EFFECTS OF UNSECURED PERSONAL LOANS ON HOUSEHOLD FINANCIAL HEALTH OF PRIMARY SCHOOL TEACHERS IN EMINING DIVISION, BARINGO COUNTY, KENYA

ABSTRACT
Liberalization in the finance industry in Kenya has led to increased access to credit facilities to Kenyan employees. Primary school teachers are among the beneficiaries. Credit facilities include both secured and unsecured loans. For employees, unsecured personal loans have become more popular due to the relative ease and speed at which they can be obtained. The objectives of this study were to: evaluate the effects of school fees loans on household financial health of primary school teachers in Emining division, assess the effects of home improvement loans on household financial health of primary school teachers in Emining division, examine the effects of emergency loans on household financial health of primary school teachers in Emining division and establish the effects of development loans on household financial health of primary school teachers in Emining division. The study used descriptive research design. Purposive sampling was used to collect data from 165 respondents, 5 teachers from each of the thirty three primary schools, in Emining Division, Baringo. Biographic data on the respondents was analyzed using descriptive statistics such as percentages. Primary data for this study was collected using structured questionnaire. The questionnaire was self-administered. Regression was conducted to test the effect of the various independent variables pooled together on the dependent variable. Two tail t-test and ANOVA test was used to determine the degree of significance of the relationship. The data analyzed was presented in form of tables. Relationships between unsecured personal loans and household financial health of primary school teachers in Emining division was determined at alpha level of p<0.05. Results of the study showed that there is statistical significant relationship between unsecured personal loans and household financial health. Findings of the study also revealed that there is a strong positive relationship between unsecured personal loans and household financial health with a significance value of p= 0.000. Therefore the study concluded that there is strong positive statistical significant relationship between unsecured personal loans and household financial health of primary school teachers in Emining Division, Baringo County, Kenya. The study is beneficial to the government in regulating the interests’ rates and primary school teachers in deciding their borrowing patterns. The study thus recommends that the government should reduce the base lending rate. Considering the effect of unsecured personal loans on liquidity and savings ratio, primary school teachers should rethink their borrowing patters.

CHAPTER ONE 
INTRODUCTION 
Background of the Study 
In recent years, retail banking has increasingly gained popularity in Kenya due to various changes in the market especially the inclusion of unsecured loans that were previously a preserve of the Saccos (PWC on unsecured lending, 2007). Lending is one of the main activities of commercial banks in Kenya and other parts of the world. This is evidenced by the volume of loans that constitute banks assets and the annual substantial increase in the amount of credit granted to borrowers in the private and public sectors of the economy. According to Wanjiku, (2013) lending is the principal business for most commercial banks. Loan portfolio is therefore typically the largest asset and the largest source of revenue for banks. The demand for unsecured personal loans is seen in the increasing number of applications that have been made by consumers. This is a product that credit providers have focused on in meeting the demand for credit. Factors that have influenced growth in this regard include the relative ease and speed at which the likes of unsecured personal loans can be obtained. Unsecured personal loans have represented an attractive market opportunity for credit providers who have actively pursued a lending growth strategy in this product, particularly as a result of the margins that can be made in the current market (World Bank Survey on Unsecured Credit in the Mortgage Market, (2013) 

The field of personal or household finance is better reflected in recent years in several research studies. One of the most frequent associations of personal finance is with financial education, the underlying idea being that without adequate knowledge and skills one cannot satisfactorily manage his or her own finances, particularly in a dynamic and complex environment. Besides education, however, other aspects emerge from the literature, which appear to have particular importance in the process of individual financial decision. Individual can either borrow secured or unsecured personal loans. Secured loan is granted to individuals, provided that they deposit some form of security, such as titles, log books or share certificates, (KCB on loans, 2016).This means that a credit facility is fully secured where collateral used to secure the facility has a value that is sufficient to cover the carrying amount of the loan (CBK report on prudential guidelines for institutions licensed under the banking Act, 2015). Unsecured loan on the other hand is a loan that is issued and supported only by the borrower’s credit worthiness rather than a type of collateral. The relative ease and speed at which unsecured personal loans can be obtained have led to increasing number of applications, making it an area of interest in the study of personal finance. This project represents an attempt to establish the effects of unsecured personal loans on household financial health of primary school teachers in Emining Division, Baringo County, Kenya. 

Unsecured loan is guaranteed based on the borrower’s financial capacity, credit history, earnings potential and or liquidity. In general, if a credit is unsecured, the file should contain reliable and current financial information that is sufficient to indicate that the borrower has the capacity and can be reasonably expected to repay the debt (Branch Agency manual, 1997). The type of employment and gross monthly income assist in establishing the ability of the borrower to afford a loan (Kenya Bankers Association, 2008) The Federal Trade commission defines unsecured lending as a debt that is not tied to any asset. The CBK views the following products as forms of unsecured lending, credit card, overdrafts, commercial papers, personal loans; and financing provided to small and medium enterprises, (CBK on unsecured lending, 2013). A household refers to a person or group of people living in the same compound, answerable to the same family head and sharing a common source of food and income. Gutman, Garon, (2014) have suggested that consumer financial health is achieved when an individual’s day-to-day financial system functions well and increases the likelihood of financial resilience and opportunity. High- quality products and services that help consumers make better financial decisions, retain greater control over their money, and plan for the future, are important tools for achieving financial health. Therefore financial health is a term used to describe one’s financial situation. The amount of savings one has, how much he/she is setting away for retirement and how much of his/her income is being spend on fixed or non-discretionary expenses are the dimensions of financial health. 

Baringo County is one of the 47 Counties of Kenya. It is located in the former Rift Valley Province. Its headquarters and largest town is Kabarnet. Baringo bounded by Turkana County and West Pokot County to the North, Samburu County and Laikipia County to the East, Nakuru County and Kericho County to the South, UasinGishu County to the South West and Elgeyo Marakwet County to the West. The county has six constituencies: Baringo Central Constituency, Baringo South Constituency, Tiaty Constituency, Baringo North Constituency, Eldama Ravine Constituency and Mogotio Constituency. 

Financial institutions offering unsecured personal loans in Baringo County include Kenya Commercial Bank, Barclays Bank, Co-operative bank, Standard Chartered Bank, Equity Bank, Family Bank and Post Bank. Salaried employees in Baringo County can also access unsecured personal loans from Boresha Sacco, Skyline Sacco and deposit taking Micro finance institutions such as Faulu Kenya and Kenya Women Finance Trust (Guide, 2017). According to District Education Office Mogotio- Sub-County (2016), Emining division has a total population of 278 teachers employed by Teachers Service Commission (TSC) and posted to teach in the 33 mixed day and boarding public primary schools.

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Item Type: Kenyan Project Material  |  Attribute: 75 pages  |  Chapters: 1-5
Format: MS Word  |  Price: KSh900  |  Delivery: Within 30Mins.
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