Chapter 1: ITRODUCTION

I. 0 Introduction

This chapter presents background information on the subject of research and covers statement of
the problem, research objectives, research questions, and significance of the study. The chapter
also covers other sections including justification and the scope.

1.1 Background of the study

Business support to young people has a history, going back to early 1980s and the urban riots of
high levels of youth unemployment in certain inner city areas which forced politicians and
business community to consider radical actions need to deal with the perceived problems of alien
action, lack of opportunities and decaying infrastructure (coats, 2010).

According to Tang, (2012) a number of initiatives were set up with substantial funding from
corporate businesses to support enterprise development in general ( for example, business in the
community) and youth enterprise in particular (for example, Prince's Youth Business, Trust and
Shell's Livewire scheme). These together with the government's Enterprise Allowance scheme,
formed a programmer of support which was aimed at combating high levels of youth
unemployment, by facilitating the transition from unemployment to self-employment, thus
contributing to creation of an 'enterprise culture', particularly within the most deprived regions
of the UK (Mullineux, 2015).

The capability of borrowers to repay their micro-credit loan is important issue that needs
attention. Borrowers can either repay their loan or choose to default. Borrowers default may be
voluntary or involuntary (Fufa, 2012). According to Fufa (2012), involuntary defaults of
borrowed funds could be caused by unexpected circumstances occurring in the borrowers
business that affect their ability to repay the loan. Unexpected circumstances include lower
business revenue generated, natural disasters and borrower’s illness. Voluntary default is related
to morally hazardous behavior of the borrower. In this category, the borrower has the ability to
pay the borrowed funds but refuse to because of the low level of enforcement mechanisms.

According to Rosil (2011), those borrowers who apply for bigger loan amount and longer
repayment period could have problem in their repayment unlike those who get small amount and

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be approved in order to encourage the borrower to pay back their loan. Failure to pay back their
loan is divided into to two different issues namely not paying back the loan at all and delayed
repayment.

According to Ouma (2014), youths are creative, persistent and resourceful and they have learned
to think like adults on how to sell, budget and manage risk either completely on their own or
with families and or community networks. Despite the fact that these younger entrepreneurs are
self-learned, they are sales savvy, quick with complex math transactions and hardworking , they
cannot access financial services. It should be said that not all children and youth will be
entrepreneur nor may micro-finance be appropriate for their needs. (CGAP, Focus notes).
However, there are competent and viable young entrepreneurs and businesses that employ young
people who are in need of credit to run their enterprises more efficiently and safely and are
viewed as too risky and un bankable Norell, (2011).

Odera et. al (2013), in a study on effect of YEDF on youth enterprises in Siaya county, found out
that 89% of youth surveyed indicated low repayment is attributed to poor proceeds while 72%
attributed it to the long time investment taken to mature as 66% cited lack of continuity in the
groups and hence the projects collapsed. Nganga (2010) in a study of analysis of factors
influencing implementation of YEDF in Westland constituency, Kenya noted that government
efforts were inadequate in addressing the challenges facing the youth in that youth were not
involved and lack of business skills impacted negatively on repayment and hence success of the
fund.

The Youth Enterprise Fund guide 2009, indicates that the loan access procedures include; having
a registered group/company/cooperative which has been in existence for at least 3 months as of
the date of application. The registered entity must have a bank account, the entity must have at
least 70 % youth membership and 100% of its leadership in the youth bracket, prepare business
proposal using the standard form at provided, submit the proposal form to Divisional Youth
Enterprise Development Fund Committee through Youth Officers, Social Development
Assistants, or the Constituency Office. Divisional Youth Enterprise Development Fund
Committee evaluates the proposal using evaluation guide provided by the Ministry of State for
Youth Affairs.

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Then recommends proposals to be submitted to the District Youth Enterprise Development Fund
Committee for validation and approval, the District YEDF Committee submits the approved
proposals to the Youth Enterprise Development Fund (YEDF) Secretariat, the YEDF Secretariat
disburses the funds directly to the bank accounts of the approved groups and the Entity repays
the loan in instalments within 12 months after the grace period into the bank account of the
YEDF (YEDF guide, 2009).

1.2 Loan repayment.

A loan is a type of debt which entails the redistribution of financial assets over time between a
lender and the borrower. Repayment is paying back the money borrowed. Most studies on group
lending accept the assumption that peer pressure and group solidarity help groups to function
properly and boost repayment rates in developing countries. The studies are cited in literature
review(Ouma, 2014).

1.3 Statement of the Problem

Across developing countries communities have formed groups with the main aim of putting
together financial resource for an array of financial services, the most common being group
savings chamas (Group savings). This is because chamas, as well as micro-finance institutions
have been acknowledged as one of the prime strategies to achieve the 1st and 3rd Millennium
Development Goals (MDGs) namely eradication of extreme poverty and hunger and promotion
of gender equality and empowering women. This is because access to sustainable financial
services enables enterprise owners to finance income, build assets, and reduce their vulnerability
to external shocks. The MFIs employ group lending mechanism to meet the demands of these
entrepreneurs (groups) Mburu (2010).

