Effect Of Micro Factors On Financial Sustainability Of Informal Finance Groups In Mwea Constituency

Abstract

Informal finance has become critical in poverty eradication around the world. Despite acknowledgment of this fact, informal finance groups have faced financial constraints issues resulting from micro factors that affect them. This study sought to establish the effect of micro factors on the financial sustainability of informal finance groups. The study focused on loan pricing, repayment period, recovery mechanisms, loan advance criteria as micro factors and leadership as a moderating factor. This study adopted a descriptive survey design with the target population of 600 IFGs in Mwea Constituency. Stratified random sampling based on geographical distribution was employed to pick a sample of 83 IFGs with the respondents being the leaders of the sampled IFGs. Data was collected through questionnaires and analyzed by use of descriptive and inferential statistics. Moderated multiple regression was used to test for the moderating effect of the leadership of IFGs.Results of the study indicated that loan pricing, repayment period, recovery mechanisms and loan advance criteria affect financial sustainability of informal finance groups. The presence of recovery mechanisms was confirmed. Most groups preferred to set off loans against savings due to ease of execution and for cost reduction. Recovery mechanism policies were influential in the sustainability of the informal finance groups since the operations of the village microfinance were mainly savings and loans. However, the members required sustainable income generating activities from which they could boost their savings ability for viable and long-term informal finance groups operations. Loan advances were majorly for investment purposes to enable members generate income and be able to service loans. However, monitoring systems were not in place an attestation of the presence of cases of loan diversion. Leadership was found to moderate the relationship between micro factors and financial sustainability of IFGs hence a clear manifestation of the role of leadership in group continuity and sustainability. The research recommended that IFGS develop loan pricing criteria for optimal interest rates that strike a balance between providing affordable financial services to the rural residents and achieving financial sustainability. The department of social services should devise enforceable recovery mechanisms for the registered groups to reduce loan losses and increase interest income for financial self-sufficiency. Policy makers in liaison with County social services department should develop capacity building programs for IFG members to undertake training on leadership and conflict resolution. Training in the area of viable group income generating activities and resource mobilization should be provided to ensure that IFGs remain financially sustainable.