Effect of Finance Determinants on Loan Repayment among Youth Enterprise Development Fund Board Beneficiaries in Trans Nzoia County, Kenya

Abstract

The objective of the study was to examine the effect of finance determinants on loan repayment performance of Youth Enterprise Development Fund Board beneficiaries in Trans-Nzoia County. Specific objectives were: to determine the effect of portfolio size on loan repayment performance, to determine the effect of risk tolerance of borrower on loan repayment performance, to determine the effect of portfolio diversification on loan repayment performance, to determine the effect of finance literacy on loan repayment performance, to determine the effect of debt management on loan repayment performance and to determine the effect of cost of capital on loan repayment performance among Youth Enterprise Development Fund Board beneficiaries in Trans Nzoia County. The study used a descriptive survey research design. The target population comprised of 1,077 individual loan beneficiaries. A total of 438 respondents participated in the study. A semi- structured questionnaire was used to collect data. The pre-tested questionnaire was administered by the researcher with the help of three trained research assistants. Descriptive statistics such as frequencies, means and percentages was used to summarize the data. Cross tabulation, Chi-Square and ANOVA was used to determine the relationships between dependent and independent variables. A multinomial logistic regression model was applied because the dependent variable had a multiple outcome. Key findings revealed that the comparison between the three categories of repayers yielded a significant difference at (p<0.05) level as regards portfolio characteristics scores, risk tolerance scores, financial literacy and cost of funds scores for the three categories of YEDFB loan beneficiaries. However, there was no significant difference in means among three categories of the YEDFB loan beneficiaries regarding their portfolio diversification and their debt management practices. Based on the findings of the study it was concluded that optimal portfolio sizes may guarantee good repayment performance of YEDFB loans in Trans Nzoia County. YEDFB borrowers with higher risk tolerance levels (risk takers) are likely to be good loan repayment and YEDFB beneficiaries who practiced portfolio diversification in trade, service and agribusiness were good repayers. It was also concluded that financial literacy enhances YEDFB loan repayment. However, the ability of YEDFB beneficiaries to make financial decisions was less satisfactory. Debt management practices such as control of diversion of funds, penalties, flexible repayment and evaluation of return on investment have not improved YEDFB loan repayment performance. It was also concluded that minimizing costs of accessing the YEDFB funds improves repayment performance. The study recommends that YEDFB should consider to give optimal loans to individual borrowers to enhance investment. This will enable the borrower to buy appropriate inputs and stocks that will guarantee high turnover and repayment. As it stands most borrowers were granted less amounts than what they applied for. Finance literacy should be scaled up in scope and content individual borrower should be trained separately from group borrowers to empower them to manage finances prudently and engage in viable business activities. This will enable the borrowers to pay on time and be legible for future loans. YEDFB officers should give attention to continuous follow up on proper loan utilization. This will minimize loan diversion to non-profitable business ventures like domestic consumption. YEDFB loan beneficiaries should be committed to acquiring entrepreneurial skills and concentrate on growing incomes so as to repay loans consistently. Flexible repayment schedules should be adopted to enable the borrowers to respond to adverse business cycles especially during natural calamities and political risks. At policy level, YEDFB should from time to time review their financial products and minimize costs of accessing the loans to enable borrowers pay on time. This will increase the revolving fund and enable more unemployed youths to access the money.