Several studies carried out in Kenya among them; Amenya (2011), Mburu (2010) show that
government micro credit programmes perform poorly in terms of slow payment and high default
rates. The studies have not gone into analyzing the factors influencing such repayment of
YEDEF loans but instead they have focused on analyzing the effectiveness and impact of such
programmes on the economy. This implies that no specific study has been able to address the
factors influencing repayment of YEDEF loan hence creating a gap that needs to be filled by the
study in question. It’s against this background that the study intends to find out the factors

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affecting the repayment of the Youth Enterprise Development Fund in Juja constituency and
provide appropriate suggestions to improve the repayment rate. The study therefore sought to
answer the question, what factors influence the repayment of the Youth Enterprise Development
Fund loan by youth groups in Juja constituency?

1.4 Objectives of the Study

1.4.1 Main Objective

The main objective of the study will be to find out the factors influencing the repayment of the
youth enterprise development fund loan by youth groups in Juja constituency.

1.4.2 Specific objectives

i. To determine how the entrepreneurial culture of the funded youth entrepreneurs
influences loan repayment of Youth Enterprise Development Fund loans in Juja
constituency.

ii. To determine the influence of business development service training of youth groups on
loan repayment of Youth Enterprise Development Fund loans in Juja constituency.

iii. To determine the effect of group dynamics on repayment of the Youth Enterprise
Development Fund loans in Juja constituency.

iv. To determine how YEDF Monitoring and evaluation process affect the repayment of
Youth Enterprise Development Fund loans in Juja constituency.

1.5 Research questions

i. How does the entrepreneurial culture influence repayment of the youth enterprise
development fund loan in Juja constituency?

ii. To what extent does the business development service training of youth groups influence
repayment of the youth enterprise development fund loan in Juja constituency?

iii. How do youth group dynamics contribute to repayment of the youth enterprise
development fund loan in Juja constituency?

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 iv. What is the influence of YEDF Monitoring and evaluation process to repayment of youth
enterprise development fund loan in Juja constituency?

1.6 Justification of the Study

This study is justified by the fact that despite numerous international resolutions to provide
young people with opportunities to participate in all aspects of the society and particularly
decision making, Youth development initiatives in many parts of the world continue to face
obstacles at local, national and international levels. In Kenya particularly, unemployment has
been on increase with the youth being the main casualties. Despite numerous policy efforts,
poverty and unemployment continue to affect many Kenyans.

The Youth Enterprise Development Fund was established in the year 2006 as one of the
Government initiative of increasing economic opportunities and participation by Kenyan youth
through enterprise development and strategic partnerships. The plan by Government to reduce
unemployment among the youths through the Youth Enterprise Development Fund seems to have
hit a dead wall due to low recovery of the loans, hence the need for this research on factors
influencing the repayment of the youth enterprise development fund loan by youth groups in Juja
constituency.

1.7 Significance of Study

1.7.1 Micro-Financial Institutions

This study will guide the growing micro-finance institutions as well as Youth Fund management
team in designing appropriate and relevant policies aimed at improving the overall enterprise
development and the entrepreneur’s welfare.

1.7.2 Government Departments

It will provide information and knowledge to the policy making organs of the Government on the
possible ways that both urban and rural youth and youths enterprises can benefit from the
adopted group lending mechanism and improve their accessibility to finance and financial
performance which similarly will improve the economic benefits of the country.

1.7.3 Scholars

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It will be significant to scholars who will find it useful in accessing information on the effects of
group lending mechanism on enterprise development of youths in rural areas. It will act as a
guide to the researchers on the basis upon which further studies will be carried out on the broad
subject of group dynamics and enterprise development.

1.8 Scope of Study

The scope of study will be conducted at Juja Constituency. The target population will consist of
group's chairperson, group's secretary, group’s treasurer and ordinary member. The study was
conducted for the period between July and December 2018 and therefore its findings are limited
for that specific period.

1.9 Limitation of study

Limitations were expected in this study and this included shortage of financial resources during
data collection. We minimized this by ensuring that reasonable finance was secured before
embarking on fieldwork.

1.10 Definition of Terms

Youth Any person between 18 years and 35years

Loan repayment Refers to servicing of loans borrowed.
Entrepreneurial Culture Refers to how to carry out businesses in a business environment.
Training Refers to formal knowledge acquired before starting the business venture.
Group dynamics Refers to formation of groups, management, and leadership style and conflict
resolution in groups.
Youth Fund Refers to national funds given to the youth as loans to start income generating
activities.
Credit Loan advanced to the youth by financing organizations to start income generating
activities.

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 CHAPTER 2: LITERATURE REVIEW

2.1 Introduction

This chapter covers the theoretical foundation of the study and the factors influencing the
repayment of the youth enterprise development fund loan by youth groups in Juja constituency.
It also contains the conceptual framework of the study.

2.2 Theoretical Review

2.2.1 Repayment Theory

The study is mainly based on the Repayment game theory Besley and Coate (2011) set up a
"repayment game" for group lending which illustrated how the formation of a group led to both
positive and negative effects of repayment compared to individual loans. Of all the theoretical
models, this formulation most aptly captures the opposing forces of group loan repayment and
demonstrates the potential instability of group lending. Because of its ability to incorporate
numerous facets of group lending, a variation of the Besley and Coate model will be used as the
theoretical foundation of the empirical model for this study. (Amenya, 2011)

In its simplest version, the repayment game includes two homogeneous borrowers who attain a
return on their project, depending on a random probability distribution. The individuals each
borrow one unit of capital and must pay back the unit plus interest at the end of the period
(Odera, 2013). The Individuals can encourage each other to repay by inflicting social sanctions
against one another in the case of arrears. Finally, the bank can charge penalties for arrears by
confiscating property or by harassing recalcitrant borrowers. This gives an illustration of the
possible outcomes and payoffs of playing the repayment game.

