Furu-2017

128 Pages·2017·4.43 MB·English

Profitable Altruism

The impact of microfinance in improving livelihoods in
Kenya

Sofie Shirin Erna Furu

Spring 2017

Master’s thesis at the Institute for Political Science
UNIVERSITY OF OSLO

Word Count: 37 300
Profitable Altruism

The impact of microfinance in improving livelihoods in
Kenya

ii
Copyright Forfatter: Sofie Shirin Erna Furu

År: 2017

Tittel: Profitable Altruism

Forfatter: Sofie Shirin Erna Furu

http://www.duo.uio.no

Trykk: Reprosentralen, Universitetet i Oslo

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Summary

Microfinance has been recognized globally as a strategy in alleviating poverty and
empowering women. However, developing countries government cannot solve these issues
alone due to financial implications, and global development aid is decreasing. This has in
turn necessitated the private sector and non-governmental organizations to intervene in the
market, and find innovative ways in tackling poverty in Kenya. Microfinance programs have
been introduced to provide financial services to the remote, low-income earners, focusing on
women, which has been found to be effective in reducing poverty, creating employment and
empowering women.
This dissertation will assess to what extent microfinance has an impact on women’s
livelihood in Kenya. In order to answer this, it employs human- and social capital theory to
evaluate the Kenyan microfinance bank, Kenya Women Finance Trust Limited’s (KWFT),
impact on clients’ livelihood. Further, the microfinance institution has for the past decade
gone through a transformation from a non-profit to a full-fledged commercial microfinance
bank. Primary data was collected from 49 informants in Kenya and Norway, and tabular and
graphical methods have been supplemented to analyze data. The study, based on the results
on livelihood, assess the theoretical critique on commercialization, and demonstrate how
commercialization affects outreach in for-profit microfinance institutions. Further, it analyses
the relationship between the Norwegian public/private initiative Nordic Microfinance
Initiative (NMI) who invests in KWFT, and determine how the investment affect outreach in
Kenya, and whether NMI follow their stated mission in prioritizing the social mission over
financial profits.
Based on this result I conclude that the investments have a positive impact on poverty
alleviation, employment and empowerment among poor women in Kenya, with certain
limitations and opportunity for increased supervision.

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Acknowledgments

This dissertation would not have been realized without the help and motivation of several
people. It has been an extraordinary learning curve, starting with marginal knowledge of the
field, to an immense interest and experience.

I would like to pay special tribute to Samantha and Daniel for hosting me during my
fieldwork in Kenya, and helping me from the smallest bits of settling in to introducing me to
a handful of people within the microfinance sector. My dissertation would not have been
what it is today without your assistance. You helped me in a moment of helplessness, and
provided me with a foot in the door in a country I had no previous network or knowledge of,
all out of complete selflessness, which I am extremely grateful of. I further want to use this
opportunity to thank everyone else who out of pure kindness helped me, both with fieldwork
related issues and not, in Kenya, making it a memory of a lifetime. My gratitude also goes to
all my informants taking time out of their day to see me, and putting me in contact with other
informants.

I am also extremely grateful of my supervisor Dan Banik, for always motivating and
supporting me. Your passion for your field is tremendously motivating, and throughout the
whole period I have found your help, ambition and support a strong motivation to work hard.
Your continual help and effort has throughout the year strengthened my interest for the field,
and my final result would not be the same without your help.

Finally, I would like to thank friends and family for constant support and motivation, and
especially new friends made in Kenya, who through poignant and stimulating conversations
have inspired me to widen my horizon.

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”Poverty must be seen as the deprivation of basic capabilities rather than
merely as low incomes” Amartya Sen
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Abbreviations

MFI: Microfinance institution
KWFT: Kenya Women Finance Trust Limited
NMI: Nordic Microfinance Initiative
SHGs: Self-help groups
SLGs: Savings- and loan groups
ROSCA: Rotating savings and credit associations
ASCA: Accumulating savings and credit associations
NGO: Non-governmental organization
NBIF: Non-bank financial institution
IFI: International financial institution
WB: World Bank
UN: United Nations
GDP: Gross domestic product
OECD: Organization for Economic Co-operation and Development
DTM: Deposit taking microfinance

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Content
CHAPTER 1 INTRODUCTION ........................................................................................... 1
1.1 RESEARCH QUESTION ..................................................................................................... 3
1.2 CHOICE OF STUDY ........................................................................................................... 3
1.3 METHODOLOGY ............................................................................................................... 5
1.3.1 Epistemology ............................................................................................................ 5
1.3.2 Ontology ................................................................................................................... 6
1.4 DATA COLLECTION METHODS ....................................................................................... 10
1.5 PRIMARY DATA .............................................................................................................. 11
1.6 TIME HORIZON AND FIELDWORK .................................................................................. 13
1.6.1 Individual interviews .............................................................................................. 14
1.6.2 Focus groups .......................................................................................................... 14
1.7 ETHICS ........................................................................................................................... 15
1.8 SECONDARY DATA ......................................................................................................... 15
1.9 METHODOLOGICAL CHALLENGES ................................................................................ 16
1.10 RELIABILITY, VALIDITY, AND GENERALIZATION OF THE STUDY ............................... 18
1.11 THESIS OUTLINE .......................................................................................................... 19
CHAPTER 2 THEORETICAL PERSPECTIVES ............................................................ 21
2.1 MICROFINANCE ............................................................................................................. 22
2.1.1 The Grameen Approach......................................................................................... 24
2.1.2 Financial inclusion ................................................................................................ 25
2.2 TYPES OF MICROFINANCE INSTITUTIONS ...................................................................... 27
2.2.1 Informal microfinance providers .......................................................................... 27
2.2.2 Membership-based organizations .......................................................................... 28
2.2.3 Non-governmental organizations .......................................................................... 29
2.2.4 Formal microfinance institutions .......................................................................... 29
2.3 FUNDING ........................................................................................................................ 31
2.3.1 International donors .............................................................................................. 33
2.3.2 International investors ........................................................................................... 34
2.3.3 Domestic funding markets ..................................................................................... 34
2.4 MICROFINANCE IMPACTS .............................................................................................. 34
2.5 HOW CAN THE IMPACT OF MICROFINANCE BE MEASURED? ......................................... 35
2.5.1 Human capital ........................................................................................................ 36
2.5.2 Social capital .......................................................................................................... 37
2.6 EMPOWERMENT OF WOMEN ......................................................................................... 40
2.7 MAIN APPROACHES TO MICROFINANCE ........................................................................ 41
2.7.1 The welfarist approach .......................................................................................... 42
2.7.2 Institutional approach ........................................................................................... 43
2.8 PARADIGM SHIFT ........................................................................................................... 45
2.9 CRITIQUE OF MICROFINANCE ....................................................................................... 48
2.10 OPERATIONALIZATION ................................................................................................ 50
CHAPTER 3 MICROFINANCE IN KENYA .................................................................... 52
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