RP-Accounting and Finance Department

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Type of Venture Capital Investment, Venture Capital Control and Financial Growth of Funded Small and Medium Enterprises in Nairobi City County, Kenya
(IAJEF, 2024-11) Maragia, Dancan S.; Gatauwa, James M.
Global venture capital industry expansion has boosted entrepreneurship and innovation, leading to the generation of wealth and jobs in a number of countries. SMEs play a crucial role in socioeconomic development by promoting wealth generation, economic growth, and job creation in their individual economies. These SMEs nevertheless have uneven and restricted access to sustainable finance, which is essential to their survival and expansion, despite their prominence and importance in developing countries such as Kenya. This study aimed to examine how type of venture capital investment and venture capital control affect the financial growth of selected SMEs in Nairobi County, Kenya. Both a descriptive research design and quantitative research methods were applied. The target population for the analysis consisted of 139 SMEs that have received venture capital funding. Data was analyzed using descriptive and inferential statistics. Results indicated that type of venture capital investment had a positive and significant effect on SMEs’ financial growth. SMEs' financial growth was positively, but not significantly, impacted by venture capital control. The study concluded that venture capital control had a positive but insignificant effect on SMEs’ financial growth. The study recommended that entrepreneurs should consider a diverse syndicate of venture capitalists. This is key for improved risk management, survival rate, access to more strategic collaboration and attraction to resources and expertise. In addition, the study recommended that entrepreneurs should review the venture capitalists’ level of control in the business. This would help to mitigate negative impact resulting from venture capital-imposed restrictions on managerial autonomy.
Camel Financial Indicators and Performance of Tier Three Commercial Banks in Kenya
(Stratford Peer Reviewed Journals and Book Publishing Journal of Finance and Accounting, 2024-11) Ngatia, James; Makori, Daniel; Theuri, Joseph
Tier three banks are vital to the Kenyan economy by promoting competition and ensuring efficiency in the banking sector. Despite their importance, recent statistics indicate poor performance among these banks, possibly due to their financial practices. However, limited research exists on how the CAMEL approach affects their financial performance. This study addressed this gap by analyzing the financial performance of Kenya’s tier three commercial banks through CAMEL factors, namely; capital adequacy, asset quality, management, earning ability, and liquidity. The study was guided by the Free Banking Theory, Agency Theory, Capital Buffer Theory, and Transactional Cost Theory. An explanatory research design was adopted, with a focus on 18 tier three commercial banks. Secondary panel data were collected from the banks' records over a period of ten years (2014-2021). The regression results revealed a coefficient of determination (R-squared) of 0.6918, indicating that 69.18% of the variance in financial performance (ROA) is explained by the CAMEL variables. The analysis identified that Capital Adequacy, Asset Quality, Management Quality, and Liquidity significantly affect the financial performance of tier-three commercial banks, while Earnings Ability did not show a statistically significant effect. The study further examined the moderating effect of Ownership Identity on the CAMEL-ROA relationship, but the findings indicated that it does not enhance the predictive power of the model. Consequently, Ownership Identity was ruled out as a significant moderator. The study concludes that the CAMEL framework is essential for assessing the financial health of tier-three commercial banks in Kenya, emphasizing the importance of strong capital adequacy, liquidity, and management quality for profitability. The study recommends that bank management prioritize these CAMEL components while policymakers should create supportive regulatory frameworks and further research should explore additional performance indicators and potential moderators affecting financial performance.