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Muthee, (2010) noted that given their project returns, each individual decides to contribute or not
to contribute. In the case that one individual pays and the other does not, the repaying member
decides whether or not to repay, for both or to default .Hence it is possible to have group
solidarity (helping a member who cannot/will not repay) to maintain correct repayment.
Secondly, the domino effect can occur when an individual who independently would repay the
loan decides to default based on the default of the other member (Paxton, 2011).

2.2.2 Joint Liability Theory

The second theory to which the study is anchored on is Joint liability theory. The theory states
that one of the least understood elements of group dynamics has been the actual functioning of
peer pressure and group solidarity in the face of repayment problems (Ong’ayo, 2012). Under
contract or joint liability theory, members of a peer lending group must have some way to ensure
that the other members of the group repay their portions of the loan so that all have future access
to loans. Each group devises implicit and explicit rules and norms that can diminish the risk of
default, provided that repaying the loan is a utility maximizing outcome for group members
(Brehanu&Fufa, 2008).

2.2.3 Investment theory

John M. Keynes and Irving Fisher, both argued that investments are made until the present value
equality to expected future revenues, at the margin, is equal to the opportunity cost of capital.
This means that investments are made until the net present value is equal to zero. Fisher referred
to the discount rate as the rate of return over costs or the internal rate of return. Keynes, on the
other hand, called it the marginal efficiency of capital, (Baddeley, 2003,). Keynes (1936) argued
that investments are made until “there is no longer any class of capital assets of which the
marginal efficiency exceeds the current rate of interest.”

The fundamental difference between the “Keynesian view” and Fisher (Hayekian view) lies in
the perception of risk and uncertainty, and how expectations are formed. Keynes did not regard
investment as an adjustment process toward equilibrium. Hayek (1941) and Fisher (1930), on the
other hand, regarded investment as an optimal adjustment path towards an optimal capital stock.

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From Keynes and Fisher modern investment theories have emerged, incorporating various
aspects of Keynes and Fisher. The net present value rule for investment has become a standard
component of corporate finance.

2.3 Factors influencing repayment of the youth enterprise development fund

loan by youth groups.

2.3.1 Group dynamics

Group dynamics is a system of behaviour and psychological processes occurring within a social
group. It is useful in understanding decision making behaviour or following the emergence and
popularity of new ideas and technologies (Kurt, 1951).

A group is a collection of individuals who join together for common purpose and work together
for a common purpose and work together for a common goal(Dept of Gender and Social
Services, 2012).Most of the groups fail because they do not have a common goal nor interests.
Group formation can be spontaneous or driven by external need. Supply driven groups have a
tendency towards overreliance and dependence on the prompting agent. If the promises and
expectations are not met the group fails. Some of the groups formed when they learned that the
youth fund was available, collapsed afterwards because their formation lacked a long term
vision.
In a study to establish the effect of group dynamics on youth enterprises growth in Kenya,
(Kiama,2011), found out that there was significant effect on profitability of the enterprises, in
that loans borrowed in groups put strain on the profit of micro enterprises due to defaults by
group members therefore youth micro entrepreneurs preferred individual loan. (Cotteral,1996)
observe that peer group give young people opportunities to access adequate emotional, practical
help and information which include opportunities to identify need and seek relevant help serving
strategies. Positive group dynamics are associated with work, inclusive , positive conflict
resolution, peer support which is characteristic of high performing groups. (GOK 2012).On the

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other hand lack of group cohesion, lack of youth involvement or engagement frequent group
conflicts, absenteeism, withdrawals from projects may be a sign of poor group dynamics
(Cotteral, 1996).

Youth empowerment models (1992) suggest involvement of young people in meaningful roles
within a project. Positive group dynamics involve respect for one another and positive peer
influence encourage imitations of positive behaviour which receive validation by group
members. Alternative to collateral is group guarantee which follow up to ensure that individual
repay on time because the group is a stakeholder and will not receive further loans if the
individual members default.(Government of Malawi 2010).

When groups are well formed, the aid of peer pressure serve the interest of the loaning institution
in ensuring timely repayments and cut back on monitoring and follow up costs(GOM 2010).
Group lending methodology may not be suitable in other situations in that some clients are not
active and may not make repayments on time or at all . The active ones who beat the deadline
cannot get further loans and this may discourage active members who can then opt to drop out of
the credit program. It can therefore be seen that group leadership, member’s commitment and
constitution are the pillars of any group.

2.3.2 Entrepreneur culture

Several theories have been advanced for entrepreneurship. (Cohen, 1980) posits that
entrepreneurs are born and not made and posses similar personality traits which includes
restlessness, independence and extreme self confidence, qualities youth category have. (Schein,
1994) adds that innovativeness, action oriented, high need for personal control and high
autonomy are unique entrepreneurial characteristic.
(Mokaya, 2010) noted that successful entrepreneurs are passionate and obsessive about making
their business opportunity work with strong vision. Their determination to succeed is due to their
strong will and setbacks and risks will not discourage them as they are relentless in their pursuit
of goals. Their sheer belief and conviction in an idea of action is an entrepreneurial skill which
help them to survive (Rasmussen& Sorheim, 2006).

