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The complex negative impact of HIV/AIDS on economic livelihood patterns of households in Kenya has long been recognized (*** Kenyan journal; Odek et al 2009). Given that majority of the population in Kenya live below the poverty line more are made economically vulnerable by the high prevalence of HIV. This economic vulnerability also contributes to the escalating involvement in HIV risk activities providing even fewer strategies to economically cope with the disease (Pronyk et al 2008a; 2006; ***). Eventually, households that climbed out of poverty retract into poverty as they lose productive adults to AIDS, incur health expenditures and take in children left behind - such is the profile of the typical microfinance client (Donahue 2001; Kim & Watts 2005).
The convergence between HIV/AIDS, poverty and microfinance has long been demystified (Pronyk et al 2005; 2008b; Kim et al 2008). Microfinance institutions (MFIs) present a basket of products that seek to reduce HIV/AIDS related poverty by availing credit solutions, saving avenues and attendant non-financial services to HIV/AIDS-affected households (Datta & Njuguna 2008; Dworkin & Blankenship 2009). Additionally, the joint group-lending concept, dynamic incentives pegged to successive loan repayments and group members' savings form part of the key building blocks of these MFIs (Murdoch 1999; ***).
On the other hand, the discourse about 'sustainability of MFIs' has greatly evolved (***; ***). Various concepts of sustainability have been debated with diverse views held about its constituents, some of them contradictory even amongst microfinance practitioners - predominantly in the attainment of financial sustainability at the expense of achievement of poverty alleviation and social goals such as, the improvement of economic well-being amongst HIV/AIDS-affected households (****; Datta & Njuguna 2008).
In 1990, the "Strengthening STD/HIV Control Project" (SHCP) in partnership with "Improve Your Business" (IYB) introduced the first initiative toward the HIV/AIDS and microfinance paradigm in Kenya (Costigan et al 2000; 2002; Odek et al 2002a; 2002b; 2008). While providing microcredit, business training and HIV/AIDS education to female sex workers, SHCP documented the earliest localized challenges toward the success of the "HIV/AIDS and microfinance" concept (see Note 1). Similarly, other HIV/AIDS and microfinance initiatives in Ghana, Rwanda, South Africa, Togo, Uganda, Zambia and Zimbabwe attempt to tackle the immense and complex economic degradation associated with the HIV crisis in Sub-Saharan countries  (Parker et al 2000; Kim & Watts 2005; UNFPA 2006).
In this context, microfinance programs are now working towards alleviating HIV/AIDS-related poverty. It is against this background that this study seeks to examine the sustainability of MFIs while responding to the increasing and unique characteristics of HIV/AIDS-affected communities in Kenya. In particular, the study shall identify myths and present facts surrounding the sustainability concepts of microfinance, we shall illustrate the socioeconomic attributes of HIV/AIDS-affected households amongst the rural vulnerable poor communities in Kenya. In addition, we shall identify conditions unique to microfinance programs in Kenya that can support a sustainable model for HIV/AIDS-affected households; and by way of identifying with HIV/AIDS-affected households we shall show how microfinance programs in Kenya can sustain their operations while accessing microcredit to HIV/AIDS-affected households.
AIMS AND OBJECTIVES
The emergence of HIV households and constraints associated with providing financial services to these households present a new frontier for expanding the provision of financial services. With MFI initiatives such as K-REP Development Agency (KDA) working in this frontier through their Family Health Integrated Development Assistance Project (FAHIDA), the aim of this study is to assess the sustainability of the FAHIDA project while reviewing its responses toward reducing the long term economic vulnerability households caused by the HIV/AIDS.
LIMITATIONS OF THE STUDY
STRUCTURE OF DISSERTATION
Chapter 1 shall provide an introduction of the HIV/AIDS and microfinance paradigm. The same chapter shall outline the background of the study, research objectives and presents the limitations of the study. Chapter 2 shall discuss the literature supporting the research topic providing examples of global innovative programs from other AIDS-affected regions. Chapter 3 shall present the research methodology. The research outcomes and research analysis of field study shall be contained in Chapter 4 and 5 respectively. More specific, the research analysis shall involve a critique review of the research finding in comparison to research literature. In conclusion, Chapter 6 shall present the research conclusion and recommendations.