Firm Characteristics, Interest Rate and Financial Performance of Microfinance Banks in Kenya
(International Academic Journal of Economics and Finance, 2024-10) Ouma, Cavine Onyango; Makori, Daniel; Aluoch, Moses Odhiambo
Microfinance Banks gives the forte to improve the economic activity of low-income individuals and eliminate poverty, resulting in economic progress. However, microfinance's Banks financial performance in Kenya has declined over time. The objective of this study is to investigate firm characteristics, interest rate and financial performance of microfinance banks in Kenya. The study was grounded on buffer capital, efficiency structure and interest rate parity theories. The study research methodology rested on positivism research philosophy. Research design was explanatory non-experimental design. Secondary panel data was utilized. 13 microfinance banks in Kenya were target. Information was gathered using secondary data sources from microfinance banks accounting report from 2016 to 2022. Data was analysed using descriptive and inferential statistics. The study used multiple regressions and Pearson’s Product Moment Correlation analysis. All ethical considerations were appropriately observed. Findings indicated that adequacy of capital exerts a notable and direct effect on financial performance, underscoring the importance for microfinance banks in Kenya to prioritize maintaining sufficient capital levels to support their overall stability and financial outcomes. Conversely, quality of asset demonstrates a significant and adverse influence on performance financially, highlighting the need for microfinance banks to enhance their credit assessment processes to ensure the quality of their loan portfolios. The research revealed that efficiency of management has an insignificant direct influence on financial performance of Microfinance banks. To address this, microfinance banks are advised to invest in comprehensive management training programs and capacitybuilding initiatives to improve operational effectiveness and decision-making processes. Earning ability, on the other hand, exhibits a considerable and direct influence on financial performance. Microfinance banks should thus focus on continuous innovation of their products and services to enhance their earning potential and overall financial outcomes. Liquidity levels exhibit an insignificant and inverse effect on the financial performance outcomes. To mitigate potential risks, microfinance banks should establish comprehensive policies and procedures to monitor and manage liquidity effectively. Interestingly, the study reveals that the connection concerning firm-level attributes and financial outcomes for microfinance institutions in Kenya does not appear to be subject to a substantial moderating influence from interest rate movements. Therefore, the survey recommends that microfinance banks concentrate on improving governance structures, operational efficiency, risk management practices, and asset quality. This can be achieved through capacity-building programs, training initiatives, and adopting best practices from successful microfinance institutions. Strengthening these firm characteristics will enable microfinance banks to enhance their financial performance, irrespective of interest rate fluctuations
Mobile Payment Services and Financial Performance of Local Businesses in Kiambu County – Kenya
(International Journals of Academics & Research (IJARKE Business & Management Journal), 2024) Mbugua, Eric Kimani; Suva, Mark
Mobile payments are a critical emerging mode of financial transactions in the business environment. Local business owners in Kiambu County have faced marginalization from traditional banking, with businesses in these regions lacking access to formal financial services due to factors such as low cash flow levels, lack of collateral and low incomes. Customers have lacked the convenience of transacting with their money in the traditional banks or incurring more costs in accessing their money. Local business owners, customers, and other stakeholder have encountered rigidity in making payments in their daily business operations. Money is transferred to their bank accounts or registered institutions, which is wired to the seller accordingly. Therefore, the current study investigated the effect of mobile payment services on the financial performance of local businesses in Kiambu County, Kenya. The specific objectives of the study investigated the effect of mobile money transfers, online transactions, and mobile payments on the financial performance of local businesses in Kiambu County, Kenya. The study was anchored on agency theory, contingency, the technological acceptance model, and innovation diffusion theory. The study employed a descriptive research study design to explore the sub-variables. A sample size of 157 respondents from the local businesses in Kiambu was targeted. Validity and reliability of the research instruments was considered during the pilot study for 20 respondents that were not involved in the parent study. The reliability analysis showed that all the study variables met the threshold Cronbach value of 0.70. Quantitative data were examined using descriptive and inferential statistical methods and presented in tables and figures, while qualitative data were examined through content analysis. The analysis of demographic information demonstrated a fair representation of both genders, designations to various positions in the local businesses, and various levels of experience dealing with local businesses in Kiambu County, Kenya. The findings indicate a meaningful positive and significant relationship between financial performance and mobile money transfers, online transactions, and mobile payments. Regression analysis suggests that mobile money transfers, online transactions, and mobile payments together account for 52.8 percent of all the variations in the financial performance of local businesses in Kiambu County, Kenya. The study concluded that mobile payment services significantly impacted the financial performance of local businesses in Kiambu County, Kenya.
Analyzing the Effect of Liquidity on Financial Stability: Evidence from Kenyan Deposit-Taking Savings and Credit Cooperative Societies
(Stratford Peer Reviewed Journals and Book Publishing, 2024-05-15) Birisi, Hesborn Birisi; Omagwa, Job; Musau, Salome
Non-performing loans have been on the rise among DT SACCOs in Kenya over the past five years as evidenced by the increase in percentage of NPLs to gross loans in SACCO regulatory authority report of 2020. Consequently, if this trend is allowed to continue then this sector’s contribution to financial intermediation through provision of financial services will be negatively affected. In view of the above this study sought to investigate the effect of firm characteristics and financial stability of deposit taking savings and credit cooperative societies in Kenya. In view of the above this study sought to assess the effect of liquidity on financial stability of deposit taking savings and credit and cooperative societies in Kenya. The study was anchored on agency theory. Positivist research philosophy was adopted in this study. The study adopted explanatory research design. The target population for the study comprised 160 DT SACCOs which were fully operational in the period. A census approach was used for the study. This study utilized quantitative secondary data which was obtained from the society’s financial statements and supervision reports from the savings and credit cooperatives regulatory authority. The study utilized annual panel data for the period of 2017 to 2021. Multicollinearity test, normality tests, autocorrelation test, homoscedasticity, stationarity test and model specification test were carried out prior to panel data analysis. Data was analyzed using descriptive statistics, Pearson’s correlation analysis and panel regression analysis. STATA software was used for the analysis. The findings showed that liquidity had a strong, positive effect on NPLs ratio (β = 0.410056, p=0.003 <0.05). In view of the findings, the study recommends that DT SACCOs with high liquidity levels should consider implementing rigorous lending practices to ensure that loans are extended to creditworthy borrowers. Additionally, effective credit risk assessment and continuous monitoring of borrower repayment behavior are essential to minimize NPLs. DT SACCOs should focus on improving management efficiency by implementing cost-effective operational processes.