Communication and delegation are entrepreneurial skills that help the entrepreneurs to
coordinate team member efforts and that mediating and handling of complaints of members

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requires immense tact and diplomacy (Gakure2001).Willingness to lead members especially in
crisis is a highly valued skill. These skills however may be lacking among many youths creating
a vacuum that may lead to businesses to collapse. (Hisrich2005), there is strong evidence that
children who have entrepreneurial parents tend to be entrepreneurs. Entrepreneurial parents tend
to enforce feeling of independence, achievement and responsibility, however this scenario is
lacking in Kenyan society and youth could be lacking role models whom they can emulate.

(Kanyari& Namusonge2013) highlights that human motivation influence entrepreneurial process

and performance and that hard work and commitment are some of the strong entrepreneurial
skills which to most of the youths are lacking. Individual capabilities of entrepreneur such as
entrepreneurial skills, motivation, training and prior experience in business have significant
effect in growth of business ventures and therefore efforts have to be up scaled and as well
identify means and strategies of improving youth access to entrepreneurship development.
(Maina2012) Provision of entrepreneurial training to sensitize and inculcate entrepreneurship
culture among young people is important in identifying emerging business talent which is in
tandem of what Kimando et .al (2012) recommended that entrepreneurship culture and expertise
be first inculcated to the youth and prospective entrepreneurs of this country.

On the contrary Littunen( 2000), points out that previous successful entrepreneurial experiences
may, in addition to the obvious positive influences, also have a negative influence on a new firm
Rerup( 2005); Westhead et al., 2004). Previous success may create a success syndrome and lead
for example to underestimation of the competition due to excessive self-confidence Simon et al.,
(2000). Overly easy access to capital and concentrating on safe and familiar business
relationships may be further negative influences (Starr and Bygrave 1991). 33 Previous success
may cause prejudice towards new ideas and the entrepreneur may try to renew his/her success by
repeating the previous success factors in changed circumstances Wright et al .(1997). The
entrepreneur may lead his/her firm to a market that feels manageable but does not have enough
demand to develop the business. Due to these negative influences it may be difficult to challenge
the entrepreneur's viewpoints and important information may be ignored and new possibilities
unexploited. This may lead to reduced development of the firm, cause monotony and increase
expenses and cause unrealistic profit expectations Starr and Bygrave, (1991).

According to Rerup (2005), it is crucial for a habitual entrepreneur to be able to separate his/her
entrepreneurial history from the present because the same business models are unlikely to

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function in different situations. He sees this characteristic as especially important in high-
technology-industries where the operational environment is often complicated, disorganized and
unpredictable; previous experience may lose its meaning in changed circumstances. Previous
entrepreneurial experience does not necessarily mean success in future business and it is
misconceived to assume that experienced entrepreneurs always succeed better than beginners
Schollhamme (1991).

The real talent of an entrepreneur may be seen in a false light if the number of previously owned
firms is taken into account. Even if a long experience in one firm does not necessarily develop
diverse entrepreneurial skills it does to some extent evidence success in entrepreneurship. On the
other hand, many short entrepreneurial periods may reveal repeated failure and an inability to act
as an entrepreneur (Carroll and Mosakowski, 1987). On the other hand, entrepreneurs who have
failed in their original firms often try again. This may happen especially in situations where an
entrepreneur thinks the failure was caused by their inability to try harder. In this kind of situation
the entrepreneur may still struggle to achieve his/her goals (Cardon and McGrath 1999).

According to Littunen (2001), in a study of the life cycle of new firms, half entrepreneurs who
closed down their firms ventured new ones. Previous studies suggest that entrepreneurial
experience often lowers the threshold for becoming an entrepreneur and facilitates starting a new
business. (Dawson2009) argues that those who engage in self employment tend to be
entrepreneurial and are pulled to do voluntary for reasons such as independence, job satisfaction
and anticipated high income on other hand those who are pushed to self employment engage in it
for survival due to absence of better alternative. Others are pushed into it by necessity due to
factors beyond their powers like failing to find formal employment or failing to continue with
their education.

(Ghai,1988) argues that entrepreneurship is mired by a number of factors such as skills, social
capital knowledge and experience which have lead to overall poor performance of youth
enterprises ,because mostly youths find themselves in street type business such as hawking and
other petty business which are highly vulnerable to business failure as some are operating
illegally. The assumption when youth funds loans advanced to them is that they already have
positive entrepreneurial culture but in reality they could be doing it for survival and this
mismatch contributes to poor repayment of the loans advanced to them.

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2.3.3 Business development service training

Most academic and development policy discussions about micro entrepreneurs focus on their
access to credit, and assume their human capital to be fixed. The self-employed poor rarely have
any formal training in business skills. Entrepreneurial training is usually defined as a continuous
process leading to the development of knowledge required for starting and managing a firm
(Politis, 2005).

