The Impact of Asset-Based Lending on Financial Sustainability of Microfinance Institutions in Kenya

• Author(s): Vickie Chepkwemoi Chesori ; Rashid Simiyu Fwamba ; Kadian Wanyonyi Wanyama
• Paper ID: 1706055
• Page: 230-234
• Published Date: 16-07-2024
• Published In: Iconic Research And Engineering Journals
• Publisher: IRE Journals
• e-ISSN: 2456-8880
• Volume/Issue: Volume 8 Issue 1 July-2024

Abstract

This study examines the impact of asset-based lending on the financial sustainability of microfinance institutions (MFIs) in Kenya. Despite the growth of the microfinance sector, many MFIs face challenges in achieving financial sustainability due to high default rates, limited funding sources, and operational inefficiencies. Asset-based lending has emerged as a potential strategy to address these issues. Using a descriptive research design and a census approach, this study surveyed all 14 licensed MFIs in Kenya. Data was collected through structured questionnaires and analysis of financial statements. The results indicate that asset-based lending is positively correlated with financial sustainability indicators, including profitability and liquidity ratios. Regression analysis reveals that a one-percentage-point increase in asset-based loans is associated with a 0.15-percentage-point increase in return on assets and a 0.12-percentage-point increase in return on equity. The study also identifies challenges in implementing asset-based lending, particularly in rural areas with weak property rights. These findings suggest that asset-based lending can be an effective strategy for enhancing the financial sustainability of MFIs in Kenya, but should be part of a broader approach that includes operational efficiency and product diversification.

Keywords

Asset-Based Lending, Financial Sustainability, Microfinance Institutions

Citations

IRE Journals:
Vickie Chepkwemoi Chesori , Rashid Simiyu Fwamba , Kadian Wanyonyi Wanyama "The Impact of Asset-Based Lending on Financial Sustainability of Microfinance Institutions in Kenya" Iconic Research And Engineering Journals Volume 8 Issue 1 2024 Page 230-234

IEEE:
Vickie Chepkwemoi Chesori , Rashid Simiyu Fwamba , Kadian Wanyonyi Wanyama "The Impact of Asset-Based Lending on Financial Sustainability of Microfinance Institutions in Kenya" Iconic Research And Engineering Journals, 8(1)