Relationship between Loan Beneficiaries’ Changes in Financial Status and Adherence to Intended Purpose, a Case of Kisii University Employees, Kenya

Most commercial banks in Kenya are giving loans to public university employees with no much restriction. The condition of provision of assets as securities against the loans advanced is no longer a strict requirement as long as the borrower is able to produce a payslip and assurance from the employer that the applicant for the loan is an employee of the institution and that the employer will recover the loan advanced through the check off system and remit the same to the bank. However, most of the loan advanced to the applicant does not always get utilized for the intended use. As far as public universities employee borrowing is concerned, it is not known whether the changes in borrowers’ financial situation are related to the adherence to the intended purpose of the facility. This study was aimed at evaluating the relationship between loan beneficiaries’ changes in financial status and adherence to intended purpose. Data was collected from a sample size of 150 employees which was selected through stratified random sampling. Data was analyzed using descriptive statistics (frequencies and percentages). This study found that there is a higher chance of suffering negative change in financial status beneficiary of a commercial bank loans would suffer a negative change in financial status if loan is not used for the intended purpose as opposed to when the money is used for the intended purpose. There is need for banks (with supervision from the government) to ensure that they monitor the usage of loan facilities that they advanced to their clients. Non-usage of loan for the approved purpose contributes to difficulties in the servicing of such loans and eventually a negative change in financial status.