A growing number of micro-finance credit organizations are attempting to build the human
capital of micro-entrepreneurs in order to improve the livelihood of their clients and help further
their mission of poverty alleviation. Kolb is one of the best-known researchers of experiential
training model for entrepreneurial training (Politis, 2005). Experiential training is a process by
which knowledge is created through the transformation of experience. In Kolb's (1984) theory
training is a four-stage cycle involving four adaptive training styles: concrete experience,
reflective observation, abstract conceptualization and active experimentation. Concrete
experiences (previous training results) form the core of the circle model. The meaning of an
experience is contemplated through reflective observations, after which an opinion is formed
about why a certain experience happened.

According to a study conducted by Karlan (2009), on impact of Business training on Clients and
Institutions, using a randomized control trial, they measured the marginal impact of adding
business training to a Peruvian group lending program for female micro entrepreneurs. Treatment
groups received thirty to sixty minute entrepreneurship training sessions during their normal
weekly or monthly banking meeting over a period of one to two years. Control groups remained
as they were before, meeting at the same frequency but solely for making loan and savings
payments. They found that the treatment group led to improved business knowledge, practices
and revenues. The program also improved repayment and client retention rates for the micro-
finance institution. This has important implications for implementing similar market-based
interventions with a goal of recovering costs. YEDF has been organizing training of youth on
entrepreneurship, national trade fairs and supporting the youth to attend international Trade Fairs
as well as lobbying for the youth to get 30% procurement jobs for youth enterprise entities

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2.3.4 YEDF Monitoring and evaluation process

Monitoring and Evaluation make it possible to know whether the intended results are being
achieved or not and corrective action needed to ensure delivery of intended results and positive
contribution of the project towards human development (UNDP, (2009). Quality evaluation
provides feedback that can be used to improve programming policy and strategy. Lack of
commitment on part of microfinance institution on monitoring and evaluation adversely affect
the concept of sustainable small business Howes (1997).

The global conference on Youth Enterprise Employment and livelihoods Development (YEELD)
notes challenges facing monitoring and evaluation and their impact on evaluation as:
Inflexibility, adaptability, M&E process multifaceted nature, inability to define intended program
impacts, inability to design evaluation that attribute program intervention to change
beneficiaries, ethical consideration and difficulty in incorporating gender in M&E.

Micro lending institutions encourage group monitoring whereby group member’s act as
guarantors for an individual during access to loan .This is meant to increase individual liability
and hence members feel obliged to pay. However according to Karlan &Gine (2008) there is no
significant change in repayment when individual liability is compared to group liability. It was
found out that after the removal of group liability, monitoring went down but repayment
improved thus suggesting that peer monitoring or pressure was unnecessary as group lending
does not add up an economically meaningful way to higher default.

Boateng and Dawoe(2005) identified monitoring and evaluation of loans as among good
practices that will lead to technological growth of SMEs, however choice of efficient Monitoring
and Evaluation systems may pose a challenge to most micro lending institutions. Other
mechanism such as screening and monitoring do not add up in an economically meaningful way
to high default Karlan &Gine (2007) and therefore suggest that innovators should move towards
the right direction .If joint liability and peer monitoring could involve screen monitoring and
enforcement in micro lending, then there will be no challenge in monitoring and evaluation
within micro lending institution and group loan approval decisions (Chakravarty&Shatrian2006).
YEDF in Kenya does not have a strong monitoring and Evaluation to address default cases.

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2.4 Youth Enterprise Development Fund

YEDF was officially launched on 1st February 2007 as one of the strategies of addressing youth
unemployment through provision of credit and equipping the youth with appropriate skills to
creatively engage in economically viable activities. The Fund is one of the flagship projects of
Vision 2030 under the social pillar. This was seen as a strategic move towards arresting
unemployment which is virtually a youth problem. YEDEF came legally into operation on 8th
December 2006. It was translated into a state corporation on 11th May 2007 through legal Notice
No.63. The fund focuses on enterprise development as a key strategy that aims to increase
economic opportunities for and participation by Kenyan youths in nation building. The loan
targets all forms of youth owned enterprises (YEDEF guide, 2009).

The objectives of YEDEF include; providing loans for on lending to youth enterprises; attract
and facilitate investment in Micro, Small and Medium enterprises oriented commercial
infrastructure such as business or industrial parks, markets or business incubators that will be
beneficial to youth enterprises; support youth oriented Micro, Small and Medium enterprises to
develop linkages with large enterprises; facilitate marketing of products and services of youth
enterprises in both domestic and international markets; provide business development services to
youth enterprises; and to facilitate employment of youth in the international labour market.
(YEDEF status report, 2007-2012).

Minimum conditions for accessing the Fund include; one must be a Kenyan who falls in the age
bracket of 18 to 35 years and has the intention of investing the Fund in a business venture. This
portion of the Fund is to ensure that all young people especially those living in remote areas not
well served by Financial Intermediaries are not disadvantaged in accessing the Fund (YEDEF
guide2009). The features and access procedures include: The loan is accessible only to youth
groups operating within the constituency, maximum loan amount per group is Ksh. 50,000,the
loan attracts no interest but has an administration fee of 5% deductible upfront from the
approved loan ,3-month grace period and full repayment within 12 months after the grace period,
having a registered group which has been in existence for at least 3 months as of the date of
application, the registered entity must have a bank account ,the entity must have at least 70%
youth membership and 100% of its leadership in the youth bracket(YEDEF guide,2009). Further
the group prepares business proposal using the standard format provided and submits the

15
proposal form to the Constituency Officers who eventually hands over to the Youth Enterprise
Development Fund Secretariat which in turns disburses the cheques of the approved groups
(YEDEF guide2009).