CHAPTER 2: LITERATURE REVIEW (3000) - 3600
According to CGAP (2003), over 40 million people in the world are living with the HIV/AIDS virus while 15,000 people are infected  with HIV daily. Further, 95% of the world population living with HIV is localized in transitional and developing countries while 90% of new infections occur within the same region (Pronyk et al 2005). Out of these, Sub-Saharan Africa remains the hardest hit region with 24.5 million people living with HIV - that is about two thirds of all the infected individuals (UNAIDS 2006).
Research has long established that HIV feeds ravenously on poverty (Bloom et al 2002). The forward and backward linkage between poverty and HIV/AIDS cannot be underestimated (***; Pronyk et al 2005). Whereas poverty may exacerbate the prevalence of HIV/AIDS, the latter is also as likely to intensify the incidence of poverty (Lachaud 2007:485). In fact, it is estimated that HIV/AIDS has reversed development gains created over the past 30 years (Anand et al 1999; Parker et al 2000). Families who climbed out of poverty retracted into destitution as they lost productive adults, faced crippling health expenditures, and expanded household size to take in children left behind (Parker et al 2000:1).
The impact of HIV/AIDS has been devastating in many Sub-Saharan countries. For Kenya, where over half the population live on less that US$ 1 per day, the prevalence of HIV/AIDS has aggravated an already hopeless situation. With approximately 7.8% in Kenya living with the disease while another 7.5% children have been orphaned from it, the devastating economic impact of HIV/AIDS on the poor is a harsh reality (Green 2008). In particular, since responses targeting economic vulnerability of HIV/AIDS-affected  households remain limited, households and larger communities coping with HIV/AIDS-related illness and deaths have taken on much of the burden (Odek et al 2009).
Although the HIV/AIDS epidemic is in the process of stabilization, this distressing situation has resulted in the consideration of various solutions with regard to the economic devastation experienced within poor households as a result of HIV virus(***). The presence of microfinance services improving access to credit and savings among HIV-affected households has positively strengthened the economic position of households to build up financial resources which serve as safety nets and provide alternative coping mechanisms for the already fragile household economies (Donahue et al. 2001). In addition, microfinance focus on women has reduced household's vulnerability to HIV/AIDS by giving them alternative livelihood while for the HIV/AIDS-affected households microfinance has significantly supported productive income-earning activities of non-sick members and mitigated the economic devastation of the disease (Odek et al 2009).
Relating to the above, the following literature discussion examines the sustainability of microfinance programs juxtapose the delivery of microfinance services to HIV/AIDS-affected households. It also presents an overview of the socioeconomic attributes and economic vulnerability of HIV/AIDS-affected households while reviewing their effects on the sustainability of MFIs. Thereafter, the discussion highlights various adaptations of the microfinance structures of rules and incentives to support the sustainable delivery of micro-credit to HIV/AIDS affected households. The literature then concludes with discussing the existing microfinance organization systems and partnerships with other financial institutions and donor support organisations to sustainably address financial and non-financial constraints of HIV/AIDS affected households.
SUSTAINABILITY OF MFIs AND HIV/AIDS
Increasingly development researchers are considering microfinance programs as a viable solution for HIV/AIDS related economic vulnerability (Anderson et al. 2002; Kim and Watts 2005; Pronyk et al. 2005, 2006). However, with time, a growing literature is now concerned about the sustainability of microfinance programs in settings where microfinance clients are households are infected and affected by HIV/AIDS (Mayoux 2001; Green and Bundred 2006).
Why does sustainability matter?
Sustainability refers to the microfinance programme's ability to meet its current goals and support the long-term continuation of the microfinance programme. Unsustainable microfinance programmes support few poor clients within a short time frame and may eventually harm the poor clients once the programme activities terminate (Krahnen & Schmidt, 1994; Adams et al 1984). In contrast, the effective long-term provision of microfinance services is endorsed within the key microfinance principles as reported by CGAP in Figure 1.7.1 (Adongo & Stork 2005). Focusing on the fourth key principle, 'microfinance should pay for itself if it is to reach a large number of poor people'; then it is fundamental for microfinance services to be delivered at a break-even interest rate to ensure its sustained large-scale outreach.
Figure 1.7.1: Key microfinance principles (Adongo & Stork 2005)
Subsidies, subsidized funds and sustainability
The split further continues whether MFIs are driven by their goal for social change or that of sustainability (Hollis & Sweetman 1998; Rhyne 1998; Woller et al 1999; Anderson et al 2002). MFIs with a belief for social welfare present the case for other non-financial services such as education, health services and training skills in addition to the provision of credit. In this context, subsidies and subsidized funds are regarded as an acceptable trade-off; more so if the MFI accesses micro-credit to the poorest and in the most cost-effective process (Murdoch 1999a; Woller et al 1999).
