The need for regulation of micro finance institutions in Kenya: a case study of micro finance institutions in Nairobi
Rweria, Lawrence K. I.
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The purpose of the proposed study was to study the need for the regulation of Micro Finance Institutions (MFIs) in Kenya, where some selected MFIs were studied as a sample. The study also pointed out areas, which should be addressed to ensure that these MFIs are regulated under the laws of Kenya so as to protect depositors. The research was carried out specifically in Nairobi, which is the Capital City of Kenya and a home to majority of the MFIs. Literature was reviewed from books, magazines, journals and references from previous research work conducted by earlier students and researchers on this area. Primary data was collected by the use of a questionnaire, which consisted of open and closed ended questions. The research adopted both the exploratory and descriptive research design. The sample from this study was drawn by the use of systematic sampling. The population for this study was two managers of every MFI that was selected for the study. Data was analyzed using qualitative and quantitative data analysis techniques with the aid of SPSS. The findings indicate that there is urgent need for the supervision of micro-finance institutions since majority of them engage in deposit taking-related business. The study found out that the rules restricting lending to the public need to be relaxed to enable micro-finance institutions to lend legally and use legal machinery to recover from defaulters. It was found that the law as it is hampers the development of the sub-sector as it requires the institutions to be extra cautious when lending. The government should treat micro-finance institutions different from commercial banks since they do not perform core banking business. These institutions come in to fill the gap left by mainstream banks, i.e. banking for the neglected poor in the society whose savings are small compared to mainstream banks. They therefore should be allowed a lower capital base and less license fees. There is need for the creation of a regulatory authority for the micro-finance institutions, or delegating such authority to Central Bank of Kenya who, have the capacity to do so.. Areas to be closely supervised include minimum capital maintenance, maintenance of proper books of accounts, adherence to accounting standards, and control in lending to customers so that the sub-sector can remain stable. The government should move with speed to enact the micro-finance bill to weed out unscrupulous shylocks operating as micro-finance institutions who are out to steal from the public. Such institutions give the sub-sector a bad name and depositors shy away from genuine institutions.