Through financial intermediaries the fund had financed 129,385 group and individual enterprises
to a tune of Ksh.4.6 billion (YEDEF status report 2007-2012). The Fund has eventually become
an important source of credit to young people across the country both in urban and rural areas in
Kenya. For the Youth Enterprise Development Fund to sustain viable credit initiatives, then it’s
incumbent upon the borrowers to be able to make regular payments.

2.5 Empirical Review

In South Africa, the National Youth Development Agency (NYDA), 2011, outlines its mandate
which include; advancing youth development through guidance and support to initiatives across
sectors of society and spheres of government, embarking on initiatives that seek to advance the
economic development of young people and developing and coordinating the implementation of
the Integrated Youth Development Plan and Strategy for the country. (Mullumba, 2002) The
NYDA activities have propelled young people to reach their personal goals and develop their full
capacity. Numerous young people have been assisted since the NYDA’s establishment including;
Disbursing loans to micro-finance enterprises, disbursing. Some empirical work has sought to
discriminate between these three classes of group lending theories, but results have yielded
mixed results.

Wenner (1995) provides some evidence that active screening and social pressure among
members of twenty-five Costa Rican credit groups improved group performance. Zeller (1998)
finds credit group performance positively related to social cohesion within groups. Wydick
(1999) finds that while peer monitoring appears to have some positive effect on group loan
repayment, strong social ties within groups appears to make it more difficult to pressure fellow
members to repay loans

Norell, (2011) posits that social psychology has developed a rich theoretical base for
understanding and predicting group behavior. It is further asserted that this theory attempts to
analyze the nature of groups with the intent of understanding the group behavior and how the
theory could contribute to the design of collaborative systems. Social psychological theory

16
brings to the fore the fact that groups on average perform better than the average of their
members or than a member selected at random. For instance, they produce more and better ideas
than a single individual when brainstorming, or solve problems more accurately than the typical
person in the group. Groups are argued to do better through two basic mechanisms: aggregation
and synergy (Norell, 2011). Essentially, the different individuals who make up a group bring
unique resources to it. It is said that the way group members interact with each other could
directly influence the group outcomes and could mediate the impact of inputs to the group.
Factors which could influence the group’s outcomes in terms of production, maintenance and
member support include; communication, conflict, conformity, socialization, leadership, status,
and in-group-out-group differentiation.

According to Wydick (1999) youth funds operate under the influence of external factors such as
macroeconomic factors which are beyond their control. This implies that in absence of quality
governance and strategic plans aimed at mitigating adverse effect of external factors on credit
risk, may contribute to high levels of delinquent loans and subsequent loan default in youth fund
in Kenya. Specific measures to discourage default can be incorporated in credit schemes, but
viable project design and good administration are the most important safe guards. Efficient
administration of a group plays a crucial role in management of loan defaults in self-help groups.
It is observed that training of group members in administration and financial management is a
vital part of managing default in loan repayment. The more group members understand and
participate in group administration, the fewer the chances of errors of accountability (Republic of
Kenya, 1988).

2.4 Knowledge Gap

From the literature review, individual capabilities of youth entrepreneurs such as entrepreneurial
skills, motivation, training, funding and prior experience in business were found to have a
significant effect on the growth of the business ventures. Much work needs to be done in all of
these areas, including identifying means and strategies for improving youth access to training
and entrepreneurial skills development. The Youth Enterprise Fund is relatively new and the
subject has not really been deeply explored. One has to rely on government reports to get an

17
insight of the program. The government and other private practitioners could use the findings of
this study to seal some loopholes in the YEDF and the data gathered as a source of reference.

Figure 2.1 dynamics

Group Conceptual Framework

Independent variable Dependent variable

Entrepreneur culture

Repayment of Youth
Enterprise
Development Fund
Business development
service training

18
Source, author 2018

Chapter 3: RESEARCH METHODOLOGY

3.1 Overview
This chapter outlines the research methodology used in the study. It also describes the research
design, target population, sample size, sampling procedures, research instrument, and piloting of
the study reliability and validity of the research instruments. This section also present data
collection procedures and instruments, and data analysis.

3.2 Research design

The study adopted descriptive survey research design since it describes existing phenomena and
individuals can be asked about their experience, values and perception. According to Kothari
(2007), descriptive research design is a type of research used to obtain data that can help
determine characteristics of phenomena in its natural settings. It involves asking question from a
large group of individuals either by mail, telephone, or in a person.

Ghauri and Gronhaug (2005) describe descriptive surveys design as among the most popular
YEDF
design Monitoring
method andand social science research that require the opinion of the
in business
evaluation
respondents. process
Surveys are used in studies that have individual people as the units of analysis.
Mouton and Prozesky (20005) noted that descriptive research design can also be used for units of
analysis such as groups or interactions, some individual persons must serve as respondents.