Macroeconomic Dynamics and Profitability of Insurance Firms Listed at Nairobi Securities Exchange, Kenya
(Stratford Peer Reviewed Journals and Book Publishing, 2024-11-04) Muteru, Milka W.; Omagwa, Job
Kenya’s insurance industry has been growing steadily since 2013, with premium revenue and capital investment increasing. However, Return on Assets has declined over the past four years and reached an all-time low in 2022 compared to the previous five years which was partly attributed to the reforms introduced to cater the impact of Corona virus pandemic on and the need to close infrastructure gaps. As a result, as gross domestic product grows, firm deposits and loans rise along with interest income and loan losses. This study focused on understanding how macroeconomic dynamics affect the profitability of insurance companies listed on NSE in Kenya. It particularly looked into how changes in exchange rates, interest rates, and the overall price rise in the economy (inflation) influence these companies' profits. The study was guided by the theoretical frameworks of purchasing power parity, deflation, the balance of payment, the classical theory of interest, and the balance scorecard model. The study adopted an explanatory research design and targeted the six insurance firms listed on the NSE. The secondary data collection for this study involved the utilization of secondary data sheets. Data was obtained from the official audited financial statements of the insurance firms for the fiscal years 2016 through 2022. Data analysis involved both descriptive and inferential analysis. Inferential analysis incorporated both correlation analysis and panel regression analysis. The study found that key macroeconomic dynamics had significant impact on the profits of insurance companies listed on the NSE, explaining 57.71% of the changes in profits (R-squared = 0.5771). It discovered that while changes in the exchange rate do not significantly affect profits (β = 0.0761, p = 0.5358), higher interest rates lead to higher profits (β = 2.1647, p = 0.0233), and inflation negatively impacts profits (β = -0.3447, p = 0.0011). The study's validity is supported by strong statistical evidence (F-statistic = 21.0100, p-value = 0.0000). It suggests that insurance companies in Kenya should focus on managing risks related to economic changes to improve their financial performance. This research adds to the understanding of how macroeconomic dynamics affect the profitability of insurance firms in the context of the NSE.
Firm Characteristics and Financial Performance of Microfinance Banks in Kenya
(International Academic Journal of Economics and Finance, 2024-10-07) Ouma, Cavine Onyango; Makori, Daniel; Aluoch, Moses Odhiambo
Kenya has one of Sub-Saharan Africa's most active microfinance marketplaces. Microfinance gives the forte to improve the economic activity of low-income individuals and eliminate poverty, resulting in economic progress. However, microfinance's financial performance in the country has declined over time. With this view, this investigation aims to explore how firm characteristics (capital adequacy, assets quality, managerial efficiency, earning ability and liquidity) performance of microfinance banks in Kenya. The study was grounded on stakeholders, liquidity preference, financial intermediation, buffer capital, efficiency structure and interest rate parity theories. The study research methodology rested on positivism research philosophy. Research Design was explanatory non-experimental design. Secondary panel data was utilized. 13 microfinance banks in Kenya were target. Information was gathered using secondary data sources from microfinance banks accounting report from 2016 to 2022. Data was descriptively and inferentially analyzed. The investigation employed panel multiple regressions and Pearson’s Product Moment Correlation analysis. Diagnostics test such as multicollinearity, normality, autocorrelation, heteroscedasticity and stationary tests were carried out. All ethical considerations were appropriately observed. Findings uncovered that adequacy of capital exerts a notable and direct effect on financial performance, underscoring the importance for microfinance banks in Kenya to prioritize maintaining sufficient capital levels to support their overall stability and financial outcomes. Conversely, quality of asset demonstrates a significant and adverse influence on performance financially, highlighting the need for microfinance banks to enhance their credit assessment processes to ensure the quality of their loan portfolios. The research reveals that efficiency of management has an insignificant direct influence on performed banks financially. To address this, microfinance banks are advised to invest in comprehensive management training programs and capacity-building initiatives to improve operational effectiveness and decision-making processes. Earning ability, on the other hand, exhibits a considerable and direct influence on performance financially. Microfinance banks should thus focus on continuous innovation of their products and services to enhance their earning potential and overall financial outcomes. Liquidity levels exhibit an insignificant and inverse effect on the financial performance outcomes. To mitigate potential risks, microfinance banks should establish comprehensive policies and procedures to monitor and manage liquidity effectively. Interestingly, the study reveals that the connection concerning firm-level attributes. Therefore, the study recommends that microfinance banks concentrate on improving governance structures, operational efficiency, risk management practices, and asset quality. This can be achieved through capacity-building programs, training initiatives, and adopting best practices from successful microfinance institutions. Strengthening these firm characteristics will enable microfinance banks to enhance their financial performance, irrespective of interest rate fluctuations.
