Sustainability of Microfinance Institutions in Kenya A Case of Microfinance Institutions in Nairobi County

Abstract

This study sought to investigate the factors influencing sustainability of micro finance institutions (MFI's) within Nairobi County. Specifically, the study sought to investigate the sustainability levels of MFI's, the internal and external factors influencing MFI sustainability in Nairobi County. To achieve the research objectives the study utilized a descriptive research study. The population of the study was drawn from 31 MFI's located within Nairobi county comprising of 11 deposit taking and 20 non deposit taking MFl 's. The sampling frame comprise of 3 employees from each of the M FI’s representing Senior, Middle and lower level managers. In total the sample size of the study was 93 acquired using a stratified random sampling technique. Data for the study was collected using questionnaires administered during the month of April and May, 2014. Data collected was analyzed using SPSS and Ms-Excel Worksheets. Analyzed data is presented using tables and figures. The study found that 60% of the MFI's in Kenya sought their finances from private individuals and international donors who provided them with funds at below market rates. In addition, this study found that 92% of the MFI's had sufficient funds to meet the demand for products and services as well as generate revenues to meet costs and post profits. Finally, this study found that MFI's had a good loan repayment rate which enhanced MFI sustainability. Secondly, this study found that internal factors that influenced MFI sustainability were the number of customers, the location of MFI's, systems and structures in MFI 's, target customers, products and services organization culture and leadership. All this factors had a positive impact on MFI sustainability. This study also identified external factors influencing MFI sustainability. High levels of competition, too much financial regulation and macro-economic instability had a negative impact on MFI sustainability. On the other hand, economic growth, MFI transparency and technological levels enhanced MFI sustainability. This study concluded that most MFI's in the county of Nairobi are sustainable. Sustainability of MFI's in the county is derived from the available of finances to meet local demand, acquisition of finance from various source at below market rates, ability of the MFI's to generate enough revenues to meet costs and post profits and the ability of MFI's to maintain high repayment rates and low default rates. This study concluded that the major factors driving MFI sustainability in Nairobi County were the geographical coverage of MFI's to provide services, the huge market target base, the operational efficiencies of MFI's and internal structures and systems inherent in most MFI's. Finally, the study concluded that the high levels of competition, the rigid and intense regulatory framework, macroeconomic stability and intonation flow were the major factors influencing MFI sustainability. This study recommended that MFI sustain their efforts to acquire adequate and cheap funds to drive MFI growth. In addition, MFI need to innovate and diversify their financial sources. This study recommended that MFI's should develop appropriate structures and systems to diversify their product portfolios. In addition, the government ought to reduce the level of regulation in the MFI sector. Finall y, this study recommended that MFI's must develop strategies and policies to acquire competitive edges to reduce the impact of competition.