Assessing Institutional Characteristics on Microcredit default in Kenya: a Comparative Analysis of Microfinance Institutions and Financial Intermediaries

A major concern on microcredit repayment remains a major obstacle to the Micro Financial Institutions (MFIs) and Financial Intermediaries (FIs) in Kenya. The health of MFI sector in Sub Sahara Africa (SSA) is a cause of concern due to the increased portfolio at risk (PAR). This region records the highest risk globally with its PAR 30 greater than 5 percent. This study sought to investigate causes of loan default within MFIs and Financial Intermediaries (FIs) in Kenya and specifically to evaluate the influence of institutional characteristics on loan default in MFIs and FIs. This study was based on Pecking Order Theory and Grameen Bank model and on positivism philosophy which adopts a quantitative approach to investigate the phenomena and uses descriptive survey design to investigate the populations by selecting samples to analyze and discover occurrences. A target population of 294 MFIs institutions and 76 Financial Institutions was used. A multistage sampling procedure was used and a sample of 106 MFIs and 40 FIs selected. Random sampling was used to select the respondents since each participant had an equal opportunity to be selected. Primary data was collected by use of a questionnaire with closed and open responses presented on a five Likert scale, making it easy for the respondent to fill. Data was analyzed by quantitative methods by use of SPSS; Version 21. Descriptive statistics and inferential statistics and some tests were carried out at 95 percent confidential level such as; F- tests and t -tests to examine parameters that were significant with a p value less than 5% being considered significant. Data was presented in form of frequency tables, bar charts and pie charts for easy interpretation of results. A multiple regression model and Pearson correlation were used to establish relationships among the variables. The findings of the study indicated that institutional characteristics were significant among MFIs and FIs but with some differences in the parameters measured. The findings of the study will be of significance to policy makers, MFIs, FIs, small businesses, universities and the general public as a source of knowledge for future reference. Key Words: Loan Default, Microcredit, Microfinance Institutions, Portfolio at Risk (PAR), Financial Intermediaries (FIs)