Even so, a rise in interest rates as a trade-off for subsidies could still lead to lower profits and sustainability of MFIs in case of moral hazard and adverse selection (Cull et al 2007). In addition, Murdoch (2000:621) anecdotal study reports how the perceived "win-win" proposition rests on questionable presumptions most notable that the rise in interest rates does not diminish demand for loans while subsidized microfinance programs limit savings mobilization and are inefficient and ultimately unsustainable.
In conclusion, Murdoch (2000:626) goes on to highlight that hard budget constraints and not necessarily profit maximization make programs sustainable even with subsidies - the fear of yielding control by donors my limit subsidies but the approval of interest rates below the break-even rate does not prevent savings mobilization.
This greater emphasis on hard budget constraints has raised concerns about the effectiveness and efficiency of MFIs - especially those that serve the vulnerable poor such as HIV/AIDS-affected households and significantly rely on subsidies (Hollis & Sweetman 1998; Rhyne 1998). Can the subsidy cost of such new products serving HIV/AIDS-affected households be justified by the social benefits of the project? In conclusion, Schreiner (1998) reports that the long-term self-sustainability of MFIs requires organization systems and linkages; and structures of rules and incentives for the microfinance programme that adapt to changes in the market to support financial self-sufficiency and replace subsidized funds with market funds (see figure 1.7.3 below).
Figure 1.7.3: Three necessary conditions for sustainability (Schreiner 1998) 
In light of the above, various measures of sustainability of MFIs are now recognized and the Subsidy Dependence Index (SDI) as presented by Yaron (1992) has now been complemented by other financial and economic mores such as the Adjusted Return on Assets and Financial Self-Sufficiency (Schreiner 2001). Similarly, in addition to the SDI, Hulme and Mosley (1996:43) present an alternative measure of permanency for MFIs to include arrears rates, as the proportion of loans more than six months in arrears. In conclusion, CGAP (2009) summarize assessment pillars of MFIs to include portfolio quality assessment; asset / liability management assessment; sustainability and profitability assessment; and efficiency and productivity assessment.
SOCIOECONOMIC ATTRIBUTES OF HIV/AIDS HOUSEHOLDS
The effect of HIV/AIDS on the economic well-being of households depends on the availability and size of the household's financial safety nets (Donahue 1998; Parker et al 2000). In fact Irwin et al (2005) in their study of AIDS-affected MSEs conclude that the susceptibility of HIV/AIDS-affected individuals to economic shocks and degradation is significantly correlated to the availability of the household's initial financial safety nets. The poorer the HIV/AIDS-affected household, the more likely it resulted in "less reversible" strategies, thereby weakening its future economic options. In this context, the three key stages identifying the various economic shocks and coping strategies of HIV/AIDS-affected household economic shocks terminating in destitution are shown in Figure 1.8.1 (Green 2009).
Figure 1.8.1: Strategies for economic shocks Chen & Dunn (1996) cited in Irwin et al (2005)
Studies in different contexts describe a positive relation of HIV/AIDS-affected household's ability to build-up a financial base over time and the size of the household's financial safety nets (Anderson et al 2002). Through improved access to credit and savings, innovative interventions by MFIs have supported the build-up of financial assets and improved livelihood security of HIV/AIDS-affected households (Johnson & Rogaly 1997; McDonagh 2001; Pronyk et al 2005). In the review of Zambuko Program in Zimbabwe, Barnes (2001) cited increased sources of household incomes including start-up enterprises, new wage source and rental property among the HIV affected community. This resulted in increased household assets, value of funeral-related assistance, education for children and consumption of nutritious foods. Similarly, a study of the Intervention with Microfinance for AIDS and Gender Equity (IMAGE) in South Africa reported that the participation of HIV/AIDS-affected households in microfinance mitigated exposure of households' economies to the negative impact of AIDS (Pronyk et al 2005).
