Thesis on microfinance in kenya


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One of the main reasons behind the rapid growth of the micro-finance industry is the fact that there has been a high demand for capital among the poorest. The main goal of micro-finance is to generate and hold savings for future financial needs. These savings play such a significant role in that they protect against the seasonality of cash flows especially among the poor people in the rural areas and the urban poor Robert, By so doing, they help to fulfil an insurance role in covering the financial needs of the clients.

More so, the various Micro-finance institutions across the globe facilitate the building up of deposits which enable the yielding of significant collateral levels which enable them to serve as a source funding for their customers. The Micro-finance industry across the globe has been on endless mission to counter poverty especially in less developed countries.

Moreover, the microfinance institutions help to speed up economic development in the developing countries by offering a viable source of finance to the masses of people who wish to in invest and build up their financial basis. Micro-finance institutions have also played a significant role by ensuring that their members are protected against financial shock that has seen their children remain in school despite the bad financial times such as inflation.

There are two major factors why Microfinance compares favourably to other financial institutions and interventions. These include the cost-effectiveness and the prospects for sustainability. According to Colin , microfinance is advantageous by the fact reason that their donor investments are usually reused or recycled over time which facilitates the principle of sustainability in the financial flow and credit provision. According to statistics and data collected from the comparisons made between microfinance and other lending institutions such as commercial banks, microfinance stands out as a more cost effective developmental tool compared to the available alternatives such as formal rural financial intermediation and the rural infrastructure development projects Andrew, In addition to these benefits, costs incurred in the application of microfinance services tend to diminish with the range of the outreach of their services unlike other related interventions which add on their costs and chargers as they cover more people Colin, The second significant factor that has added to the rapid development of International microfinance across the globe is the sustainability that comes along with microfinance services.

Normally, most of other related developmental tools do not have the potential to remain sustainable after offering the first or the initial start-up grants. In most cases, after offering the initial start-up capital, these institutions find themselves in need of new inputs for each and every client who joins the organization or the union in future Colin, This is despite the fact that they there are no rigorous econometric models to substantiate its operations and capital requirements given the fact that their main target is usually the on clients who are not so well up financially. However, statistics and research have proven that Microfinance institutions that target poor customers are at a better place to achieve fairly considerable repayments rates compared to those institutions that major with richer clients IAMFI, The other factor that has facilitated the rapid development of International Microfinance is the formation of microfinance networks in the regions across the globe.

These microfinance networks act as umbrella organizations for the functioning and the welfare of multiple microfinance institutions, thus providing a viable avenue their cooperation which guarantees support for each other and a centre for sharing ideas, experiences as well as articulating solutions to the common challenges that face them in their daily functions.

This is an NGO which is based in the United States and offers technical and consultancy services to the various microfinance institutions under it leadership. In as much as there have been numerous expansion and growth of international microfinance, we must acknowledge the fact that the mission to achieve the excellence and development records has not been without some impediments. There are various constraints that the international microfinance industry faces in their bid to meet the financial needs of their clients. This is more evident in developing countries where most people turn to the services offered by the microfinance institutions due to their numerous financial needs occasioned by low capital endowment.

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The constraints or barriers that face the development of international microfinance can be analyzed in terms of their efficiency, their profitability as well as their levels of the overall outreach. One of the major constraints of the rapid development a fully fledged microfinance industry in developing countries is the establishment of inappropriate government regulations which affect the welfare and the functioning of the microfinance institutions in the various economies across the globe.

The major issue with governments is the fact that the policy makers exhibit difficulties in formulating effective legal frameworks around facilitate the smooth operation of microfinance institutions operations Robert, Countries which have taken the initiative to draft specialized microfinance laws in their economies have helped to enhance growth and innovation in the international microfinance industry. However, most economies around the globe formulate lenient policies on the microfinance frameworks thus creating environments that only lead to weak institutions which are undercapitalized.

