The Effectiveness of survival strategies of Microfinance Institutions in a liquidity constrained economy

Author

Lemekani, El-Shaddai.

Title

The Effectiveness of survival strategies of Microfinance Institutions in a liquidity constrained economy

Abstract

Micro-finance institutions (MFIs) play a critical role in providing financial services to underserved and low-income populations in developing economies. However, MFIs often face significant challenges in maintaining their operations and achieving sustainability, particularly in the context of liquidity-constrained environments. This dissertation examines the effectiveness of various survival strategies employed by MFIs to navigate such challenging economic conditions.This study used a descriptive research design to collect primary data, targeted at KCI Microfinance and randomly selected a sample of 100 participants using simple random sampling techniques to collect data. A mixed-methods approach was used, incorporating both quantitative and qualitative analyses. Qualitative data was gathered through in-depth interviews with MFI managers, loan officers and their customers to understand the decision-making processes and challenges faced in implementing these strategies. Questionnaires were also distributed to participants, while the quantitative data was analysed using the Statistical Package of Social Sciences. The research investigated the specific survival strategies adopted by these MFIs, including strategies related to funding sources, risk management, cost optimization, and product diversification. The findings of the study illustrate that developing innovative and customized products, can contribute to the effectiveness of survival strategies. Also macroeconomic factors such as interest rates, inflation, and overall economic conditions can impact the success of MFIs and their ability to implement and sustain survival strategies. MFIs need to embrace financial technology (Fintech) to help them improve efficiency and enhance risk management capabilities. There is need for MFIs to analyze their strategies, implementation methods, and outcomes to understand their effectiveness. Collection and analysis of financial data, as well as the assessment of key performance indicators such as portfolio quality, operational efficiency, and social impact on effectiveness of survival strategies was tested and resulted in positive correlations. The study aimed to analyze the specific challenges faced by MFI's which require the adoption of survival strategies. Challenges such as access to funding, competition, technological limitations were figured out to be faced by MFIs. Conclusively, prioritizing the challenges based on severity and potential impact will be of great importance in order to implement effective strategies

Date

June 2024

Publisher

BUSE

Keywords

Microfinance,

Liquidity

Constrained economy

Supervisor

NIL