Microfinance Growth in Kenya Hinges on Financial Literacy and Leverage, Study Finds

Nairobi, Kenya – A recent study examining microfinance institutions (MFIs) in Nairobi County has highlighted financial literacy and effective leverage management as key drivers of growth in the sector. The research, focusing on selected MFIs, found that institutions that prioritize staff understanding of financial principles and maintain strategic use of debt are better positioned to expand operations and improve client welfare. The study provides critical insights as Kenya continues to rely on microfinance as a tool for financial inclusion and small enterprise development.
The study surveyed 36 staff members from top, middle, and lower management levels across various MFIs, using a combination of questionnaires and five-year financial statement analysis. Researchers applied multiple regression analysis to assess the relationship between leverage, financial literacy, and institutional growth. Results revealed a significant positive correlation, indicating that institutions with knowledgeable staff and carefully managed financial leverage not only achieve higher profitability but also enhance service delivery and outreach to clients.
Experts argue that growth in microfinance has broader socio-economic implications. Well-managed MFIs can strengthen the financial capacity of small-scale entrepreneurs, support job creation, and contribute to poverty reduction. However, the study cautions that without disciplined financial management and continuous staff training, institutions risk instability and limited impact. Recommendations include the adoption of clear strategies to maintain optimal leverage levels, alongside targeted financial literacy programs for employees at all levels.
Looking forward, the study emphasizes that Kenya’s microfinance sector has strong potential to expand its role in driving economic growth, provided institutions align operational strategies with best financial practices. By combining strategic leverage, enhanced staff capabilities, and sound governance, MFIs can achieve sustainable growth, improve client outcomes, and strengthen the country’s broader financial ecosystem