Financial Literacy and Loan Repayment Performance in Informal Savings Groups: Evidence From Kericho Community Development Trust, Kenya
Résumé
Informal savings and credit associations have become important mechanisms for extending financial services to underserved populations in developing economies, particularly where access to formal financial institutions remains constrained.Nevertheless, weaknesses in financial knowledge may adversely affect borrowers' ability to understand credit obligations and manage repayment schedules, thereby increasing the risk of delinquency and undermining the sustainability of savings-based lending institutions.This study examines the association between financial literacy and loan repayment performance among members of accumulated savings and credit associations (ASCAs) affiliated with the Kericho Community Development Trust (KCDT) in Kenya.Primary data were collected from 135 members across 14 active ASCA groups and analysed using correlation and regression techniques.Financial literacy was assessed in relation to members' understanding of loan terms, interest obligations, repayment schedules and related financial-management practices, while loan repayment performance was evaluated using indicators of repayment behaviour and portfolio-at-risk (PAR) exposure.A statistically significant positive association was identified between financial literacy and loan repayment performance (r = 0.412, p < 0.001).Regression analysis further indicated that financial literacy accounted for 17.0% of the variation in loan repayment performance (R² = 0.170).These findings suggest that members with higher levels of financial literacy were more likely to demonstrate sounder repayment behaviour and lower exposure to repayment-related risks.The findings further indicate that financial literacy constitutes an important complementary factor in strengthening credit management within informal savings groups.Accordingly, the integration of structured financial education into ASCA operations, together with pre-loan financial literacy assessment and periodic refresher training, is recommended to strengthen members' capacity to manage credit obligations and improve the financial sustainability of ASCA-based lending programmes.
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