Paper

The Transition from Microfinancing into Formal Banking Among the Microfinance Institutions in Kenya

How can MFIs transform from microfinance to formal banking?
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This study examines factors that influence the transformation of MFIs from microfinance to formal banking in Kenya.

The study draws from survey results and finds that there are many measures that can be undertaken in order to transform from microfinance to formal banking. Key factors for transformation include:

  • Increasing customer base;
  • Improving quality of service;
  • Changing information technology in the organization;
  • Improving turnaround in loan application;
  • Customer segmentation;
  • Change of measures in giving loans.

Factors that have facilitated MFI transformation efforts include a sound customer care desk, ability to optimize business volume, understanding the organization’s exposure to customers, operating through efficient systems and processes, minimizing losses and effectively balancing high and low risk business. Challenges that inhibit transformation include strict rules from the central bank, high costs of operation, lack of government policy on MFIs, unscrupulous MFIs and inability to deliver services to poor or remote populations.