Dropouts Amongst Kenyan MicroFinance Institutions

This paper studies thirteen microfinance institutions (MFIs) in East Africa in order to establish the profile and reason of drop outs.

It finds that:

• The design features of MFI loans and savings services are unsuitable to client needs;
• Dropout rates increase when there is a downturn in the national economy and/or adverse climactic conditions for agriculture;
• A significant number of dropouts are reported during the initial period of member training, and after first loans;
• Typical 'problem times' were before and after Christmas, the pre-harvest period in rural areas and when school fees are due;
• A number of MFIs had experienced increased dropout rates because of management problems.

Further, the paper remarks that the main problems are created by the outreach/targeting methodology which assumes an extraordinary degree of uniformity:

• Focusing exclusively on loans for micro and small enterprises;
• Assuming that African households behave as small firms investing in the production of a single product;
• Offering a single product with almost identical core features.

Finally, the paper recommends experimentation with new products so as to deliver microfinance services that meet client needs and proposes some features for the new products:

• Voluntary, open-access savings accounts;
• School fee savings accounts;
• Contractual savings;
• Christmas/Diwali/Eid savings accounts;
• Individual loan products for clients with a good credit history;
• Immediate access emergency loans;
• Flexible savings and loan accounts for individuals;
• Simple, low cost methods of life insuring.