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EFFECTS OF FINANCIAL INTERMEDIATION OF MICROFINANCE INSTITUTIONS ON FINANCIAL SECTOR DEVELOPMENT


Reuben Newton Masumbuko

Jomo Kenyatta University of Agriculture and Technology, Kenya

Dr. Francis Kerongo

Jomo Kenyatta University of Agriculture and Technology, Kenya

Moses Kimani Wafula

Jomo Kenyatta University of Agriculture and Technology, Kenya


ABSTRACT

The objective of this study was to analyze the effects of Microfinance Intermediation on the financial sector development and growth. It will determine and analyze the gaps in financial intermediation; establish the effectiveness of Microfinance Institutions (MFIs) in financial intermediation and how this has helped develop the financial sector. Financial institutions require prospective investors to produce collaterals before they are granted Loan facilities; this has been a major hindrance to low income earners who form the majority of the population in the rural areas. The target population includes people participating in microfinance which in many cases has been found to be women groups, middle and low income earners. A case study of Kenya women finance trust (KWFT) at Mombasa has been undertaken and primary data collected by means of structured questionnaires developed to address the objectives of the study. A Sample of 150 respondents including an interview schedule with the management of KWFT has been undertaken with Quantitative and Qualitative methods used to analyze the data and presented them using inferential statistics methods. Findings of the study revealed a wide access to the financial sector, improved resource allocations, low transactional costs and development of the rural financial markets. The following conclusions were drawn from the study: MFIs have a positive effect on the development and growth of the financial sector; access to loans that has been a major challenge in the SMEs sector has been increased and  the saving culture among the low income earners enhanced. Based on the findings, it is recommended that; beyond the Loans provided, it is prudent for KWFT to operate Savings accounts open to all kinds of customers to enhance Capital accumulation.


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