As such, they encounter numerous challenges and impediments in the development of their operations and scope of coverage. One of the most prevalent regulations which is more evident in various economies in Sub-Saharan Africa which undermine the global growth and development of the microfinance industry is the creation of interest rate ceilings; commonly referred to as usury laws, which limit the level of at which microfinance institutions can invest Robert, The other major impediment of the development of fully-fledged international microfinance is the poor utilization of modern technologies in developing countries.

This is more common with economies in regions such as Asia and Sub-Saharan Africa whereby there is underinvestment in the technology among the prevailing microfinance institutions in the regions. This effect can be attributed to the constrained resources of the Microfinance institutions as well as the failure of the responsible management team to recognize the significance of integrating technological advancements in the microfinance industry Robert, More so, the system of management information systems forces is either absent and in the few economies which have adopted the system is not well managed.

This in turn leads to poor loan-processing and poor record keeping by methods such as paper work and spreadsheets-based solutions which incapacitates the efficiency of the institutions to manage numerous numbers of clients across the globe thereby limiting the profitability and the growth potential of the microfinance institutions.

In addition to the above impediments, the lack of transparency and consistency in lending activities among the various developing countries across the globe has amputated the rapid development of international microfinance. This in turn leads to increased costs incurred in funding for the microfinance institutions occasioned by the high risk involved in the investment due to inefficient management of the lending. Last but not the least of the constraints that limit the development of a fully-fledged International microfinance is the lack of early-stage funding among numerous institutions.

One of the major problems that still face most microfinance institutions especially in the developing countries is the fact that the funding which should facilitate the growth of early-stage companies in developing economies remains limited Colin, This has been the case despite the increasing recognition of the commercial viability that is attached to microfinance institutions.

It has been a major challenge for the small institutions that are emerging to develop and to expand their scope due to the lack of access to affordable finance sources. This has been the case due to the fact that most investment in the microfinance activities in the developing economies is has been concentrated in only a few leading institutions which are fully developed Andrew, The impact and the significance of the rapid development of international Microfinance in developing countries cannot be over stated. The financial support offered by the microfinance institutions to the various development groups and individuals has brought positive change in the lifestyle of people across the globe in various ways.

One of the most clear and evident impact of the development of international microfinance is the reduction of poverty and vulnerability especially among the low income earners in the developing economies and among the upcoming investors. Consequently, this has made it possible to invest and plan their life such that their livelihood is not affected by some unexpected financial setbacks that they may face in life.

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Through such investments, people across the globe have been able to increase their levels of income. More so, people have benefited from the jobs created by the various microfinance institutions that have been established across various regions in the world. As such, households are able to cover their expenses and improve on their lifestyle in areas such as nutrition, housing and improved health care standards Robert, More so, there has been a significant reduction in the rate at which harmful child labour take place especially in less developed countries.

On a general note, reports indicate that there has been a significant improvement among the participants or members who have consistently invested their loans on long term basis in terms of their incomes, assets and their livelihood security. More so, the net worth of the active members of the microfinance institutions has been significantly increased, with more changes being evident among women.

In addition, the development of international microfinance has led to the creation of favourable economic environment in the various regions which have adopted the microcredit programs. These programs have been significant to help the members who are not only faced with financial problems but also with issues to do with worries of possible economic crisis, political instability as well as the occurrence of natural disasters.

The savings invested in the institutions are normally given back to the members in the form of credit loans which they use to recover and correct their affected projects and to support their daily needs in case such problems take place.


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Last but not the least among the impact of the rapid development of international microfinance programs especially among the developing and the developed economies is the smoothening of consumption as well facilitating the reduction of the seasonality of labour supply. This is due the numerous employment opportunities that have been created by the numerous microfinance institutions across the globe and the fact that members have substantial amounts of capital to invest and create self employment through business ventures Andrew, This way, the long-term members of the institutions are assured of regular in flow of income from the diversified investment projects that they have already initiated to facilitate alternative source of income.

