Microcredit Default In Kenya: A Comparative Analysis Of Micro Finance Institutions And Financial Intermediaries

Abstract

The study sought to do a comparative analysis of microcredit loan default within Micro finance Institutions (MFis) and Financial Intermediaries (Fls) in Kenya to enhance loan recovery and viability of lending institutions. The study addressed the following specific objectives; to examine the role of borrower's characteristics on loan default in MFis and Fls in Kenya, to examine the role of business characteristics on loan default in MFis and Fis in Kenya, to determine the role of institutional characteristics on loan default in Kenya and to establish the importance of loan characteristics on loan default in MFis and Fis in Kenya. The study was premised on pecking order theory and solidarity group theory. A positivism research philosophy was adopted, using descriptive research design. The target population of the study was 48 MFis and 74 Fis operating in Kenya by December 2015. Being a comparative study a census was done for the 48 MFis and 48 Fis selected by size. The data collection instrument was a semi-structured questionnaire which was administered to bank credit managers. A pilot study was done in Mukurweini to test content validity and reliability of the data collected. Cronbach coefficients alpha was used to assess reliability. Descriptive statistics; mean and standard deviation were used for preliminary analysis. Principal Component Analysis was used to enhance construct validity. Wilk- Shapiro test, Durbin Watson (d) test, correlation coefficients, and Variance Inflation Factor (VIF) were used to test for normality, independence, linearity and Multicollinearity. Bivariate linear regression was used to test each hypothesis. Multiple linear regressions were used to assess the combined influence of independent variables on the dependent variable. Model of fitness (R2), ANOV A statistics ( F statistics and p value), regression coefficients were generated and interpreted. Results were presented in form of interactive tables and for easy interpretation of results, charts and graphs were used. The findings of the study indicated that four variables namely; borrowers' characteristics, business characteristics, institutional characteristics and loan characteristics were significant among MFis and Fis but with some differences in the parameters measured for the four variables. The findings of the study will be of significance to policy makers, MFis, Fls, small businesses, universities and the public as a source of knowledge for future reference.