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A SURVEY OF THE MARKET SEGMENTATION PRACTICES BY REGULATED MICRO FINANCE INSTITUTIONS IN NAIROBI

Micro and small-scale enterprises (SMEs) have generated a demand for credit and savings
services that has resulted in the formation of over 100 microfinance organizations, half of which
are non-governmental organizations (NGOs) practicing some form of micro lending across
Kenya (Association of Microfinance Institutions of Kenya, 2007). The Kenyan microfinance
sector began in the late 1960s with a few NGOs that set up pilot programs providing donor
funded credit services. Some of these organizations have evolved over time to become
commercialized, self-sustaining and hugely profitable institutions with over 100,000 clients.
The regulations are expected to affect the market practices for the regulated MFIs. Various
studies have been carried out for example, Kagwe (2008) carried out a study on the prospects of
microfinance: The potential growth of Kenya’s microfinance industry, Omino (2005) studied the
Regulation and Supervision of Microfinance Institutions in Kenya, Johnson (2004) carried out a
research on the impact of micro finance institutions on the local financial market. None of these
research projects has focused on market segmentation practices of the regulated Micro Finance
Institutions in Nairobi. The researcher intended to bridge this gap in knowledge by conducting a
survey of segmentation practices by the regulated MFIs in Nairobi.
The study had three objectives namely; to identify the market segmentation criteria used by
regulated MFIs in Nairobi, to determine the market segmentation process used by Microfinance
institutions in Nairobi, to establish the effect of Microfinance Act on segmentation practices in
Nairobi. The study found out that two factors are important in determining market segmentation
criterion. These factors are client capability and cash flow. This illustrates customer centered
approach in determining market segmentation practices. Changing dynamics of the market have
proved challenging to the MFIs. The market environment has been changing with the
mainstream banks turning to focus on low income segment of the market which they had
previously overlooked. This has impacted negatively on MFis as they rely on the un-banked low
income segment of the market.

 

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Assistant Coordinator

Dr. Mose Aranga

Assistant Coordinator

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