Abstract:
In the year 2013. there were 151 registered Non-Bank Financial Institutions (NBFls) in Kenya controlling about 43% of the country's financial sector. During the past I5 years there has been large amount of empirical studies examining the relationship between NBFls‘ credit and poverty reduction ./\ few of those studies have concentrated on household data to ascertain the effect of NBFl“s credit on poverty reduction in Kenya. However, household collected data may not give a clear indication of the performance of the entire economy as far as the effect of NBFl‘s credit is concerned due to regional imbalances. Therefore it is against this background that this study was carried out to investigate the effect ofNBFls' credit on poverty reduction in the Kenya. The study aimed at examining the effect of NBFl's credit on the population of people living below the poverty line. the effect of NBFls‘ credit on per capita income and the effect ofNBFls‘ credit on GDP growth rate in Kenya. Using annual time series data over the period I980 to 20]}. the study was informed by a credit model based on the vicious cycle of poverty theory. The Phillips-Perron test was conducted to test for stationarity of the variables under study after which the study employed autoregressive distributed lag (ARDL) model to examine the relationship between NBFls" credit on Poverty reduction. This study found that NBFls‘ credit has a negative and statistically significant negative effect on the number of people living below the poverty line. The study also established that NBFls‘ credit has a significant positive effect on per capita income and economic growth rate. Regression results also show that increase in private investment and reduction in unemployment rates are crucial in poverty reduction in Kenya. This study recommended that NBFls should channel more credit to the private sector so as to promote growth ofthe economy and consequently reduce poverty levels. This can be achieved by reducing the borrowing interest rates and collaterals so as to allow more borrowers to access credit. The results of the study are useful to the Kenyan policy makers in designing effective policies to ensure easier and cheaper access to NBFl's credit so as to raise the growth in investments. income and employment. This will consequently reduce poverty levels.
