specialized organizations started to emerge in the 1980s. K-REP, a subsidiary
of a US-based NGO, and Kenya Women's Finance Trust (KWFT) were two of the most
important organizations. These organizations were substantially subsidized at the time, and they
aided micro-enterprises through an integrated credit and training strategy. K-REP started out
with a tiny loan portfolio, concentrating on lending funds given by USAID and other donors to
smaller organizations such as NCCK, KWFT among others.

Segrado (2005) states that, the true revolution of microfinance is that it gives people who have
been denied access to the financial market a chance, opens new perspectives, and empowers
people to finally carry out their own projects and ideas with their own resources, thereby
avoiding assistance, subsidies, and dependency. Microfinance experiences from throughout the
world have conclusively demonstrated that the poor desire a wide range of financial services, are
prepared to pay for them, and are completely bankable. The poorest of the poor, who require
other interventions such as food and health security, are not the target population of
microfinance, but rather people who live on the edge of poverty; those who could easily reach a
decent quality of life and those who have entrepreneurial ideas but lack access to formal finance.

MFIs, although being often praised for their potential to relieve poverty, may lack the resources
to accomplish this goal. "Along with a shortage of skilled employees, micro-credit organizations

18
confront limited development due to insufficient capital," observes Kauffman (2006). Because
they primarily provide short-term financing, they are unable to quickly convert funds into
medium- or long-term loans. They also face the high cost of refinancing through the official
banking system, and they have no access to borrowing from the central bank or venture capital".
Celine Kauffman's remark illustrates an inherent shortcoming of MFIs. They cannot claim to be
able to do so since they lack qualified personnel and sufficient funds to support a development
strategy, at least up to a certain degree (Kauffman, 2006).

2.5 Summary of Literature review

The major goals of MFIs are to provide financial services to the less fortunate in society with the
goal of providing them with credit. Through these institutions, the less fortunate can access loans
with no collateral and cheaper interest rates, as well as financial and business training for SMEs.
MFIs have been widely regarded as the most successful strategy for reducing poverty in both
informal settlements and underdeveloped countries across the world.

Following a thorough examination of the literature on microfinance, it is obvious that the

majority of research have focused on microcredit and its influence on the communities serviced.
There has been no examination of the fundamental qualities that microfinance may or may not
provide to the community. The importance of financial availability has overshadowed its
function in poverty alleviation and the credit taker's personal knowledge and talents.

This study effort aimed to close the current gap by examining the function of microfinance in
relieving poverty among women beneficiaries and their groups in Kenya. The study project also
looked into the link between microfinance and poverty reduction in the target demographic.

19
 CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Introduction

This chapter looks at the different research design and approach. The chapter discusses about the
research design, the population of the study, and the type of sample used, the methods of data
collections and the technique for data analysis that was used during the study.

3.2 Research Design

Descriptive research design will be used during this study. Descriptive survey will primarily help
the researcher to determine the role of microfinance institutions in poverty reduction in Kenya.
This methodology is concerned on the “what” of a subject than the “why” of the subject.
Descriptive analysis is used to understand the end objective of research goals and to understand
how different groups of people in the society react to a particular product or service. It can also
be used to investigate the background of a research problem and acquire the necessary
information to do further research. Descriptive research design was chosen because it enables the
researcher to understand the behaviors, traits, and patterns of a large population and draw a
conclusion about them. The aim of the study is to assess the contribution of microfinance
institutions on poverty reduction in Kenya.

3.3 Population
Mugenda and Mugenda (2003) describes a target population as the entire group that the
researcher specifies in his or her research. The target population for this survey is 361
microfinance banks operating across Kenya. The study targeted clients from microfinance bank
that had benefitted from the loans from microfinance institutions in Kenya. Identifying the target
population will pave way for the sample size population which is important because it is
intended to yield some knowledge about the population of concern, especially for the purposes of
statistical inference. The table below shows the number of fully fledged MFBs branches, number
of active clients and number of active borrowers.

20
3.4 Sample Design
A sample is a finite part of a statistical population whose properties are studied to get
information about the whole population. Mugenda and Mugenda (1999) describe sampling as a
systematic process of choosing a certain number of individuals for a study to represent the larger
population from which they came from. This study will use simple random sampling design in
choosing the respondents who will take part in the study.

3.5 Data collection

Secondary data collection method is the foundation on which the theoretical and conceptual
framework of our research is based on. Literature from existing studies, records on microfinance
and poverty reduction and records of organizations and institutions related to the microfinance
sector and rural poverty reduction programs, are to be studied.

The primary data collection instruments included: observation, interviews and questionnaires so
as to get reliable and valuable first-hand information from the group of respondents. Even though
the research is majorly based on the case study approach of microfinance institutions and
households, some quantitative analysis will be needed and for this, sets of questionnaires will be
given to facilitators of microfinance institutions and Non-governmental organizations who deal
with microfinance provisions and rural poverty reduction programs in our area of study. A set of
questionnaires will also be used for a sample group of microfinance clients in the selected areas.
The questionnaires that will be used will have both closed ended questions so as to facilitate
structured responses and open ended questions which will help to provide additional respondents
information.

