Factors determining availability of microfinance to small-scale entrepreneurs in Mathira Division, Nyeri District
Kariithi, Peterson Thuo
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The Kenyan financial sector is not fully developed and is largely concentrated in urban areas leaving the majority of the rural population with no access to financial services. Rural areas have a large concentration of poor people who have business ideas but do not have the finances to put them into practice. Due to geographical dispersion and poor record keeping, it is difficult to monitor the rural borrowers after issuing loans, giving rise to asymmetric information, which consequently results into moral hazards and adverse selection. The purpose of the study was to analyse factors that determine availability of microfinance to small-scale entrepreneurs in Mathira division. The objectives of the study were to: (a) analyse factors determining availability of microfinance to small-scale entrepreneurs in Mathira division, (b) identify the constraints faced by small-scale entrepreneurs when seeking for loans, (c) to conduct a SWOT analysis of the microfinance providers and (d) to make policy recommendations on ways of increasing access to microfinance by small-scale entrepreneurs in rural Kenya. Data was collected using both structured and unstructured questionnaires, which were administered by the researcher and closely supervised research assistants to elicit a higher feedback rate. Clustered random sampling was used to select the entrepreneurs who were interviewed. There was one questionnaire for the entrepreneurs and another one for the credit officers who are involved in issuing and recovering loans in the formal and informal financial institutions and other lending schemes within the division. The data collected were analysed using the Statistical Packages for Social Sciences (SPSS). Chi square was used to determine the significance of variables. The results showed that the savings period, repayment rates and type of employment determined the level of funds availed to small-scale entrepreneurs by the lenders. A big proportion of the lenders (86%) required the borrowers to have saved with them for a given period. Repayment rates were also an important factor in determining level of lending because it reduces asymmetric information between the lenders and the borrowers. The study also showed that the microfinance providers preferred those in formal employment to those in informal employment.