Impact of Communication Strategies on Loan Repayment among Microfinance-Supported Women Groups in Alego Usonga Sub-county, Siaya, Kenya

Abstract

Access to microcredit is a vital tool for microentrepreneurs seeking to expand their economic activities, generate employment, and alleviate poverty in developing nations. In Kenya, microfinance institutions (MFIs) have expanded access to credit for underserved populations. However, despite the communication strategies implemented by these institutions to promote financial literacy, value addition, budgeting, record-keeping, and loan management among borrowers, there has been a significant rise in loan defaults, particularly among informal sector borrowers. This study aimed to evaluate the effectiveness of the communication strategies implemented by MFIs for microfinance-supported women's groups in Alego-Usonga Sub-county, Siaya, Kenya. The objectives of the study were to examine the communication strategies employed by MFIs to communicate with their borrowers in Alego-Usonga sub-county, assess the effect of these strategies on loan borrowers' repayment behavior and to establish perceptions of borrowers and MFIs regarding the effect of the quality of communication between them. The study was grounded in Systems Theory, Transactional Communication Theory, and the Resource-Based Theory. The study employed mixed-methods research, utilizing purposive sampling and stratified sampling, and applied Yamane's formula (1967) to determine a sample size of 110 respondents. Structured questionnaires and Key Informant Interviews were used to collect data from women group clients and MFI staff, respectively. SPSS was used to analyze descriptive statistics, correlation tests and regression analysis, whereas qualitative data was analyzed thematically. A key finding was that repayment improves when communication improves. Borrowers who receive timely, understandable, and respectful information are significantly more likely to repay on time. Transactional and participatory communication models are more effective than top-down or one-way models. Channels that allow borrower input, such as face-to-face meetings, build trust and accountability. Communication strategies that do not adapt to local language, education levels and social norms tend to isolate borrowers and increase default risk. While SMS and mobile apps are efficient, they exclude some borrowers in rural areas, such as Alego Usonga Sub-County, unless digital literacy, device access, and language are considered. Further, there is limited rapport between borrowers and microfinance agents when digital communication is applied in loan recovery.