Browsing by Author "Wanjala, Lucy Machuma"

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    Prudential Regulations and Financial Performance of Microfinance Banks in Kenya
    (Kenyatta University, 2025-05) Wanjala, Lucy Machuma
    Microfinance enhances the financial capacity of the economically disadvantaged, often ignored by commercial banks and other lending institutions, by offering services such as credits, insurances, and savings, thereby encouraging self-employment. Due to various variables businesses encounter, guidelines, decrees, and rules are necessary to regulate their operations, ensuring a fair structure for all institutions within a sector. This regulatory framework is essential for the financial industry, especially microfinance banks, to operate within set boundaries. This study general objective was to determine the impact of prudential regulations on the financial performance of microfinance banks in Kenya. The study specific objectives were to determine the effects of capital regulation, credit regulation, and liquidity regulation on their financial performance. Theoretical frameworks reviewed include stakeholder theory, capital buffer theory, and liquidity shiftability theory. The study's target population consisted of the fourteen (14) licensed microfinance banks in Kenya, employing a census of all these microfinance banks and an explanatory research design. The investigation utilized secondary data, which was sourced from the financial statements of selected microfinance banks in Kenya. This information encompassed data collected over a seven-year period, from 2015 to 2022. The data analysis involved multiple regression and descriptive analysis. Normality, multicollinearity, stationary, autocorrelation, heteroscedasticity, and diagnostic tests were performed on the data. To ensure ethical considerations, encryption key mechanisms safeguarded all local files, with access restricted to the researcher and supervisors. Findings revealed that capital regulation significantly (ρ = 0.013) and negatively (β = -3.3184) impacts financial performance; credit regulation has an insignificant (ρ = 0.961) and adverse (β = -0.0003) effect, while liquidity regulation significantly (ρ = 0.008) and inversely (β = -0.2173) affects financial performance. The study recommends that microfinance banks recognize the importance of capital management and ensure regulatory compliance. By implementing robust risk management practices, including regular capital level monitoring, stress testing, and strategic capital planning, these institutions can enhance their financial performance, attract investors, and maintain stakeholder confidence.