Effect of Loan Collection Procedures and Loan Default in Microfinance Institutions in Kirinyaga County

Abstract

This study examined the performance of Microfinance Institutions (MFIs) in Kirinyaga County and particularly the women groups affiliated to the Institutions because they are registered as social welfare groups,(save for deposit taking MFI’S) and therefore they are not regarded as financial institutions and hence not registered at all and are also not under the control of Central Bank of Kenya, or the Micro finance regulatory body The Research targeted 300 employees of MFIs under study. The findings indicated that the operations of MFIs have grown remarkably due to expansion in the informal sector activities coupled with bank’s reluctance to fund the evolving small and medium enterprises. On the other hand, financial services provided by MFIs have not been given any publicity or indicated among financial institutions in the official financial statistics. From the findings, the researcher recommends that strong policies should be implemented in micro-finance institutions for them to do away with the problem of loan default by borrowers. The institutions should put up efficient loan collection procedures which are easy to follow for both the employees and the borrower, also there should be avoidance of loan diversions, efficiency in financial management and the amount of loan borrowed should be strictly monitored and evaluated by the micro finance institutions from time to time.