It is envisioned that the provision of credit to HIV/AIDS-affected household would result in investment in lucrative business opportunities including self-employment opportunities that would ensure household's accumulation of capital, increase of incomes and ability to repay full cost of services, thereby supporting financial sustainability of the MFI while reducing the potential negative impact of AIDS on household economies (Proynk et al 2005; Drowrkin & Blankenship 2009). In a subsequent study of the second phase of SHCP in Kenya, a microfinance intervention that provided credit and savings to female sex workers, Odek et al (2009) highlights four pathways of individual-level effects of micro-enterprise services potentially transferable to HIV/AIDS-affected household, as shown in Figure 1.8.2. Using a pre-post design, the SCHP study reported that 80% of the participants had invested their first loan in business activities, 65% had the micro-enterprises still operational by the end-line survey and 65% had on-time loan realisation records.
Figure 1.8.2: Individual-level effect of micro-enterprise services Odek et al (2009)
Overall, increased incomes and stabilized savings of HIV/AIDS-affected households support their economic well-being and mitigate economic shocks during the various stages of the productive member's illness as shown in Figure 1.8.3. Similarly, CGAP (2003) recognise that the sustainability success of a microfinance intervention for HIV/AIDS-affected household is dependent on the households' continuous ability to earn income and build up financial assets through stabilized savings.
Figure 1.8.3: HIV/AIDS stages and economic degradation Green (2009)
In essence, with the economic implications of HIV/AIDS-affected households, more often MFI clients may be forced to suspend borrowing, borrow less frequently, reduce amount of money borrowed or intermittently sit out loan cycles. The increase in delinquent loans, number of drop-out of clients and the need for new clients increases the costs to the MFI and generates less interest income as loan size decreases. Such a change in demand results in a negative impact on the sustainability of MFIs (Goss & Mitten 2007). In conclusion, the compulsory or voluntary build-up of savings for microfinance clients from HIV/AIDS-affected households supports the household's ability to mitigate future shocks, maintain income flows and build-up its financial base thereby reducing the spiral into poverty (Parrott 2008).
MFI STRUCTURES, RULES, INCENTIVES AND HIV/AIDS
Institutional design and orientation significantly influence the sustainability of MFIs. As discussed in Cull et al (2007), MFIs selected approach to lending defines its trade-off between financial sustainability and depth of outreach. While the individual-based lending mechanism is more profitable, the proportion of poor borrowers in the loan portfolio is lower than for group-based lending mechanism. On the other hand, a rise in interest rates for the individual-based lending mechanism results in poor portfolio quality whereas this is not the case for the poor borrowers within the group-based lending mechanism whose interest is more to "access" a reliable flow of credit and not "cheap" credit (Morduch 2000; Hermes & Lensink 2007).
Considering the economic vulnerability of a typical HIV/AIDS-affected household - the limited financial resources and the minimal size of initial financial safety nets, the empirical studies discussed above justify the group-based lending mechanism adapted by MFIs to provide microfinance services to HIV/AIDS-affected households. In this context, the group-lending mechanism facilitates for the joint-liability collateral and dynamic incentives where the group and not an individual borrower is responsible for loan repayment and the approval of subsequent loans is dependent on the groups' repayment of existing loans. This mechanism as discussed in Murdoch (1999b) also creates a need for the members to then screen and monitor other group members to mitigate risk of loan defaults and ensure access to future loans thus supporting the financial sustainability of MFIs.
In their study, Ahlin and Townsend (2007) cited in Hermes and Lensink (2007:5) empirically validate why the group-based lending mechanism supports the provision of microfinance services to the vulnerable poor. On one hand, the repayment performance is enhanced by strength of the group leader and group sanctions to ensure contract enforcement and the higher correlation between borrower returns. This resolves the moral hazard dilemma attributed to homogeneous groups (Murdoch 1999b; Paxton et al 2000). Karlan (2007) also reports that groups with higher levels of relations present better monitoring and enforcement of loan contracts. In addition, Cassar et al (2007) cited in Hermes and Lensink (2007) concludes that repayment rates are supported by the adverse selection of group members with past positive experiences as subsequent loans are dependent on member's repayment of their individual loans.
This innovative transformative lending mechanism (see Figure 1.9 below) ensures a reasonable degree of sustainability for the MFI. The self selection of members, the dynamic incentives for repeated loans, the geographical proximity and close social ties support high loan repayments of groups and reduction of agency costs of the MFI (Ghatak & Guinnane 1999; Schreiner 2003; Hermes & Lensink 2007). The best known approach to group-based lending is the Grameen Bank's group lending model (Murdoch 1999b). The model utilises self-formed groups of customers that assume joint liability for the repayment of loans allocated to group members. In addition, the model has been replicated in different microfinance interventions that target vulnerable households affected by HIV/AIDS such as IMAGE in South Africa (Pronyk et al 2005). Another method for the group-based lending is village banking / financial savings associations / NGO-based model that involve larger groups within the joint liability mores (Anderson et al 2002). This model also supports the delivery of microfinance services to HIV/AIDS-affected households in Zimbabwe under CARE's SIMBA programme (Hendricks & Jain 2005).
