Effects of micro credit accessed on welfare of households: The case of Ainamoi Sub-County, Kericho County, Kenya

Abstract

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.