Financing Options and Growth of Real Estate in Savings and Credit Cooperative Societies in Nairobi City County, Kenya
(International Academic Journal of Economics and Finance, 2024-08-16) Sangori, Roselyne Auma; Aluoch, Moses Odhiambo
The challenges confronting real estate enterprises in Kenya, especially within Nairobi City County, are substantial, particularly regarding financing decisions given the capital-intensive nature of their projects. The evident gap between annual housing demand and actual supply underscores the critical need for effective financing mechanisms to bolster the expansion and development of the real estate industry. The research concentrated on investigating the impact of various financing options available through Savings and Credit Cooperative Societies in Nairobi City County is particularly relevant, given Savings and Credit Cooperativess' role in offering financial services to their members. Evaluating the effects of mortgage financing, lease financing, savings financing, and equity financing on real estate growth can offer valuable insights into the feasibility of different funding avenues for these enterprises. Considering the moderating influence of real estate firm size on the relationship between financing options and growth rates enriched the analysis, acknowledging that a firm's size and scale can significantly shape its financing strategies and growth trajectory. Drawing on theoretical frameworks such as the lien theory of mortgage financing, resource dependency theory, transaction costs theory, and housing cycle theory provided a robust foundation for understanding the dynamics of financing and growth in the real estate sector. Adopting a descriptive research design, along with panel data analysis spanning a five-year period, facilitated a comprehensive examination of trends and patterns among real estate firms operating within Savings and Credit Cooperative Societies in Nairobi City County. By employing a census approach to collect data from the entire population of 72 real estate companies, the study ensured a representative sample, enhancing the reliability and validity of the findings. The study found a significant and positive effect between mortgage financing, lease financing, savings financing, and equity financing and growth of real estate in SACCOs. The result indicated a moderating effect on the relationship between financing options and growth of real estate firms in SACCOs. The study concluded that the real estate sector in Nairobi City County requires effective financing and strategic decision-making, relying on mortgage, lease, savings, and equity financing to optimize resource allocation and drive growth, with SACCO size significantly moderating the impact of these financing options on firm performance. Based on the study findings, policy recommendations include reducing mortgage costs through subsidies and regulatory reforms, increasing lease financing options via innovative structures and Public-Private Partnerships, boosting savings financing through mobilization programs, facilitating equity financing with improved market mechanisms, and optimizing SACCO performance through targeted training. The study enriches understanding by demonstrating the significant impact of various financing options on real estate firm growth, advancing theoretical frameworks, addressing methodological gaps, and providing practical policy recommendations to support sector expansion.
Investment Incentives and Effective Corporate Tax Rate for Manufacturing Firms in Kenya
(International Journal of Economics and Finance, 2024-01-10) Nganyi, Silas Muyela; Koori, Jeremiah; Abdul, Farida
Effective corporate tax rate is a finance subject of interest to firms, policy makers and researchers. It measures level of tax burden at firm level. Thus, governments implement various investment incentives to influence effective corporate tax rate. The effective corporate tax rate in Kenya is still a problem averaging 31.3 percent for the last 10 years. Such high effective corporate tax rate militates against desired competitive corporate environment for the manufacturing sector. In the last ten years, the manufacturing sector has deteriorated to 7.4 percent contribution to gross domestic product which is less than 15 percent as envisaged in Kenya Vision 2030. This undesirable phenomenon prompted design of this study. The objective of the study was to determine the effect of investment incentives on effective corporate tax rate. The study adopted positivist philosophy and longitudinal research design. A sample of 278 firms provided secondary data for the period 2010 to 2020. Descriptive and inferential statistics were conducted using panel data regression. The study established that investment incentives are statistically significant predictors of effective corporate tax rate for manufacturing firms in Kenya. The study recommends that public policy makers should design appropriate profit based, capital investment and custom duty incentives as part of fiscal policy instruments to grow firms involved in manufacturing. The study has added to finance knowledge that fiscal policy affects corporate operations. However, there is need for further investigation on other possible investment incentives that were not covered in this study that influence effective corporate tax.
