Microfinance lending terms and outreach in selected microfinance institutions in busia district

Abstract

This study examined the Microfinance lending terms and outreach in Busia District, Uganda. The study objectives were; to examine the effect of interest rate on MFI (MFIs) Outreach; to establish the effect of loan size on MFI outreach and to evaluate the effect of loan period on MFI outreach in Busia District. The study adopted a cross sectional survey design using both qualitative and quantitative methods of data collection. The study sampled 96 respondents randomly selected from the three microfinance institutions in the district. Data was collected using survey questionnaire and key informant interview guide. Findings from the Chi-square tests reveal interest rates positively affect the levels of MFI's outreach maximization (p-value =0.000); also that the amount of loan size advanced positively affect the levels of MFIs outreach maximization but not so strongly (p-value = 0.022). Finally that the duration of the loan repayment period has little effect on the levels of MFIs outreach maximization (p-value = 0.047). The study concludes that MFIs need to reduce the interest rates charged on loans, improve loans sizes and repayment periods in order to improve their outreach functions to serve the people/clients in Busia District. The study recommends that MFIs should focus on reducing interest rate charged on loans to make the loans affordable to their clients. This induces commitment to productive use of loans by clients. The study further recommends that the amount of loan sizes be increased for clients to be able to access and effectively utilize the loans for more beneficial and long tem1 investments.