3.6 Data analysis

3.6.1 Diagnostic test
Validity refers to the accuracy a method measures the intended sample to be measured. Data
validity depended mostly on the data collection method that gave rise to the valid data that was
used to draw conclusions and suggest recommendations on the role of microfinance institutions
and poverty reduction. External validity refers to the extent to which results from a study can be

21
used in similar situations or groups while internal validity is the confidence that the sample being
tested is trust worthy and not influenced by other variables. Participants in this research group do
not differ and hence can be compared. A pilot study was done to validate the study
questionnaires. The pilot study allows rectification of problems, inconsistencies and repetitions.

An instrument is reliable when it can measure accurately and obtain the same result over a period
of time. It is achieved by using similar objects on a measure and being diverse on individual
collection. This was achieved through using different documentations from different
microfinance institutions.

3.6.2 Analytical model

Data analysis is the process of bringing order structures and interpretation to the mass of
collected data. The data analysis method that will be used will be based on quantitative approach
using descriptive statistics. The coded data will be entered into the Statistical Package for Social
Sciences (SPSS) for analysis. The study will use a regression model to analyze the effects of
Microfinance institutions on poverty alleviation in Kenya. The model will be used to estimate the
relationship between the indicated determinants and poverty alleviation. Regression model used
is as follows:

Y= a +b1 X1+b2 X2+b 3 X3+ b4 X4 + έ

Where Y = poverty alleviation

a = constant

b1, b2, b3 and b4 are co-efficient associated with X1, X2, X3 and X4 respectively.

X1 = savings

X2 = credit

X3 = training services

X4 = insurance

έ = the error term

22
23
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Javid, A. Y., & Abrar, A. (2015). Microfinance Institutions and Poverty Reduction: A Cross
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26
 APPENDICES

Appendix i: List of licensed microfinance banks as at September 2020

No CENTRAL BANK OF KENYA

DIRECTORY OF LICENSED MICROFINANCE BANKS
1. Caritas Microfinance Bank Limited
Postal Address: P. O. Box 15352 - 00100, Nairobi
Telephone: +254 - 020 - 5151500
Email: info@caritas-mfb.co.ke
Website: www.caritas-mfb.co.ke
Physical Address: Cardinal Maurice Otunga Plaza, Ground floor, Kaunda Street, Nairobi
Date Licenced: 02.06.2015
Branches: 2
2 Century Microfinance Bank Limited
Postal Address: P. O. Box 38319 - 00623, Nairobi
Telephone: +254 - 020 - 2664282, 0722 - 168721, 0756 - 305132
Email: info@century.co.ke
Website: www.century.co.ke
Physical Address: Bihi Towers, 8th Floor, Moi Avenue
Date Licenced: 17.09.2012
Branches: 2
3 Choice Microfinance Bank Limited
Postal Address: P. O. Box 18263 - 00100, Nairobi
Telephone: +254 - 020 3882206 / 207, 0736 - 662218, 0724 - 308000
Email: info@choicemfb.com
Website: www.choicemfb.com
Physical Address: Siron Place, Ongata Rongai, Magadi Road, Nairobi
Date Licenced: 13.05.2015
Branches: 1
4 Daraja Microfinance Bank Limited
Postal Address: P.O. Box 100854 - 00101, Nairobi
Telephone: +254 - 020 - 3879995 / 0733 - 988888, 0707 – 444888, 0718 - 444888
Email: daraja@darajabank.co.ke
Website: www.darajabank.co.ke
Physical Address: Karandini Road, off Naivasha Road, Nairobi
Date Licenced: 12.01.2015
Branches: 1
5 Faulu Microfinance Bank Limited
Postal Address: P. O. Box 60240 - 00200, Nairobi
Telephone: +254 - 020 - 3877290/3/7; 3872183/4; 3867503, 0711 - 074074, 0708 -
111000
Fax: +254-20-3867504, 3874875

