Informal Financial Services Utilization and their Socio-Economic Effects on Residents of Machakos County,Kenya
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Date
2019-04
Authors
Musyoka, Dominic
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Financial services play a pivotal role in the development of a country through
offering financial intermediation and mobilization of resources for investment.
The Financial sector in Kenya is dualistic with the informal financial sector being
as important as formal financial sector in ensuring a sustained 10 percent growth
in Gross Domestic Product (GDP). Interventions towards achieving the desired
growth in the economy have been put in place and they include: enactment of
Micro-finance Act (2006), establishment of SACCO Societies Regulatory
Authority (SASRA) (2010), establishment of agent banking guidelines (2010) and
enactment of the National Payment System Act (2011). Despite these
interventions and increased financial inclusion in the country, there is still a
sizeable gap in the utilization of financial services between the urban and rural
dwellers. Formal financial services utilization in rural areas arelimited because of
challenges like poor road transport network and lengthy and complicated
procedures of obtaining loans. The few studies carried out in Kenya on informal
financial institutions have concentrated on informal settlements of Kibera and
Mathare, Central and Western Kenya and there is need to explore financial
services utilization by people living in rural areas. The objectives of this study
were to determine the factors that influence utilization of informal financial
services and the effects of utilization of informal financial services on the social –
economic status of residents in Machakos County. The study used primary data
collected from a representative sample. Stratified random sampling technique was
used to select the representative sample and questionnaires used to collect data
from the respondents. Descriptive statistics and inferential statistics were used to
analyze the data collected.Results of the study indicate that gender, marital status,
income, availability of credit from formal financial institutions, occupation and
perception of financial services determine utilization of informal financial
services. The results also showed that effects of utilization of informal financial
services on socio – economic status on the residents as determined by the
perception of individuals had a positive relationship with the probability of using
the informal financial services. Given this positive relationship, informal financial
services are crucial in the country and the Government needs to fast-track
streamlining of their andlink them to formal financialsector while ensuring that
their identities and unique features are retained.
Description
A Research Project Submitted to the Department of Economic Theory in the
School of Economics in Partial Fulfillment of the Requirements for the
Award of the Degree of Master of Economics of Kenyatta University
April, 2019