International Journal of Innovative Social Sciences & Humanities Research 3(2):118-126, April-June 2015


SEAHI PUBLICATIONS, 2015

FACTORS AFFECTING PROFITABILITY IN MICROFINANCE INSTITUTIONS: A CASE STUDY OF SELECTED MICROFINANCE INSTITUTIONS IN NAIROBI


Vinither MAIRURA and Beatrice OKATCH Degree Scholar, KCA University, Kenya

ABSTRACT
In Kenya, Micro Finance has roots that can be traced back to the mid-1950s when the Joint Loan Board Scheme was established to provide credit to indigenous Kenyans with small trading businesses. The main objective of this study was an analysis of factors affecting profitability in microfinance institutions. Specific objectives included to analyze the extent to which debt collection process affects profitability in MFIs, to establish the effect of central bank regulations on profitability in MFIs and to find out the effect of credit vetting on profitability in MFIs. The research adopted a descriptive research design and focused on selected micro finance institutions to analyze the factors affecting profitability in micro finance institutions. However this study was limited to Nairobi CBD with specific focus on Faulu Kenya, Micro Kenya and Kenya Women Finance Trust with a total population of 188. Stratified sampling method was then used to sample out 94 respondents. Data collection was through questionnaires. Qualitative analysis involved summarizing the responses from open ended questions. From the findings, respondents (74%) indicated that the debt collection process in the micro finance sector affects credit risk management and consequently profitability,70%) that legal policies had effect on profitability of MFIs and 69% that credit rating affects lending. The study came up with various recommendations that micro finance institutions should have a set of regulations, lenders should focus on the key business issues quickly and that electronic commerce application such as mobile banking, online loan processing among others should be incorporated to improve the services, speed, and convenience. Also, organizational lending policies should be in line with the existing legal policies.
Keywords: Microfinance Institutions, profitability, banking, loans