The implementation of some public policies in the various nations across the globe has also affected the rate of development of international microfinance across the globe in a number of ways. Some policies have had a positive impact on the rate of growth whereas others slow the rate of development of the international microfinance institutions by limiting their scope and interest rate levels thereby limiting their potential to grow into marginal financial institutions.

Prof. BEATRICE NJERU WARUE

One of the public policies that affect the development of microfinance institutions and operations is the monetary and the taxation policy. Some taxation and monetary policies formulated and implemented by the respective governments may channel substantial amounts of capital or resources away from credit so that they are used in other investment instruments Robert, This problem is more common in developing countries whereby the exchange rates as well as the interest rates are usually politicized so as to satisfy the selfish objectives of the politicians.

More importantly, the formulation of poor monetary policies by the responsible financial bodies and the various governments such as inflation and economic instability usually reduce the level of savings for the low income earnings who happen to be the majority of the members of the various microfinance institutions across the globe.

This consequently affects the group-based microcredit programs so that they are financially unstable to meet bigger projects of the various development groups and the financial requirements of their clients. Another policy that significantly affects the rate of development of the international microfinance institutions across the globe is the government regulation which reduces the capital available for the small businesses to lend their clients. This is due to the fact that the government values the stability of the banking system over the idea of widespread access as is the case with microfinance institutions.

In other occasions, banks have shown their willingness to lend the microenterprises. Unfortunately, the policy regulators in these countries counter their efforts by initiating policies that inhibit such procedures. The other issue that affect the efficiency and the development of international microfinance operations is the numerous political interferences in the credit markets, which is more rampant in developing countries. In most cases, politicians have been known to divert development funds to moribund state-owned firms and political or worse off to a few wealthy and influential personalities Robert, Respondents are familiar enough with the microfinance services to answer the survey questions.

The researcher expects the entire exercise to move on smoothly relying on the maximum cooperation of all those who will be involved. That the sample will properly represent the population, the data collection instruments will have validity and will measure the desired parameters and that the respondents will truthfully and correctly answer questions.

These limitations are useful to other potential researchers who may choose to conduct a similar or replication study Creswell, The limitations of this study include; 1. The study involved the perception of residents on the impacts of microfinance. The data will be collected from individuals who are self-reporting their perceptions. The geographical expanse of the study area, inadequate financial resources and time constraints may also reduce the chances of contacting more respondents. These limitations will be mitigated by making sure that, there is purposive sample selection, piloting and careful scrutiny of the perceived parameters of measurement in the microfinance institution, population and sample.

The follow were delimitations of this study: write in prose not points 1. Participation in this study is voluntary. The population was limited to microfinance institutions in Nairobi County 3. There could be other impacts of microfinance that may not be exclusively addressed in this study.

The study is bound to have a reasonable degree of success because the population and the sample are readily available in Nairobi County.

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The use of the SPSS programme in analyzing the collected data will be helpful in making reasonable deductions. Such parameters will include number of people registered with the microfinance institutions and the number of microfinance institutions within the county.

On the other hand Schreiner and Colombet argues that microfinance is generally the attempt to improve access to small deposits and small loans for poor households which have been neglected by banks. Microfinance in this study is the concept by which financial institutions avail savings and credit opportunities to the poor or those who cannot access bank services. Blaikie, N. Designing social research: the logic of anticipation. Cambridge 2. Creswell, J. Research design : qualitative, quantitative, and mixed methods approaches 2nd ed. Thousand Oaks, Calif. Dornyei, Z. Research methods in applied linguistics.

New York: Oxford University Press. Khan, B. Managing e-learning: Design, delivery, implementation and evaluation. Educational research: Planning, conducting, and evaluating quantitative and qualitative research 2nd ed. Lokesh K Methodology of educational research. New Delhi. Vikas Publishing Pvt Ltd 7. Ledgerwood, J. Berenbach, Shari, and Guzman D. Otero and E. Schreiner, M. Otero, M. Hartford, CT Thesis 1. Betty K Inaugural dissertation, Egerton University. Joy M. Phd Thesis, University of Nairobi.

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