INFLUENCE OF JOINT LIABILITY OF GROUP MEMBERS ON REPAYMENT OF GROUP LOANS AMONGST MICROFINANCE INSTITUTIONS IN NAKURU TOWN

Abstract

The Microfinance Institutions (MFIs) play a critical role in financial inclusion leading to poverty eradication
and economic empowerment of financially marginalized persons such as people of low economic status. In the
provision of access to credit facilities to the financially marginalized persons, the MFIs often adopt the group
lending policy with a view of mitigating credit risks in lending to their target customers. The majority of MFIs
across the globe have adopted the use of Joint Liability in group lending as a means of enhancing loan
performance. The joint liability has an influence on loan performance by utilizing the group members’
ability to pressurize the members to make payments. The group members therefore have a burden to pressurize
their peers to make payments on their loans to avoid the whole group being denied future credit facilities. The
joint liability method of lending to groups ensures that the groups monitor their group members in terms of loan
performance and usage of funds availed to them. However, some challenges exist that impact on loan repayment
performance of groups including individual members undertaking riskier projects due to joint liability of the
loan. This paper examines the influence of joint liability of group members on repayment of group loans
amongst microfinance institutions in Nakuru town. The p-value for one way ANOVA for joint liability and loan
repayment terms was above 0.05 leading to the acceptance of the null hypothesis that the joint liability of group
members has no statistically significant influence on repayment performance of group loans amongst
microfinance institutions in Nakuru. The study thus concluded that joint liability of group members didn’t have
a statistically significant influence on the loan repayment performance of group loans amongst microfinance
institutions in Nakuru. The study recommended that group social ties should be emphasized in order to improve
on the loan repayment levels.