The Effect of Online Tax Payments on Tax Compliance among Large Taxpayers in the North-Rift Region, Kenya
(Stratford Peer Reviewed Journals and Book Publishing (Journal of Finance and Accounting), 2024-09-30) Tarus, Mark Kiplimo; Koori, Jeremiah
Tax compliance is a key emphasis area of the Kenya Revue Authority in a bid to maximise revenue collection to finance government services. However, complex processes and ineffective methods of revenue generation continue to mar tax compliance especially among the large taxpayers in the North Rift. This study sought to investigate the effect of online tax payments on tax compliance among large taxpayers in the North-Rift region, Kenya. The study was underpinned by the general systems theory. A descriptive research design was adopted by the study to guide data collection and analysis procedures. The study’s target population was 200 large taxpayers operating in North rift region, Kenya from which a random sample of 133 participants was selected with the use of Yamane’s (1967) formula. The study utilized structured questionnaires as a tool for data collection from 133 financial managers purposively selected from the 133 randomly selected large taxpayer companies in North rift region, Kenya. Data collected was entered into the Statistical Package for Social Sciences (SPSS) and quantitatively analysed using descriptive statistical techniques namely mean, percentages, and standard deviations, and inferential statistical analyses techniques namely correlation analysis and multinomial logistic regression analysis. The findings were presented in figures and tables. The study established significant and positive influence of online tax payments (Coeff=0.108, Sig=0.032). The study’s findings are capable of being used to inform research, revenue collection practice, and academic/research.
Financial Risks and Financial Performance of Commercial Banks Listed In Nairobi Securities Exchange, Kenya
(IAJEF, 2024-11) Mable, Sophie Malalu; Njoka, Charity
Despite the implementation of comprehensive risk management systems by commercial banks, the banking sector incurs financial losses. Commercial banks listed on the Nairobi Security Exchange are experiencing declining financial performance. Financial risk management is regarded as a metric for assessing the performance or failure of a financial organization. It has been neglected in recent a long time. The main objective of the study is to ascertain the effect of financial risk on the financial performance of commercial banks listed on the Nairobi Securities Exchange in Kenya and will be measured by return on equity. This study was based on Merton's Default Risk Model, Agency Theory, Shiftability Liquidity Model, and Risk Management Theory. Explanatory research design was used for study. The sample is 11 listed commercial banks being focused from the year 2018 to 2023. The data collecting sheet was employed to amass the secondary data. The ethical considerations were observed to. The variables were analysed using IBM SPSS Version 25. Tests for multicollinearity, heteroscedasticity, correlation, regression as well as the Hausman test were established. The findings on credit risk indicated that the mean Non-Performing Loans Ratio is 11.062% which show moderate negative correlation between credit risk and financial performance of listed bank at (r=0.324; p=0.0016). Operational risk results indicated a strong positive and significant association between operational risk and financial performance(r=0.758 and p=0.00168) while liquidity risk showed that the mean of loan to deposit ratio is 72.847% and a weak positive correlation relationship between liquidity risk and financial performance (that r=0.0652 and p=0.003).From the finding the study conclude that credit risk, operational risk and liquidity risk has significant influence on financial performance of listed commercial banks. The study recommends that banks should engage in continuous monitoring of credit portfolios, invest in capacity building for enhanced risk management capabilities. Banks should conduct regular comprehensive risk assessments, invest substantially in technology for robust IT systems, and engage in scenario planning to anticipate and address potential operational risks. In addition, the listed banks should diversify funding sources, employ advanced risk modelling for robust liquidity risk management.
