Browsing by Author "Wainaina, Ben Kimani"

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    Relationship between Microcredit Usage and Household Incomes and Savings in Kenya
    (Kenyatta University, 2025-04) Wainaina, Ben Kimani
    Microfinance has been suggested to be the panacea through which poor people can get access to financial services and improve their livelihoods. However, this microfinance promise is yet to be realized. This study sought to analyze how household access to microfinance credit has contributed towards household incomes and savings in Kenya. Specifically, the study aimed to assess the effect of household access to microfinance credit on household incomes in Kenya, and identify the effect of household access to microfinance credit on household savings level in Kenya. The study employed the non-experimental research design, which helped in discovering, measuring and explaining how access to microfinance loans by households influenced incomes and savings in Kenya. To derive the empirical models, the researcher relied on the Household Utility Theory and the Two-Period Life Cycle Saving Model for the household income and savings respectively. The researcher utilized the dataset contained in the National FinAccess household survey that was conducted in 2021 by the Financial Sector Deepening, which was cross-sectional. The study evaluated a sample of 3,027 households out of the 22,024 households covered by the survey who had accessed micro finance services. To achieve the first objective, the study applied the Weighted Least Squares regression after conducting diagnostic and model specification tests. The findings indicated that access to microcredit has a positive and significant effect on the level of household income. The study also determined that the age and sex of the head of the household, size of household, location of a household, marital status of the head of the household, credit use, awareness of credit reference certification, household debt distress and microfinance category positively and significantly influenced households’ level of income. The lifecycle effect of age was accounted for, it negatively and significantly influenced households’ income levels as did knowledge of charges. These findings imply that microfinance can positively impact income, particularly when household demographics and financial literacy are considered in lending models. To achieve the second objective, the study also employed Weighted Least Squares regression. The findings indicated that access to microcredit has a positive and insignificant effect on household’s savings level. Furthermore, it was determined that household’s income, sex of head of household, and perception of interest rate positively and significantly influenced households’ savings level. The age of the head of household, the size of the household, location of a household and knowledge of charges were found to have a negative and significant influence on households’ savings level. These findings suggest that, while microcredit access may not directly raise savings, targeted savings interventions and financial education may improve household financial resilience. The study makes a contribution to the existing literature because it addresses the complex relationship between microfinance credit, household income, and savings in Kenya, challenging the assumption that increased credit automatically leads to increased savings. It highlights the importance of socio-demographic factors and credit-related factors in shaping financial outcomes. The study recommends that microfinance institutions support income generation initiatives for their clients and promote member savings through innovative strategies.