Figure 1.9: Transformation matrix of the group lending mechanism (Kiiru 2007)
In addition, selected research highlights that the motivation of HIV/AIDS-affected household to participate in microfinance programmes is driven by the flexibility and viability of loan products, terms and conditions for the loan and the selection criteria (Barnes 2005). In a study of loan disbursements and loan realisation performance of two microfinance programs in Kenya - Women Fighting AIDS in Kenya (WOFAK) and Movement of Men against AIDS in Kenya (MMAAK) - the greater loan repayment performance by WOFAK beneficiaries was enhanced by shorter grace period condition and the group-based lending mechanism. On the other hand, MMAAK beneficiaries who obtained loans secured by personal guarantors and had a 6-month grace period reported 100% failure in loan realisation (Datta and Njuguna 2008).
MFI ORGANIZATION SYSTEMS AND HIV/AIDS
MFIs working with HIV/AIDS-affected households in poverty stricken areas face major sustainability challenges (Brouwers 2008). To prevent volatile and falling levels of HIV/AIDS-affected household's income, consumption and investments, MFIs working towards alleviating poverty due to HIV/AIDS related illness and deaths have resulted in innovative risk management interventions to respond to the crisis.
Firstly, selected debates caution MFIs of targeting people with HIV/AIDS as a single client group. MFIs operating within any higher risk populations are expected to maintain a diverse portfolio to mitigate the occurrence of a large number of default borrowers and to ensure sustainability of the microfinance program (CGAP 2003). Similarly, the HIV crisis has resulted in rippling negative impacts within communities. These include growing number of children affected by the pandemic and the overburdened caregivers within the households (Boler & Carroll 2003). In these circumstances, MFIs have capitalised on the homogeneity of such groups affected by the HIV crisis to provide microfinance services not only to people living with HIV and AIDS (PLWHA) but also to households affected by HIV while minimising MFI's risk exposure to cases of member drop-outs and loan defaults as a result of HIV related illness and deaths (Hulme et al 1999).
Additionally, the need for creative collaborations with support organizations cannot be overemphasized (UNAIDS 2001). For example, research results have shown that health has a positive and significant effect on economic growth (Bloom et al., 2001). Since the poor have limited access to quality treatment and care, vulnerable poor HIV/AIDS-affected households experience high levels of morbidity and mortality (Datta & Njuguna 2008). The frequency of sickness and the eventual bedbound state of the beneficiary results in a negative impact on the survival of the micro-enterprises and the eventual use of business income and capital to meet treatment and related health costs. In turn, the MFI reports decreased loan realisation and unsustainable profitability.
Increasingly, HIV/AIDS-affected households require more than the provision of micro-credit to sustain their economic well-being and ensure permanency of microfinance programs (Goss & Mitten 2007). In contrast to the minimalist approach  , MFIs working to sustain provision of microfinance services to households and communities greatly affected by HIV/AIDS may opt for an integrated approach  for providing non-financial services to sustain micro-enterprise activities of HIV/AIDS-affected households. In their study, Pronyk et al (2005) present three common mechanisms: linked, parallel and unified for integrating microfinance with ancillary services provided within strategic partnerships, as shown in Figure 1.10. In addition, the group-based lending mechanism discussed in this feature supports the delivery of additional services to MFI clients through strategic partnerships at a subsidized cost with minimal additional burden for the MFI (Dunford 2001; Pronyk et al 2005; Pronyk et al 2006).
Figure 1.10: Models of integrating microfinance and HIV/AIDS Pronyk et al (2005)
The linked model is comparable to the parallel model as each model utilises an independent sector specialist approach for the provision of financial and non-financial services to the same self-formed groups of customers (Dunford 2001; Pronyk et al 2005). For example, each model supports the delivery of microfinance group loans and non-financial services such as social development, health and legal services to groups of customers whilst organizationally, each service provider runs independently, maintains sector focus, discrete cost centres and provides specialized support to clients. However, while the greatest challenge to these models is the sustainable financing of non-financial services and the fundamental difference in institution strategy and revenue sources, the parallel model attempts to sustain permanency by supporting coordinated marketing and mutual referrals at program level amongst the various service providers. (Dunford 2001:22).
