Microfinance Services and Poverty Reduction in Rural Areas of Kitui County, Kenya

Abstract

Poverty is a cruel and unwelcoming condition that affects people all across the world and its reduction is ideally an important goal. The Kenya National Bureau of statistics indicated an estimate of 63.1 per cent poverty level in Kitui County This is indicative that there is a serious challenge of poverty among people of Kitui County, notwithstanding the availability of microfinance institutions whose main aim is to alleviate poverty among the poor people. This study therefore sought to establish the effect of microfinance services on reduction of poverty in Kitui County. Specific objectives were;to determine the effect of microcredit on poverty reduction in rural areas of Kitui County, Kenya; to examine the effect micro savings on poverty reduction in rural areas of Kitui County, Kenya; and to determine the effect of empowerment programs on poverty reduction in rural areas of Kitui County,Kenya. The research study was informed by the three theories: microfinance theory of change, social capital theory and modern development theory. A descriptive survey research design was used. The target population was 5699 members of six microfinance institutions in Kitui County. The study used stratified random sampling method in this study to come up with a sample of 359 members. The study used structured questionnaires to collect primary data. Data collected was analyzed using statistical package for social sciences software and results generated in terms of descriptive(frequencies, percentages,means and standard deviation) and inferential statistics (Pearson correlation and multiple regression). The findings were presented using tables and figures. The study established that micro credit had an inverse statistically significant influence on poverty reduction with a one-unit change, resulting to .175 (p=.005) change in poverty reduction in the opposite direction. Micro savings influenced poverty reduction which was not statistically significant with one unit change, resulting to .064(p=.303) change in poverty reduction in a reversed manner. Lastly, empowerment programs had a negative influence on poverty reduction with a one unit change, resulting to .104 (p=.090) change in poverty reduction which was not statistically significant. The study concluded that microcredit had the greatest influence on the poverty reduction in rural areas of Kitui County, Kenya, followed by empowerment programs, while micro savings had the least influence to the poverty reduction in rural areas of Kitui County, Kenya. The study recommends that microfinance institutions should be encouraged to reduce the gap between the rate of interest on savings deposit and the lending rate by mobilizing more savings from the formal sector, which continues to remain untapped. To build capacity among the County residents, the study recommends that the MFIs operating in Kitui County undertake regular and effective training especially on financial management courses so that the locals can learn the best financial management skills and thus improve their welfare.