Financial Inclusion Barriers For The Youth In Informal Sector: A Case Of Kamukunji Juakali Artisans In Nairobi County In Kenya
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Date
2020
Authors
Wanjohi, Anthony Mutiga
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Financial inclusion question and in particular as it pertains to the access to credit has for
long time concentrated on how the lower section of the population pyramid access credit,
addressing the barriers and creating environment to facilitate the inclusivity. The youth in
the informal sector have for long been the most financially included yet there exists two
government funded social protection funds. This study therefore aimed at creating the
attention to a segment of the informal sector that has not received much attention by
examining the financial inclusion barriers for youth in the informal sector in Kamukunji
Sub County in Nairobi County. The specific objectives for this study were to investigate
how interest rates, income streams, information asymmetry and collateral requirements
affect financial access for youth in the informal sector. The study took Juakali metal
artisans in Nairobi’s Kamukunji Sub County as a case study and narrowed down to artisans
since the Juakali sector has several sub-sectors that include painters, grocers, fabricators
weavers and many others playing in the informal space. This study was conducted at a time Kenya had enacted the controlled interest in the money markets. It was therefore ripe to interrogate how the regulations affected the youth in the informal sector as well as
examining how both the Juakali sector and financial institutions adjusted to this control.
The study was anchored on three theories: the microfinance theory that proposes micro
loans to poor people, the credit market theory that proposes risk mapping as the requisite for cost of capital and the signaling argument theory that promotes credit access dependent on the collateral availability. The study adopted a descriptive research design that allowed the study room to interrogate each of the variables. The study had a random sample size of 164 respondents including Juakali proprietors, employees and association officials. In addition, 11 financial institutions credit officers were purposefully targeted. The study used open and closed questionnaires and interviews to capture information from the targeted respondents. The data was further analyzed quantitatively and qualitatively and presented using tables and figures as appropriate. The main findings from the study was that information asymmetry, interest rates and collateral requirements significantly influenced the degree of financial inclusion among the artisans. However, income streams distribution was found to have no significant effect on financial inclusion among the artisans as financial institutions were willing to overlook it where the youths had collateral. The study found out that since 2016 when the interest capping law was enacted, more and more youths turned to informal sources of revenue including shylocks even though these sources were the most expensive. Mobile money was also a popular source of financing for its lenient conditions and speed of time regardless of the low finances advanced and the cost of the finance. Information asymmetry was the biggest barrier to access to finance as most of the respondents were unaware of the financing options around them as well as the cost of financing. The study makes a recommendation that interest rate capping should be scrapped as it draws youth away from financing and leads them to more expensive and expensive sources. Interest cap withdrawal will not suffice since many youths do not have collateral, a major requirement by financiers as evidenced by this study. There is therefore need to target youth in the informal sector with other social protection financial measured including blended finance instruments like matching grants, risk guarantees and revolving
funds
Description
A Research Project Submitted To The School Of Humanities And Social Sciences Inpartial Fulfillment Ofthe Requirements For The Award Of The Degree Of Master Of Public Policy And Administration Of Kenyatta University, September, 2020
Keywords
Financial Inclusion, Barriers, Youth, Informal Sector, Kamukunji, Juakali Artisans, Nairobi County, Kenya