The Effect of Microfinance Services, Financial Literacy and Financial Health of Women Members of Selected Microfinance Banks in Kenya
(Stratford Peer Reviewed Journals and Book Publishing (Journal of Finance and Accounting), 2024) Riro, Jerusha Kerubo; Musau, Salome; Njoka, Charity
The World Bank identifies the financial health of women as crucial for poverty reduction and economic development. This study aimed to assess the impact of microfinance services and financial literacy on the financial health of women members of selected microfinance banks in Kenya. Specifically, it examined the effects of micro-credit, micro-savings, and micro-insurance services, as well as the moderating role of financial literacy. Guided by empowerment, gender stratification, finance growth, and information asymmetry theories, the study employed an explanatory research design within a positivist framework. The target population included 37,773 women with active deposit and loan accounts in 14 microfinance banks in Kenya, with a sample size of 384 respondents. Findings revealed that micro-credit, micro-savings, and micro-insurance services significantly enhance the financial health of women. Additionally, financial literacy positively moderates the relationship between microfinance services and financial health. The study recommends that microfinance institutions diversify their financial products beyond traditional micro-credit and implement educational programs to improve awareness and understanding of micro-savings services among women
Revenue Diversification and Financial Performance of Commercial Banks, Kenya
(Stratford Peer Reviewed Journals and Book Publishing (Journal of Finance and Accounting), 2024) Muriuki, Nicholas; Musau, Salome
Financial intermediaries, providers of funds and primary depositors of savings are important to an economy. In Kenya, the banking sector has been facing challenges such as declining profitability since 2015, with a brief uptick in 2019 that was halted by the COVID-19 pandemic. Banks in Kenya proactively set aside funds to cover potentially risky loans in 2020, reevaluating their asset quality due to the unprecedented uncertainty caused by the pandemic, which put the international financial reporting standard (IFRS) 9 for projected credit loss provisioning to the test. The Kenyan banking sector must overcome various challenges, including economic downturns, illiquid stock markets, and other macroeconomic and bank-specific issues, despite demonstrating resilience and stability with robust capital and liquidity ratios in 2022. Thus this research investigated the effect of income diversification on financial performance of commercial banks in Kenya. Specifically, this research assessed the effect of fees and commissions, dividend income, foreign currency trading and transaction fee revenue on the financial performance of commercial banks in Kenya. The research was based on agency theory, portfolio theory and financial intermediation theory. The sample included 38 commercial banks selected from the years 2019 to 2023, and the research used a census sampling method to gather data from the whole population of these banks in Kenya. The study employed an explanatory research design, utilizing descriptive statistics such as mean and standard deviation, as well as inferential statistical tools like panel multiple regression analysis and Pearson correlation analysis, while various diagnostic tests, including multicollinearity, normalcy, linearity, homoscedasticity, Houseman test, and autocorrelation tests, were conducted to validate the model's predictions. The study found that fees and commission income had a positive and statistically significant relationship with the return on assets (ROA) of commercial banks in Kenya (β=3.085506, p=0.000), and dividend income also showed a strong and statistically significant correlation with ROA (β=1.939443, p=0.000). The p-value for foreign exchange trading income was 0.0050, indicating that it significantly affects the financial performance of commercial banks in Kenya. Furthermore, the p-value for transaction fee income was 0.0240, suggesting that commercial banks in Kenya heavily rely on cash from transaction fees to fund their operations. In conclusion, the research determined that there is a significant positive relationship between fees and commissions, dividend income, foreign exchange trading income, and transaction fee income on the financial performance of commercial banks in Kenya. The study recommended that commercial banks need to review transaction rates from time to time to ensure that they derive maximum income from loans. Further, banks need to participate in the securities market by trading in shares and other investment vehicles to expand their revenue base. Banks can diversify their investment options and focus on foreign exchange trading income since it improves their performance.
Bank-Specific Characteristics and Financial Distress of Commercial Banks in Kenya
(IAJEF, 2024-11) Githinji, Mary Wangechi; Simiyu, Eddie; Omagwa, Job
Empirical evidence on the banking industry in Kenya indicates that local banks have been prone to financial distress. Commercial banks in Kenya have been experiencing cycles in Financial Distress and though such cycles have been precipitated by Bank-Specific Characteristics in other countries. It is still a challenge for empirical investigation as to know whether Bank-Specific Characteristics significantly affect Financial Distress in Kenya’s banking industry. Subsequently, the basis of this research was to evaluate the connection between Bank-Specific Characteristics and Financial Distress of commercial banks in Kenya. Explicitly, the research was informed by determining the Income Diversification on Financial Distress of commercial banks in Kenya. The Gambler’s ruin theory and Modern portfolio theory provided theoretical anchorage to the research. Positivism research philosophy and causal research design were adopted for the study. The research was a census of all the 36 fully operational commercial banks in Kenya for the period 2011 through 2019. Secondary data was utilized in this study. Data sources included: websites of the CBK and individual Commercial Banks, audited financial statements and Annual supervision reports. Data analysis entailed use of descriptive and inferential statistics where the latter involved dynamic panel logistic regression analysis. Diagnostic tests undertaken in the study included: model specification, stationarity, autocorrelation, and multicollinearity tests. Hypotheses were tested at a significance level of 0.05. Data was displayed through frequency tables and graphs. Based on the dynamic panel Logistic regression analysis, the research revealed that Income Diversification had a significant effect on Bankometer Score (β=0.3504847, p=0.002) on commercial banks in Kenya. The study recommended that banks should diversify their revenue streams into new business areas and markets while considering risks and capabilities.