Alternatively, considering the lack of understanding between sector specialists and the short-term nature of partnerships, selected literature has argued for a more sustainable unified model where both financial and non-financial services are fully integrated within the MFIs operations and delivered by the same staff (Pronyk et al 2005). However, this approach faces greater constraints for MFIs to develop institutional capacity to respond to specific nonfinancial HIV concerns. On the other hand, whilst interest income may support delivery of non-financial services, a narrower range of non-financial services is the price paid for operational self-sufficiency (Dunford 2001).
In this literature framework, microfinance has been perceived as a sustainable financial intervention that contributes to the economic progression of HIV-infected individuals, mitigates the economic vulnerability of AIDS-affected households and supports economic well-being of HIV/AIDS-affected households (Barnes 2001). Moreover, this assertion has been based on three arguments. On the one hand, the literature review has established the ability of HIV/AIDS-affected households to draw on microfinance services and sustainability of its household members to invest in profitable business opportunities, to earn income, build-up savings and support the high interest rates (Anderson et al 2002; CGAP 2003).
In addition, MFIs have resulted to flexible innovative structures of rules and interventions that provide financial and non-financial services to HIV/AIDS-affected households. The orientation of group-lending mechanisms, dynamic incentives, flexibility and viability of loan products support a reasonable degree of financial sustainability for the MFI. In addition, development of creative collaborations with strategic partners and support organizations have minimised the MFI's risk exposure to providing financial services to vulnerable poor HIV/AIDS-affected households.
Lastly, the sustainable and efficient long-term provision of microfinance services to HIV/AIDS-affected households is defined by the institution's overall goal and systems. The presence of short-term subsidies does not diminish the sustainability of worthwhile social investments. On the contrary, the achievement of sustainability is significantly related to the effectiveness and implementation of hard budget constraints within the program.
CHAPTER 3: RESEARCH METHODOLOGY (2500) - 2100
The term research as defined refers to the systemic investigation of materials to establish facts and conclusions. In addition, Sharp et al (2002) view research as the search for one's own body of knowledge through a methodical process and the discovery of significant facts. More specific, as discussed in Adongo & Stork (2005), anecdotal or statistical research studies of microfinance programs today aim to assess the overall potential of microfinance institutions or may statistically review a microfinance intervention at a single point in time by focusing on pre and post surveys.
However, the possibility of a strong judgement on the sustainability of MFIs targeting HIV/AIDS-affected target groups may be challenging as the MFIs strategy and mission may be complex and multi-targeted. In addition, the identified need for an integrated approach within the institution lending mechanism providing ancillary non-financial services within HIV/AIDS-affected households such as health services, social development and business training programmes also makes it difficult to isolate specific cost centres. Then again, the positive effect of microfinance on the build-up of financial safety nets for HIV/AIDS-affected households and the time lag required for development translating to sustainability for MFIs may not be captured immediately.
In this context, this section discusses the research methodology adopted to analyse the sustainability of MFIs that target HIV/AIDS-affected households. It presents an overview of the analytical framework, research questions and hypotheses as well as the data used to test these hypotheses. Thereafter, the discussion highlights the model and variables that influence the sustainability of MFIs in Kenya working with HIV/AIDS-affected households. The chapter concludes with discussing the limitations and constraints of the research methodology.
As discussed in Schreiner (1999), performance and sustainability of MFIs affects five groups of stakeholders; that is, poor customers, MFI managers, donors, society and investors. Whereas performance is meeting current goals, sustainability is defined as meeting goals now and in the long term. In this context, each group of stakeholders presents a unique set of performance and sustainability goals (see Table 3.2 below).
Table 3.2: Characteristics of the framework guide analysis from the point of view of MFI stakeholders
Performance and sustainability goal to maximise
Benefits - costs of poor customers
Are the gains of using an MFI more than the costs
Life of an MFI
Would an MFI shrink if donors left?
Benefits to the poor from microfinance
How much microfinance is sparked by donor funds
Benefits - costs of all people in the world
Are the gains from an MFI more than its costs?
