Browsing by Author "Muli, Munyithya Veronica"

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    Firm Characteristics and Financial Performance of Licensed Microfinance Banks in Kenya
    (Kenyatta University, 2025-09) Muli, Munyithya Veronica
    Microfinance institutions (MFIs) significantly contribute to the financial sector by providing credit facilities to low-income earners and the unbanked population. However, the rising economic crisis in Kenya has adversely affected the financial performance of MFIs, raising concerns about their sustainability. This study aimed to investigate how firm characteristics such as capital adequacy, bank size, and management efficiency impact the financial health of microfinance banks in Kenya. The research spanned a six-year period from 2018 to 2023, a time marked by rapid expansion in the microfinance sector and significant economic challenges, including the devaluation of the Kenyan shilling, corporate consolidation, and the takeover of financial institutions. The theoretical framework of the study was underpinned by Capital Buffer Theory, Efficiency Structure Theory, and Performance Management Theory. A descriptive research design was employed, collected secondary data from the published financial reports of the 13 licensed microfinance banks in Kenya, using a census sampling method. Ethical and logistical standards were rigorously followed, ensuring voluntary participation and maintaining data confidentiality. The panel regression analysis results revealed that capital adequacy and management efficiency have a significant positive impact on the financial performance of licensed microfinance banks in Kenya. Capital adequacy showed a positive relationship with ROA, with a coefficient of 2.4464 (SE = 0.3452, p = 0.021), indicating that a unit increase in capital leads to a 2.4464-unit increase in ROA. This supports the hypothesis that well-capitalized banks perform better financially. Management efficiency was the strongest predictor, with a coefficient of 3.9905 (SE = 1.181, p = 0.001), suggesting that improved management practices increase ROA by 3.9905 units. Bank size also showed a positive effect on ROA, with a coefficient of 1.1403 (SE = 0.3667, p = 0.003), indicating that larger banks tend to have higher profitability. The model was statistically significant (F = 9.084, p < 0.001) and explained 37.2% of the variation in ROA, confirming that capital adequacy and management efficiency play a crucial role in enhancing financial performance. Conclusions from the study indicated that firm characteristics significantly influenced financial performance. Larger banks, due to economies of scale and diversified portfolios, tend to perform better, implying that growth and expansion strategies can enhance financial stability. Capital adequacy emerged as a crucial determinant of financial health, with well-capitalized banks being more resilient to financial shocks and better positioned for growth. Management efficiency also played a key role, with better-managed institutions showing higher profitability through cost control and optimal resource allocation. These insights can guide policymakers and bank managers in crafting strategies to bolster the financial resilience of MFIs, with an emphasis on maintaining robust capital adequacy ratios and enhancing managerial capabilities to drive long-term sustainability and competitiveness