Taxpayer Education and Tax Compliance by Water Vending Businesses in Hargeisa City, Somaliland
(Journal of African Interdisciplinary Studies (JAIS), 2024) Jirde, Hamse Ibrahim; Makori, Daniel
An effective tax system is vital for driving economic growth, and tax compliance is a primary focus of the Somaliland Inland Revenue Authority, which aims to maximize revenue collection for essential public services and wage obligations. This research explores the impact of taxpayer education on tax compliance among water vending businesses in Hargeisa, Somaliland. It specifically examines three key areas: the effect of teaching basic tax principles, the impact of communicating tax-related information for awareness, and how assistance with tax filing influences compliance. The study is based on several theories, including the Economic Deterrence Tax Theory and the Theory of Planned Behavior. A descriptive research design guides the data collection process, targeting 326 registered water vending businesses in Hargeisa City. Using the Yamane formula, a sample size of 179 participants was selected through stratified and simple random sampling methods. Data were collected using structured questionnaires, followed by diagnostic tests and analysis through a multiple regression model, with findings presented in various statistical formats. The results indicate that educational, communicative, and practical assistance strategies significantly enhance tax compliance. Teaching tax essentials improves understanding and adherence to obligations, while effective communication raises awareness and fosters positive perceptions of the tax system. Practical assistance simplifies tax filing processes, reducing compliance barriers. Additionally, socio-demographic factors influence the relationship between education and compliance, highlighting the necessity for tailored programs addressing specific needs. To enhance compliance, the study recommends targeted tax education strategies, effective promotional communication, and the provision of practical assistance. It also emphasizes the importance of understanding socio-demographic factors to develop targeted outreach programs. Further research is suggested to evaluate the long-term effects of these strategies and explore the role of digital tools in improving compliance.
Credit Factors and Loan Accessibility in Deposit-Taking Savings and Credit Cooperative Organizations in Kenya
(INTERNATIONAL JOURNALS OF ACADEMICS & RESEARCH (IJARKE Business & Management Journal), 2024) Njoroge, Elizabeth Wambui; Makori, Daniel
Savings and Credit Cooperative Societies (SACCOs) are pivotal in enhancing financial inclusion in Kenya, particularly among low-income and rural communities, by providing credit and savings services. Despite the growth of Deposit-taking SACCOs (DT-SACCOs), recent surveys show a decline in loan accessibility. This study investigates how critical credit terms impact loan accessibility in licensed DT-SACCOs in Kenya, utilizing theories including agency theory and financial theory. The research objectives include evaluating the effects of product range, collateral requirements, product characteristics, and lending procedures on loan accessibility. Using a descriptive research design, data was collected from 122 credit managers of DT SACCOs. Analysis involved descriptive and inferential statistics, with MS Excel and SPSS. The study found that changes in product range, collateral requirements, product characteristics, and lending procedures significantly affect loan accessibility in DT-SACCOs. It recommends SACCO management invest in product innovation, conduct regular market research, and offer flexible repayment periods to better meet the needs of clients. This includes providing tailored products like business and agriculture loans, understanding customer preferences, and ensuring loan repayment terms are manageable for borrowers.