19
The main advantage of this method is the potentiality it provides when dealing with stratified
random sampling of individual's. This was appropriate since the study involved a large sample
and offered an in depth description of the state of affairs as it exist.

3.3 Target population

Mugenda (2006) defines target population as individual or regions being investigated in a
statistical study. A research population according to Blanche et al. (2006) relates to the total
universe of units from which the sample is to be selected. The target population consisted of 160
respondent made up of 20 group chairpersons, 20 group secretaries, 20 group treasurers and 100
ordinary member as presented on table 3.1

Table 3.1 Target population

Categories Frequency
Ordinary members 100
Group chairpersons 20
Group secretaries 20
Group treasurers 20
Total 160
Source: Author 2018

3.4 Sample size and sampling procedure

Sample is a sub-sect of population which must have properties which it represent of the whole
population. Sample involves collecting information from a portion of target group, and on the
basis and infers something about the target population Bless and Higson-smith (2000). A
representative sample is crucial to quantitative research and must reflect the population
accurately so that inferences can be drawn. The main concern in sampling is representativeness.

Blanche et al. (2006) gives another concern of sample size, the sample should be large enough to
allow inferences to be made about the population and for the study. Also states that a very small

20
random sample may be quite I representative, and the same is true for a large non-random
sample.

Stratified sampling method was adopted for this study. This method is appropriate since it
enables diverse views on the factors influencing the repayment of growth Enterprise
Development Fund Loan by youth groups in Juja constituency. According to Mugenda G. and
Mugenda O. (2006) in any research a sample size of between 10-30% is sufficient to data
collection. Therefore in the research the sample was represented by the ratio of 30% of the target
population. As follows 30% of the target population, 30% of the ordinary members, 30% of the
group chairpersons, 30% of the group secretaries, and 30% of the group treasurers. Results are
shown in table 3.2.

Table 3.2

Categories Target population Percentage Sample size

Ordinary members 100 30 30
Group chairpersons 20 30 6
Group secretaries 20 30 6
Group treasures 20 30 6
Total 160 48
Source, author 2018

3.5 Data collection instruments

The research employed the use of primary collected data using questionnaire. The questionnaire
were delivers and collected later since these was meant to give the respondents time to be able to
respond to the questions. According to Combo and Tromp (2006) primary data is information
gathered directly from respondents. Questionnaire was preferred as data collection instrument
because of its ability to yield the most satisfactory range of reliable data Blanche et al. (2006)

In order to understand and investigate the research problem well, Literature review was
conducted these include books, journals and online materials on subjects of youth involvement in

21
financial services offered by the fund and other relative initiatives to help in establishing
conceptual and theoretical framework.

We were able to design questionnaire in a way that simplified analysis (open and closed ended
format and Likert scale format) the research questionnaire was divided into three sections.
Section A which include the background information, level of education and position he/ she is in
the group. Section B comprises of question that enabled the respondents to evaluate various
statements about the factors influencing the repayment of the Youth Enterprise Development
Fund loan by youth group in Juja constituency. Section C comprises information about the Loan
repayment. Blanche et al. (2006) that a short and simple questionnaire is preferred because it
yields a high response rate.

3.6 Validity and Reliability of the data instrument.

Pilot study was done in Juja constituency whereby a pre-test sample of the one tenth of the total
sample with homogenous characteristics participated. This was in accordance to Mugenda and
Mugenda (2003) who suggested that for a pilot study a sample of between 1-10% is appropriate.
This helped to identify potential problem areas in the research instrument so that corrections
could be done to ensure accuracy and clarity was achieved.

3.6.1 Validity of the instrument

Streiner and Norman (1996) refer validity to the degree to which components of the research
reflect the theory, concept, variable under study. Kothari (1998) defines it as the degree to which
a test measure the variable it measure. Researcher ensured that research objectives adequately.
Content validity was addressed by seeking the opinion of technical experts in the field. Peer
review can be done prior to embarking on fieldwork to ensure that the questionnaires captured all
the themes in the objectives.

3.6.2 Reliability of the instrument

Martyn Shuttleworth (2009) testing equivalence involves ensuring that a test administered at the
same time gives similar results. Split-testing is one way of ensuring this, especially in test or
observations where the results are expected to change over time. Split half technique was used to
determine the reliability of the instruments. The same questionnaire was administered to sample
which was randomly divided into two halves.

22
3.7 Data collection procedures
Researcher made field visits and obtained data for variables under investigation from the sample
population. Questionnaires were distributed and follow up done to ensure all of them were
returned.

3.8 Data analysis

Quantitative and qualitative methods were used for data analysis. Data was tabulated and
classified for common characteristics with responses being coded to facilitate basic statistical
analysis. Descriptive statistical were used to answer the research question and objectives in
relation to the research area.

Descriptive approach to data analysis was also used on aspect that were quantified such as age,
size of the group, family size and amount of profits and sales volumes. Qualitative data was
analyzed using descriptive, narrative and thematic methods to help identify information that is
relevant to the research questions and objectives. Statistical Program for Social Sciences was
used to process and analyze the data which was presented using frequency tables and
percentages.

3.9 Ethical issues.

In this research, respondents were informed about the nature and the purpose of the study. All the
respondent information and identity was kept confidential and the information gathered was used
for the purpose of the study. The respondents also participated in the study voluntarily. Therefore
the major ethical issue was ensuring confidentiality of information collected from the
respondents.

