The Efficacy of ADR in Addressing Challenges Faced by Microfinance Institutions (MFIs) in Kenya

THE EFFICACY OF ADR IN ADDRESSING THE CHALLENGES FACING
MICROFINANCE INSTITUTIONS (MFIs) IN KENYA
(WORDS)
A RESEARCH SUBMITTED IN PARTIAL FULFILLMENT OF THE DEGREE OF
BACHELORS OF LAW [BACCALAREUS LEGUME (LLB) OF KENYATTA
UNIVERSITY.

DECLARATIONS
Student’s Declaration
I, do declare that this dissertation is my original work and has not been submitted for any award
to any other institution than Kenyatta University. The sources have used or quoted have been
indicated, acknowledged and cited well.
Name for the student and Registration No Date
Supervisor’s declaration
This work has been submitted with my approval as a supervisor
Name and the signature of the supervisor Date
Kenyatta University School of Law

DEDICATION

TABLE OF CONTENTS
Table of Contents
DEDICATION..............................................................................................................................3
TABLE OF CONTENTS.............................................................................................................4
ABSTRACT..................................................................................................................................5
ACKNOWLEDGEMENT............................................................................................................6
LIST OF STATUTES...................................................................................................................7
LIST OF CASES...........................................................................................................................8
CHAPTER 1.................................................................................................................................9
1.1 INTRODUCTION..........................................................................................................9
1.2 BACKGROUND OF THE STUDY..............................................................................9
1.3 PROBLEM STATEMENT.........................................................................................10
1.4 RESEARCH OBJECTIVES.......................................................................................10
1.5 SIGNIFICANCE OF THE STUDY............................................................................11
1.6 RESEARCH QUESTIONS.........................................................................................11
1.7 HYPOTHESIS.............................................................................................................12
1.8 LIMITATIONS............................................................................................................12
1.9 THEORETICAL FRAMEWORK.............................................................................13
1.10 LITERATURE REVIEW........................................................................................14
1.11 RESEARCH METHODOLOGY ADOPTED........................................................15
1.12 CHAPTER BREAKDOWN....................................................................................15
CHAPTER 2...............................................................................................................................16
2 LITERATURE REVIEW....................................................................................................16
2.1 INTRODUCTION........................................................................................................16
2.2 LITERATURE REVIEW............................................................................................16

CHAPTER 3...............................................................................................................................20
3 LEGAL AND INSTITUTIONAL FRAMEWORK...........................................................20
3.1 Introduction..................................................................................................................20
3.2 The Constitution of Kenya 2010..................................................................................20
3.3 The Banking Regulations 2008....................................................................................21
3.4 The Statute Law Act of 2012 (Miscellaneous Amendment)......................................22
3.5 Financial sector policy initiatives................................................................................22
3.6 The Arbitration Act 1995............................................................................................22
3.7 Institutional Framework.............................................................................................23
3.8 Institutions in the ADR................................................................................................24
3.8.1 Dispute Resolution Centre......................................................................................24
3.8.2 Chartered Institute of Arbitrators.........................................................................24
3.9 Conclusion....................................................................................................................24
CHAPTER 4...............................................................................................................................26
4 COMPARATIVE ANALYSIS ON APPLICABILITY OF ADR IN SOLVING MFIs
DISPUTES IN KENYA AND OTHER COUNTRIES..........................................................................26
4.1 INTRODUCTION........................................................................................................26
4.2 APPLICATION OF ADR IN KENYAN LEGAL SYSTEM....................................26
4.3 APPLICATION OF ADR MECHANISMS IN DEALING WITH DISPUTES
INVOLVING MICROFIANCE INSTITUTIONS IN KENYA........................................................28
4.3.1 Micro and Small Enterprises Tribunal (MSET)...................................................28
4.4 MICROFINANCE INSTITUTIONS’ DISPUTE RESOLUTION IN GHANA......29
4.5 ADR IN CAMEROON................................................................................................30
CHAPTER 5...............................................................................................................................32
5 FINDINGS, DISCUSSIONS, CONCLUSION AND RECOMMENDATIONS..............32
5.1 INTRODUCTION........................................................................................................32

5.2 FINDINGS OF THE STUDY......................................................................................32
5.3 DISCUSSION...............................................................................................................33
5.4 CONCLUSION............................................................................................................34
5.5 RECOMMENDATIONS.............................................................................................35
References...................................................................................................................................36

ABSTRACT
In many poor countries around the world, including Kenya, Micro Finance Institutions (MFIs)
have been adopted as an instrument to mitigate poverty. However, in many nations, their
continued existence has been entirely dependent on loan repayment, donor funding, and
subsidies. Alternative Dispute Resolution (ADR) has proven to be a successful method for
resolving issues that Microfinance Institutions (MFIs) in Kenya are encountering. ADR's
efficiency in resolving disputes at MFIs, specifically in addressing the challenges of loan
defaults, operational inefficiencies, and regulatory compliance, is the focus of this study. The
study adopted a mixed-methods approach to gather data from primary and secondary sources,
including case studies, interviews with important stakeholders, and a review of the related
literature. The results show that ADR has been effective in helping MFIs resolve disputes, lower
the number of loan defaults, increase operational effectiveness, and ensure regulatory
compliance. The paper will focus on the legal, regulatory, and operational challenges faced by
MFIs in Kenya and how ADR can be used to address these challenges The study recommends
that MFIs integrate ADR mechanisms in their dispute resolution procedures since it finds that
ADR is a practical substitute for traditional litigation in settling conflicts and it is recognized in
the Kenyan Constitution of 2010.

ACKNOWLEDGEMENT