Exploration of Relationship on Loan Conditions and Client Exit from Microfinance Institutions: A Case of Kenya Women Finance Trust North Rift Region of Kenya.

Abstract

The study took place in North Rift Region of Kenya where escalation of client exits from MFIs was identified as a problem. The purpose of this study was to explore the relationship between Loan conditions and Client exit in Kenya Women Finance Trust. Microfinance is a new concept in finance sector that has evolved rapidly in the last decade. This concept has gained popularity by the use of innovative ways of lending financial products to the low financial earners who don’t qualify for credit from formal financial institutions. In recent times many people have been attracted in the first borrowing but are declining to take a repeat financial product. Non exit clients’ loan repayment practices or repeat borrowing is critical for the long-term financial viability of microfinance institutions (MFIs). High client exit may hamper organizational and financial sustainability, Simanowitz, (2012). This study sought to explore the relationship between Loan conditions and Client exit in microfinance institutions. Objectives of the study were to; determine the factors related to loan conditions that cause client exit and to determine the relationship between loan conditions and client exit. The study adopted the Diffusion of Financial Mechanisms Theory by Di Maggio and Powell, (1983), The Iron Cage Revisited: A case of Institutional Isomorphism and Collective Rationality in Organizational Fields, at Yale University in New Haven, Connecticut, America The study also adopted a conceptual framework which will guide the process of client exit and the influence of loan conditions on client exist. The beneficiaries of Kenya Women Finance Trust in North Rift Region of Kenya include a total of 37,520 non exit and exit clients. To obtain the sample, the researcher used proportionate random sampling for non exit clients and snowball sampling for exit clients to select a total of 300 non exit and exit clients from the eight towns, according to where they received their loans in the North Rift Region of Kenya. Questionnaires and likert scale were used to collect data from the sample. Data was analyzed by a combination of factor analysis, spearman’s correlation analysis. Results from the analysis revealed that there was a high response rate from the questionnaire administered (92%) 276 out of 300 respondents owing to the application of innovative sampling techniques such as the snowball sampling. 147, (53.3%) of the respondents had exited the program and 129,  (46.7% ) were current clients of the KWFT loan program. Findings reveal that loan conditions correlate negatively well with client exit and low loan amount, high loan processing fees, high interest rates and loan approval procedures as variables also significantly correlate with loan conditions. The research contributes to the debate on the relationships of microfinance institutions’ loan practices’ and client exits in Kenya.

Key words: Loan Conditions, Loan Practices, Client Exit