23
 APPENDIX 1 QUESTIONNAIRE

Dear Respondent
We are undergraduate students doing Bachelor of Commerce (Banking and Finance option) at
Egerton University. Currently, we are doing research on Factors influencing Repayment of Youth
Enterprises Development Fund loan by Youth Group in Juja constituency, Kiambu County. You
have been identified as respondents in this research. We request you to participate in this study
by filling this questionnaire as honesty as possible. The information gathered will be treated with
all confidentiality and will be strictly used for the purpose of this research. Your support and
cooperation is highly appreciated.

SECTION A: BACKGROUND INFORMATION

Kindly answer the by ticking in appropriate spaces

1. Gender Male [ ] Female [ ]

2. Which is your age bracket? Below 18 [ ] 18-35 [ ] Above 35

[ ]

3. Which is your leadership position in your group? Chairperson [ ] Secretary [

] Treasurer [ ] Member [ ]

4. What is your highest level of education? Primary [ ] Secondary [ ]

College [ ] University [ ]

24
 5. How long has your group been in existence? Less than 3 months [ ] less
than one year [ ] more than one year [ ] others
specify-----------------------------------

SECTION B: FACTORS INFLUENCING THE REPAYMENT OF THE

YOUTH ENTERPRISE DEVELOPMENT FUND LOAN BY YOUTH GROUP
IN JUJA CONSTITUENCY.

A. Group dynamics
1. (a). Have your group ever been funded by Youth Fund? Yes [ ] No [ ]

(b). If yes in (a) above, how do you rate the performance of the group after
getting funded? Very Active [ ] Fairly active [ ] Dormant [
]

2. (a). Have you ever had conflicts in your group on utilitaization of the funds?
Yes [ ] No [ ]

(b). In what areas in group management did you have conflicts? Decision
making [ ] Loan repayment [ ] Leadership position [ ]
Resource sharing [ ]

(c). What are ways that you takes in conflict resolutions?

i. --------------------------------------------------------------------

ii. --------------------------------------------------------------------

iii. --------------------------------------------------------------------

25
 iv. --------------------------------------------------------------------

v. --------------------------------------------------------------------

3. What do you consider to be your greatest challenge in loan repayment by youth

group?
---------------------------------------------------------------------------------------------
---

B. Entrepreneur culture
1. Have you been employed before? Yes [ ] No [ ]

2. (a). Have your parents ever started their own business? Yes [ ] No [
]

(b). If yes how do you rate their experience in business? Successfully

[ ] Not successfully [ ]

3. Have you ever worked in business before? Yes [ ] No [ ]

4. Do you have a role model involved in your business? Yes [ ] No [ ]

If yes, tick appropriately. Friend [ ] Relative [ ] Neighbors [ ]
Acquaintance [ ]

5. How do you rate the contribution of YEDF loan to growth of your business
enterprise? High [ ] Moderate [ ] Low [ ]

6. What type of entrepreneurial activity is your group engaged in? Agri-

business [ ] Retail Trade [ ] Poultry [ ] Dairy
farming [ ] Transport (bodaboda) [ ] ICT [ ] Service
e.g. kinyozi & Saloon [ ]

26
C. Business development service training
1. Was your group trained by YEDF before funding? Yes [ ] No [
]

If yes, in which specific areas? Proposal writing [ ] Financial

management [ ] Entrepreneurship [ ] Other specify
------------------------------------------------------------------------------

2. How has your group benefited from the training?

-------------------------------------------------------------------------------------------

D. YEDF Monitoring and evaluation process

1. (a). When did your group access Youth Fund? 3 months - 1 year ago
[ ] 2 - 3 years ago [ ] Over three years ago [ ]

(b). Did you obtain loan as a group? Yes [ ] No [ ]

(c). What is your preferred type of funding? Group funding [ ]

Individual funding [ ]

2. How much was your group funded? Less than Ksh. 50000 [ ] Ksh.
50000 - 100000 [ ] Over Ksh. 100000 [ ]

3. How long did it take you to access loan after application? Less
than 3 months [ ] 3 - 6 months [ ] More than 6 months [
] Other specify
---------------------------------------------------------------------------

27
 4. How is the repayment of the borrowed loan? Nil [ ] Half way
[ ] Complete [ ] Other specify
------------------------------------------------------------------------

SECTION C: LOAN REPAYMENT

1. How much was your group loaned? Below Ksh. 50000 [ ] Over
Ksh. 50000 [ ] Over Ksh. 100000 [ ]

2. How did you utilize the funds? Start up a Business [ ]

Expansion [ ] Others------------------------------------------

3. What was your repayment period? 3 Months [ ] 6 Months [ ]

12 Months [ ]

4. What were your monthly repayment installments?

-----------------------------------------------------

5. Has your ever defaulted? Yes [ ] No [ ]

6. If Yes what is the reason?

---------------------------------------------------------------------

7. How do you rate the factors below contribution to default cases?

Factors Highly Moderate Neutral Low

Group conflicts
Lack of Business developing service training
lack of entrepreneur culture
Lack of YEDF Monitoring and evaluation

8. What was the mode loan repayment? M-pesa [ ] Bank deposits

[ ] Cash [ ] Post office [ ]

28