Abstract:
This study was carried out between January and April 1998 to investigate loan use and
loan diversion among women entrepreneurs who had received microenterprise loans from
microfinance institutions in Nairobi. Women have been considered better credit risks than
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men because of the high loan repayment rates they exhibit. However, high loan repayment
may not be an indicator of proper use of loans in business development. Funds given for
business development have been known to be used for other purposes, and women have been
known to sacrifice their energy and lor compromise household needs in terms of child care,
health and food production/preparation, to produce enough to meet repayment of the credit.
This study investigates the various production, consumption and investment activities
carried out by women in loan use and repayment. Using a post-test only survey research
design, a sample of a hundred women were interviewed using semi-structured questionnaires.
Data was analysed using proportions, correlation analysis and chi-square tests; using the
Statistical Package for social Sciences SPSS the 6 th release.
The study found out that loan was diverted to some extent in 47% of the cases. On
average. 16% of each loan given was diverted. Of the total loan given to women, 84% was
used for business purposes; 11 % was invested as savings or assets, 3% was used for
consumption and 2% for other miscellenous uses. Eighty seven percent of the loan used in the
loaned business was used for buying stock. Loan diversion increased as the loan size
increased and the relationship was significant. Most loans were disbursed in the second half of
the year. The amount of loan diverted increased at the same time but this increase did not have
a significant relationship with the timing ofloan disbursement. The amount diverted increased
with subsequent loan cycles but the relationship was not significant. Amount of loan diversion
decreased as the monthly household income and expenditure increased. The relationship was
not significant. however.
Loans were fully repaid with income from the loaned business in 94% of the cases.
The others partly paid with income from other businesses, rental houses and husbands income.
When faced with repayment problems women reduced business stock, reduced domestic
consumption or borrowed to repay loans. Others went into arrears, which were later cleared
using business income, group members paying or balancing off with the Loan Security Fund.
Married women were found to involve their husbands in 84% of major decisions regarding
loan management.
This study recommends that microfinance institutions should continue to give business
loans to women, but also operate flexible saving facilities for their clients and give fixed asset
loans. A disaster fund or some other form of insurance should be put in place to safeguard
entrepreneurs' livelihood; most of whom business is the only source of income.
