The Effects of Group Liability Lending on Performance of Medium and Small Enterprises in Nairobi Uhuru market
Maobe, Doris Moige
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All over the world, conventional lending to the poor has traditionally been considered infeasible as a result of the riskiness of loans that are not secured with adequate collateral. In such circumstances joint liability institutions, step in to lend to groups of people and where the entire group is considered responsible for default by any one member. In places where group lending has been practiced there have been mixed results with some enterprises growing and repaying their loans while others did not. This study therefore sought to analyze the effects of group liability on the performance of MSEs in Nairobi, Uhuru market. This is because the market is located in the largest and fast growing urban town, therefore providing an appropriate population for the study. The objectives of the study were to establish whether adverse selection and moral hazards affect performance of MSEs in Nairobi Uhuru market, to determine the effect of cost state verification on the performance of MSEs in Nairobi Uhuru Market and to explore the relationship between enforcement of laws on loans and performance of MSE‘s in Nairobi Uhuru Market. This study used both primary and secondary data. Primary data was collected using questionnaires which were administered using drop and pick later method while secondary data was obtained from MSEs strategic plans, newspapers, in-house journals, electronic journals and other internet sources. Data was analyzed using descriptive statistics and represented by measures of central tendency, that is mean and standard deviation. Descriptive statistics such as mean and standard deviation were used to measure effect of group liability lending on performance of MSEs. Inferential statistics such as the as spearman correlation coefficients and ANOVA were computed to explain and allow for drawing of conclusions. The information was then presented by use of tables, bar charts, graphs and pie charts. The study found out that most of MSEs in Uhuru market rely on funds from group lending to operate and that borrowers organized in groups were more likely to be productive and repay their loans than their counterparts in individual lending. It also found that MSEs faced the challenges of high interest rates and lengthy processes of auditing of borrowers.