Deposit Taking Microfinance Institutions Governance and Implications on Clients’ Livelihood Sustainability in Nakuru County, Kenya.

Abstract

The microfinance institutions’ clients’ livelihoods sustainability is affected negatively by the high interest imposed on borrowed loans and the legal enforcement used by the microfinance institutions to recover the defaulted loans. The study explored the relationship that exists between deposit taking microfinance Institutions’ governance and clients’ livelihoods sustainability in Nakuru County. Specifically, this study sought to explore the effect of empowerment procedures, risk management methods, loan qualifiers, and relationship of loan repayment mechanism on client’s livelihood sustainability and to evaluate the interaction between prudential and non- prudential moderating factors and deposit taking MFIs governance and clients’ livelihoods in Nakuru County, Kenya. The theories adopted for the study were the agency theory, the stakeholders’ theory and the resource dependence theory. The study adopted pragmatism philosophy and the mixed method research design. Further, the study adopted the multi-stage sampling technique whereby the microfinance institutions were purposefully selected while the respondents were systematically sampled. The study had a validity factor loading of above 0.4 and the reliability Cronbach’s Alpha coefficient of over 0.7 for all the variables. The sample size consisted of 580 microfinance institutions clients and 10 managers out of 1,954,111 target population. The Primary data was collected through the use of questionnaires and key informant interview guides. The study utilized descriptive statistics, cross tabulation chi-square and simple regression analyses to establish the relationship between the independent and dependent variables. The data was presented using tables. The cross tabulation results show that majority of the microfinance institutions’ clients were women whose highest level of education was primary level. Savings, client representation in management, training time and content and mode of borrowing were found to have a significant relationship with clients’ livelihoods sustainability. Regression results indicate a positive relationship between project progress assessment and repayment assessment with client livelihoods sustainability. However, there is a negative relationship between the clients’ project age, savings and assessment by microfinance institutions with business income and clients livelihoods sustainability. The regulatory procedures had a positive significant interaction with empowerment procedures and loan repayment mechanisms and not with the risk management procedures and loan qualifiers methods adopted by the MFIs. The study concludes that empowerment procedures play a greater role in improving the livelihoods sustainability of clients through savings and trainings. Individual borrowing contributed significantly to better livelihoods than group borrowing. The clients’ projects assessment should be objective and comprehensive for objective achievement and experts needs to be involved in monitoring. Borrowed finances should be accompanied by monitoring on their use to avoid moral hazard. The current gender legal rights should be sensitized to clients, to pave way for households’ sustainable livelihoods through improved access to productive resources. While the prudential regulations policies grants deposit taking MFIs autonomy in developing and implementing their own loan classification system that are based on internal risk rating methodologies ,the internal mechanisms needs to be monitored in order to defend the clients livelihoods well being. The study recommends that the microfinance institutions’ need to focus on vibrant and continuous empowerment programs. Policies should be put in place to safeguard the interests of individual borrowers by offering favorable borrowing terms.