The coming into force of Microfinance Act 2006 in May 2008 enabled micro finance institutions to disburse funds as well as receive deposits. Prior to this renowned microfinance institutions had served residents of Ainamoi sub County in Kenya, for more than five years. The different portfolios into which the credit had been used suggest its ability to reach a wide section of all cadres of the population. However, the impact on the welfare across the beneficiaries had not been established. This study sought to fill this knowledge gap. The objective was to examine factors influencing access and levels of micro credit accessed and their effects on household’s incomes and expenditures. To capture this, a sample of 98 households which had accessed micro credit from year 2008 to 2012 was compared with a similar number which had not accessed micro credit. Stratification of households was done according to their membership to microfinance institutions. Random sampling method was used to select loan beneficiary households. The data was collected by administration of a structured questionnaire and it was analyzed using the SPSS and other statistical techniques. Heckman selection model was applied to identify the factors and their effect on the level of participation of households in the micro credit. Difference in difference (DID) model was used to analyze the effects of micro credit on incomes of households. The results from the study showed improved levels of beneficiaries’ incomes after accessing micro credit and since household income is one of the welfare indicators, it was concluded that accessing micro credit resulted in the improvement of the beneficiaries’ quality of life. The findings are expected to assist the policy makers on improvement of the existing policies and pieces of legislation on microfinance cost, infrastructure and products suitable for the ever changing needs of the targeted beneficiaries.

Background to the Study. 
The purpose of this study was to establish factors affecting access, the amounts of credit accessed and the effects of the accessed credit on household income in Ainamoi Sub County, Kericho County, Kenya. This chapter presents the background of the study, statement of the problem, objectives of the study, the hypotheses, limitations, scope and the significance of the study. 

In Kenya, micro finance has experienced considerable transformation, growing from a fledgling industry dominated by a few donor and church based nongovernmental organizations in 1970s to a vibrant sector increasingly driven by commercialization. Microfinance is now recognized as a legitimate provider of financial services and which is key to unlocking economic growth for entrepreneurs and poor families (Kenya National Bureau of Statistics, 2007). 

During the last 15 years microfinance has gained a lot of support from both the Government of Kenya (GOK) and international donors to be considered an industry in itself. In 1990s, the GOK adopted a structural adjustment programme that liberalized the economy and supported the micro enterprises to counter any negative effects of this liberalization. The government was interested in supporting entrepreneurial development, hastening economic growth, and creating economic opportunities that were all considered to be hindered by lack of credit and limited access to financial services in rural areas (Central Bank of Kenya, 2005). 

The coming into force of Micro Finance Act (2006) in May 2008 provided MFIs with a framework to take deposits; to be regulated and provide a wider range of financial products including savings and deposits, lending and money transfer. The Act further provided for savings in Deposit Protection Fund as the case with commercial banks hence promoting customers confidence in MFIs. (CBK, 2009) 

The Central Bank of Kenya is optimistic that the financial inclusion gap will be significantly narrowed, through the usage of deposit taking microfinance institutions (DTMs).It is committed to an all-inclusive financial system to serve a majority of the Kenyan populace and remains ardent in formulating policies that support innovation in the financial sector (CBK, 2011). The effect of this policy has been the establishment of a large number of microfinance institutions whose coverage includes rural areas. 

In Ainamoi Sub County, a baseline survey carried out prior to this research established that there were five active micro finance institutions which have been operating for more than five years. These are: Small and Medium Enterprises Programme (SMEP) with 300 members, Kenya Women Finance Trust (KWFT),650 members, Women enterprise fund (WEF),450 members, Faulu Kenya,700 members, and Ecolof,350 members. These microfinance institutions mainly funded development projects like building of dairy units, poultry units, purchase of farm inputs, small scale business, individual enterprises, purchase of salon equipment, tailoring equipment, welding machines, motorbikes and plots. They also provided salary advances for the salaried customers in case of emergencies. 

The results from the survey also, showed the presence and expansion of the operations of microfinance institutions’ infrastructure such as opening of new branches, employment of new members of staff and increased disbursement of loans. While this might signify a positive development on the side of the microfinance institutions, its effects on beneficiaries especially on their incomes, expenditures, asset accumulation and savings had not been established. This research therefore sought to ascertain these effects of micro credit on the welfare of the individuals and households in the constituency.

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Item Type: Kenyan Topic  |  Size: 57 pages  |  Chapters: 1-5
Format: MS Word  |  Delivery: Within 30Mins.


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