Social benefits less social costs
Will an MFI earn more than a firm of like risk
Source: Schreiner (1999)
In this framework context, while there are different sustainability viewpoints, due to the time and budget limitation while considering availability of data and ethical reasons, this study shall analyse measures of the performance and sustainability of the MFI from the point of view of the poor customers and the MFI managers.
The point of view of the poor customer
Many factors constrain the sustainability of MFIs targeting HIV/AIDS-affected households. Firstly, the volatile and falling levels of HIV/AIDS-affected household's income, consumption and investments due to HIV/AIDS related illness and deaths does not support the sustainability goal of MFIs (Goss & Mitten 2007; Green 2008; 2009). However, the provision of microfinance services as presented in Figure 3.2.1 below is assumed to economically empower HIV/AIDS-affected households through investment in lucrative business opportunities, build-up of financial safety nets and increased savings (Parrott 2008). In addition, the positive impact of micro-enterprise investments is beneficial for MFIs sustainability as increased financial safety nets should translate to higher loan repayment and increased savings. In this context, this study aims to:
Examine how the repeated participation of HIV/AIDS-affected communities in microfinance services supports the sustainability of MFIs.
Figure 3.2.1:Build-up of financial safety nets
The point of view of MFI workers
"Workers ask whether they can keep their jobs and keep helping the poor [customer] when donors leave" (Schreiner 1998:68).
MFIs targeting HIV/AIDS-affected households in poverty stricken areas are exposed to operational and financial sustainability challenges. The recognition of significant operational challenges and the development of innovative MFI structures, rules, incentives and strategic partnerships mitigate the negative impact of the disease and support the self-sustainability of MFIs (Brouwers 2008).
For example, different anecdotal studies have reported positive effects of the group-lending mechanism on the self-sustainability of MFIs. Hermes and Lensink (2007), defining measures of financial sustainability for MFIs, found that the joint-lending liability and dynamic incentives attributed to the group-lending mechanism exhibited greater screening and monitoring of HIV/AIDS-affected households members while ensuring the enforcement of loan contracts at minimal operational costs. Similarly, a study of Zambuko Trust clients reported that HIV/AIDS-affected households were more conscious to participate within groups as they had developed strong social ties and were supportive of each group member's needs (Barnes 2003). In this context, this study aims to:
Determine the strategic significance of innovative MFI organisation systems, structures, rules and incentives, with a special focus to support the financial self-sufficiency of microfinance programs that target HIV/AIDS-affected communities.
In summary, our study assesses the sustainability of MFIs targeting HIV/AIDS-affected households. The analytical framework shown in Figure 3.2.2 below puts forward that access to financial and non-financial services such as credit, health services and business training economically empowers HIV/AIDS-affected households through increased incomes, stabilized savings supporting their repeated use of microfinance services while the development of innovative MFI organization systems, structures, rules and incentives such as group-lending mechanism support the financial self-sustainability of microfinance programs targeting HIV/AIDS-affected households.
Figure 3.2: Analytical framework adapted from Schreiner (1998)
DESIGN AND SAMPLE
This research is based on a study of FAHIDA project, a joint initiative of:
KDA - a specialized microfinance research and product development organization;
United States Agency International Development (USAID) Kenya's Micro Private Enterprise Development Project (MicroPED); and
AIDS, Population and Health Integrated Assistance (APHIA II) implementing partners to provide health services to HIV affected communities in Kenya.
KDA seeks to economically empower low-income HIV/AIDS-affected households under the FAHIDA project. Initiated in 2001 under a three-year pilot study, USAID Kenya's MicroPED project has supported KDA to establish special lines of credit to HIV/AIDS-affected households involved in income generating activities.  In section 4.2 of Chapter 4 in this feature, I shall discuss in more detail the structure and characteristics of KDA that support the delivery of microfinance services to HIV/AIIDS-affected households.
METHODS OF DATA COLLECTION
The research shall use a mixed-method approach as presented in Figure 3.4 below to verify the sustainability of the FAHIDA project (Johnson & Onwuegbuzie 2004:17). The underlying assumption of triangulation is that weakness in each data collection method is compensation by the strength of another method (Duffy 1987). Furthermore, the integration of various data sources in a multiple-method design as discussed in (Jick, 1979) and (Mitchell, 1986) permits the research analyst to discover multiple dimensions in a particular study. In this context, the research tools shall include multiple interviewers, questionnaires, case study review of KDA and an analysis of FAHIDA project indicators as described here below to support convergence of research findings.
