Effects of Lending Methodologies on Financial Performance of Micro Finance Institutions in Kenya

Abstract

In spite of the developments and innovation in microfinance institutions today, their financial performance continues to be dismal due to high default risks. There is little that has been done to study and understand the impact of lending methodologies on the financial performance of microfinance institutions in Kenya. This study was guided by individual lending, group lending and gender based lending methodology as independent variables while financial performance was the dependent variable. The population of the study was licensed microfinance institutions in Kenya. A sample of 9deposit taking micro financial institutions were selected. The study adopted a descriptive research design. The selected microfinance institutions were registered before the year 2012. The study found that the three methodologies of lending affects financial performance of microfinance institutions. Individual lending affects financial performance negatively while group and gender lending methodology affects financial performance positively.