Review Paper on Microfinance Institutions Barriers in Product Diversification in Kenya

Abstract

Today, Microfinance Institutions (MFIs) play an important role in the economic development of poor communities. MFIs include non-governmental organizations (NGOs), credit unions, non-bank financial intermediaries, and even a few commercial banks. The World Bank estimates that there are now more than 7,000 microfinance institutions, serving some 16 million poor people in developing countries. To the extent that these MFIs become financially viable, self-sustaining, and integral to the communities in which they operate, they have the potential to attract more resources and expand services to clients. The majority of these microfinance organizations are donor funded, which is an obstacle to their sustainability. Micro credit and microfinance have changed the lives of people and revitalised communities in the world's poorest and also the richest countries.

We have seen the enormous powers that access to even modest financial services can bring to people. With access to a range of financial tools, families can invest according to their own priorities – school fees, health care, business, nutrition or housing fraction. However, studies have shown that micro finance institutions face some barriers. it is in this light that the project aimed at finding out the extent and how to deal with it.

An important component of financial sector reforms is the liberalization of interest rates. It is argued that this would raise real interest rates, increase saving and the supply of inventible resources in the economy. There should be no social classes for the people and if so attractive market segments should be made for the poor.

There is a need for a policy that advocates for better access to capital sources and investment opportunities for microfinance sustainability, and also encourages MFIs to increase their accessibility, build capacity, be more transparent, adopt acceptable performance standards, and promote professionalism that in turn enhances service deliver (Matu and Jeffrey, 2003).