Figure 3.4: Research methodology
Case study review
It is important to note that at the time of this study none of the registered MFIs in Kenya are directly providing financial services to HIV/AIDS-affected clients. This fact makes the FAHIDA project unique in that respect. For example, the HIV-affected persons in Kenya who depend on existing FAHIDA financial and nonfinancial systems will not access similar supportive systems in other market driven financial institutions.
Today, MFIs concentrate more on financial and operational self-sufficiency while replicating existing approved microfinance implementing models (Hulme & Mosley 1996:135). Further, it has been debated that microfinance services that serve the poorest of the poor - as such may be the vulnerable poor HIV/AIDS-affected households - reflect low sustainability results (Navajas et al., 2000). Therefore, the delivery of financial services to the HIV-affected clients has closely been related to government and donor grants involving local government providing health facilities.
In light of existing peculiar sector characteristics, this research will analyse KDA's existing business and socioeconomic environment to complement the quantitative survey data results. Semi-structured interviews involving face-to-face discussions with KDA's senior management namely the KDA Managing Director and FAHIDA Project Manager were carried out to explore the attitude and views of KDA management toward the sustainability of FAHIDA. As discussed in Barriball & White (1994), semi-structured interviews are designed to have a number of sufficiently open interviewer questions prepared in advance that shall ensure equivalence of meaning to standardize the interview responses and facilitate comparability.
On the other hand, the research interviewed SHCP's senior management namely the SHCP founder and SHCP research consultant to provide insight from SHCP's experience of the plausibility of sustainability within microfinance programs targeting HIV/AIDS-affected communities.
The purpose of the case study review is to:
better understand complex phenomena and interrelationships within KDA that support delivery of microfinance services to HIV/AIDS-affected households;
explore factors other than KDA's organizational structures that may have contributed to the implementation of innovative microfinance products for HIV/AIDS-affected clients; and
where possible, illuminate and establish a chain of evidence that supports the sustainability of FAHIDA.
This questionnaire was intended to provide an in-depth understanding of the research topic and provide insight to other factors that may influence the sustainability of microfinance programmes that target HIV/AIDS-affected communities. The questionnaires were collected from the existing 17 FAHIDA project field offices located in 6 regions within Kenya, namely: Western Region, Nyanza Region, Coast Region, Nairobi Region, Mount Kenya Region and Rift Valley Region. Each region was represented by 3 microfinance officers with the exception of Coast Region that had 2 microfinance officers at the time of the study. Prior to collection of the data, an induction was made to the respondents on the purpose of the study and confidentiality in the use of data. Thereafter, additional measures were considered during data collection, data entry and validation phase.
In context, the questionnaire contained three main sections. First, the respondents were asked a series of questions about the effect of socioeconomic attributes on the repeated use of microfinance services, increased loans per borrower, decreased drop-out rates and increased deposits/savings. Second, questions were asked about the suitability of the MFI structures, rules and incentives toward supporting the financial self-sufficiency of the MFI. Lastly, information was gathered about the need for strategic partnerships with support organization to ensure MFI's sustainability.
Analysis of FAHIDA project
The FAHIDA project analysis included data review for the period January 2005 to May 2010. The project information and data was obtained from KDA databases as to July 2010. Additionally, a draft evaluation report for the FAHIDA project pilot activity to mitigate adverse economic and social impact of AIDS on households and communities in Western Kenya commissioned by USAID (Beijuka & Omuodo 2004) and FAHIDA project quarterly reports obtained from KDA offices provided useful information for the analysis.
Although there were no major limitations in the research, the research design had to ensure use of robust analyses with practical considerations of time allocated to carry out the study and submit the dissertation paper; budget constraints in carrying out detailed field studies; and consideration for minimal disruption to KDA and FAHIDA management and operations.
In addition, the research key respondents were selected to obtain their unique experience and viewpoint on the sustainability of microfinance programs targeting HIV/AIDS-affected communities. In this regard, we do not confirm the representative nature of the research interviews and questionnaires. Therefore, the analysis of this study presents this selected group's perspectives and not necessarily a representation of the microfinance field in Kenya as a whole.
Another consideration was the treatment of missing data. In particular, the lack of FAHIDA project pilot phase financial and client reports could not provide an estimate in response to questions that centred on the pre and post analysis of sustainability of FAHIDA. As such, the study undertook a review of the sustainability of the expanded project phase.