27
 Email: info@faulukenya.com, customercare@faulukenya.com, contact@faulukenya.com
Website: www.faulukenya.com
Physical Address: Faulu Kenya House, Ngong Lane - Off Ngong Road, Nairobi
Date Licenced: 21.05.2009
Branches: 39
6 Kenya Women Microfinance Bank PLC
Postal Address: P. O. Box 4179-00506, Nairobi
Telephone: +254 - 020 - 3067000, 2470272-5/2715334-5, 0729920920, 0732633332,
0703 - 067000
Email: info@kwftbank.com;
Website: www.kwftbank.com;
Physical Address: Akira House, Kiambere Road, Upper Hill, Nairobi
Date Licenced: 31.03.2010
Branches: 31
7 Rafiki Microfinance Bank Limited
Postal Address: P. O. Box 12755 - 00400, Nairobi
Telephone: +254-020-2166401/0730 170 000/500
Email: info@rafiki.co.ke
Website: www.rafiki.co.ke
Physical Address: Rafiki House, Biashara Street, Nairobi
Date Licenced: 14.06.2011
Branches: 17
8 Key Microfinance Bank PLC
Postal Address: P. O. Box 20833 - 00100, Nairobi
Telephone: +254 - 020 - 2214483/2215384/ 2215387/8/9, 2631070, 2215380,
2215384/5/7/8/9, 0733-554555
Email: info@keymicrofinancebank.com
Website: www.keymicrofinancebnk.com
Physical Address: Finance House, 14th Floor, Loita Street, Nairobi
Date Licenced: 31.12.2010
Branches: 2
9 SMEP Microfinance Bank Limited
Postal Address: P. O. Box 64063 - 00620, Nairobi
Telephone: +254 - 020 - 3572799/2055761, 2673327/8, 0711606900
Email: info@smep.co.ke
Website: www.smep.co.ke
Physical Address: SMEP Building - Kirichwa Road, Off Argwings Kodhek Road,
Nairobi
Date Licenced: 14.12.2010
Branches: 7
10 Sumac Microfinance Bank Limited
Postal Address: P. O. Box 11687 - 00100, Nairobi
Telephone: +254 - 020 - 2212587, 2210440, 2249047, 0738637245, 0725223499
Fax: 20 2210430
Email: info@sumacmicrofinancebank.co.ke
Website: www.sumacmicrofinancebank.co.ke

28
 Physical Address: Consolidated Bank House, 2nd Floor, Koinange Street, Nairobi
Date Licenced: 29.10.2012
Branches: 3
11 U & I Microfinance Bank Limited
Postal Address: 15825 - 00100, Nairobi
Telephone: +254 - 020 - 2367288, 0713 - 112791
Email: info@uni-microfinance.co.ke
Website: www.uni-microfinance.co.ke
Physical Address: Asili Complex, 1st Floor, River Road, Nairobi
Date Licenced: 08.04.2013
Branches: 1
12 Uwezo Microfinance Bank Limited
Postal Address: 1654 - 00100, Nairobi
Telephone: 2212919, 0703591302
Email: info@uwezomfbank.com
Website: www.uwezomfbank.com
Physical Address: Rehani House, 11th Floor, Koinange Street, Nairobi
Date Licenced: 08.11.2010
Branches: 1
13 Maisha Microfinance Bank Ltd
Postal Address: 49316 - 00100, Nairobi
Telephone: 020 222 0648 | 0736-028-982 | 0792-002-300
Email: info@maishabank.com
Website: www.maishabank.com
Physical Address: Chester House, 2nd Floor, Koinange Street, Nairobi
Date Licenced: 21.05.2016
Branches: 1
14 Muungano Microfinance Bank PLC
Postal Address: 355-10218, Kangari, Murang’a
Telephone: 020-4404173 | 0706-974-747 | 0706-975-522
Email: info@muunganomfbank.co.ke
Physical Address: Eastend Mall Kangari Township, Kangari-Githumu Road
Date Licenced: 30.10.2019
Branches: 1
Source: Central Bank of Kenya Directory of licensed MFBs (September 2020)

Appendix ii: Questionnaire

Section A: Profile of respondent

1. Name of MFI

2. Name of respondent

29
Tick where appropriate

3. Gender
Male [ ]
Female [ ]
4. Age
Below 20 years 【】 21-30 years 【】

31-50 years 【】 40-50 years 【】

Above 50 years【】
5. Level of education
High School 【】

College【】

University 【】
6. Number of years working in the institution
Less than a year 【】

1-2 years 【】

3-5 years【】

5-10 years 【】

More than 10 years 【】

7. What is the total number of employees in your department
Less than 20【】

20-50【】

50-100【】

More than 100【】

Section B: Loan services
1. What is the estimated number of borrowers?

30
 % men ______
% women____
2. What is the current interest rates for loans? ___
3. What are the loan limits
Max____
Min____
4. What is the loan repayment rate?_______
5. What is the grace period for defaulters?____
6. Are there conditions for a person to be eligible to borrow ?if yes please name the
conditions
Yes【】

No【】

7. Is there any restrictions on the usage of the loans? If yes please elaborate further
Yes【】

No【】

8. Is there any insurance arrangement so as to guarantee loan repayment? If yes please

specify.
Yes【】

No【】

9. Are there any procedures/ways to monitor the usage of loans? If yes please name
some ways.
Yes【】

No【】

10. What are the performance indicators used to measure the effectiveness of the your
loan program?

31
  Number of borrowers
 Increase in income of borrowers
 Improvement of welfare of borrower
 Rate of Repayment
 Other (specify) ________________

Section C: Services offered by Microfinance institutions

Please tick in the boxes below by indicating (5- strongly agree, 4-agree, 3 -not sure, 2- disagree,
1 -strongly disagree)

5 4 3 2 1
Microfinance institutions provide loan services to the poor
Microfinance institutions provide saving services
Microfinance institutions provide training/advisory services
Microfinance institutions provide insurance services

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