Post-Merger Commercial Bank Performance Trends: A Case of Kenya
(Stratford Peer Reviewed Journals and Book Publishing, 2024) Oira, Sammy Machoka; Omagwa, Job; Abdul, Farida
Commercial banks face performance challenges since most of them react to these challenges in a fairly standardized manner. This is because most of the commercial banks offer similar products and services. In so doing, they face high competitions and as a result, they engage activities in pursuit of a competitive edge in order to keep their current customers and attract new ones. Some of the strategic activities these companies have engaged in the recent past have been Mergers and acquisitions (M&A). M&A have become an effective strategic tool to consolidate the Banks and Financial Institutions (BFIs) in Kenya to increase their capital base, expand their business, and bring financial stability. However, despite venturing into mergers and acquisitions, evidence from elsewhere indicates that financial performance stability and improvement still remains a challenge forming a good basis for further empirical investigation. This paper provides an assessment of the post-merger commercial bank performance in Kenya over the period 2008 to 2019 using return on equity as a proxy for bank performance. The target population for this study comprised all 13 commercial banks operating in Kenya between the year 2008 and the year 2019. The study used purposive sampling to select thirteen (13) commercial banks that had undergone mergers and acquisitions in Kenya over eleven years (from 2008 to the year 2019). The study finds that the post-merger effect of mergers and acquisitions on financial performance is mixed. Some commercial banks reported improved ROEs while a few reported declining ROEs during the study period. To enhance performance, the study recommended that commercial banks should prioritize M&A opportunities that align with their long-term strategic goals. This might include expanding into new geographic regions, entering new markets, diversifying product offerings, or gaining access to new technologies. Banks should assess the potential risks associated with the M&A transaction, including credit risk, operational risk, and reputational risk. Develop strategies for mitigating these risks and ensuring a smooth transition.
The Impact of Capital Investment Decisions on the Growth of Small and Medium Enterprises: A Case Study of Nairobi City County's Central Business District, Kenya
(African Development Finance Journal, 2024-10-17) Gichuru, Grace Wangui; Jagongo, Ambrose Ouma; Ndede, Fredrick W. S
Small and Medium Enterprises (SMEs) play a pivotal role in Kenya’s economic growth, driving job creation and development as envisioned in Vision 2030. Despite their importance, many SMEs in Nairobi County's Central Business District face challenges due to limited capital, hindering their growth and economic potential. This study aimed to examine the effect of capital investment decisions on SME growth in this region. Specifically, it assessed the impact of expansion, replacement, modernization, contingency, and diversification investment decisions. The research was anchored on contingency theory, cash flow theory, and acceleration theory, using a descriptive research design. Out of 1,367 registered SMEs, 310 were sampled using the Yamane technique, with data collected through questionnaires. Findings indicated that expansion, replacement, modernization, and contingency decisions significantly influenced SME growth, while diversification had an insignificant impact. Overall, these factors explained 85.7% of the variance in SME growth. The study recommended that SMEs adopt strategic investment decisions and urged the Kenyan government, along with the Micro and Small Enterprises Authority, to establish venture capital exit policies and a comprehensive regulatory framework to address venture capital challenges in Kenya.
Microfinance Credit and Financial Performance of Small and Medium Enterprises in Nairobi City County
(Stratford Peer Reviewed Journals and Book Publishing, 2023-10) Nelson Kaboka; Fredrick W.S. Ndende
The study examined the impact of microfinance credit the financial performance of SMEs situated in Nairobi CBD. The research employed a cross-sectional descriptive survey methodology and focused on business owners and managers of SMEs located in the Nairobi CBD. The licensing department of Nairobi City County in 2017’s data informed the sample selection process. The researchers utilized a stratified random sampling methodology in order to include 70 individuals in the investigation. The primary instrument employed for data collection was a semi-structured questionnaire. The research was carried out utilizing SPSS 25.0, which encompassed the application of both descriptive and inferential statistical methods. The researchers employed a multivariate linear regression model to assess the variable’s statistical significance. The findings of the analysis were graphically represented through the utilization of tables and bar charts. The study’s coefficient was 0.631, accompanied by an adjusted R-squared value of 0.606. Both of these values were determined to have statistical significance with 95% CI. The findings of this research indicate that several factors, such as collateral security, loan-income ratio, branch penetration, and credit rating, collectively account for 63.1% of the variability SMEs performance in the Nairobi CBD. The findings of the study indicate that the inclusion of collateral security has a significant impact on performance (β = 0.251, p = 0.014 < 0.05). In a similar manner, it was found that the ratio of loans to income and the level of branch penetration had a statistically significant positive effect on financial performance (β = 0.238, p = 0.024 < 0.05; β = 0.382, p = 0.004 < 0.05, respectively). However, the study indicated that there was a positive trend in association between credit rating and SME performance. However, this trend was not statistically significant (β = 0.022, p = 0.844 > 0.05). This study draws a conclusion based on the empirical evidence provided, suggesting that collateral security has a significant and beneficial influence on SMEs performance in Nairobi CBD. Furthermore, the sustainability of small and medium companies (SMEs) inside the Central Business District of Nairobi is contingent upon some essential aspects pertaining to microfinance funding. Additionally, they should engage in thorough pre-loan planning and steadfastly adhere to their initial strategies in order to augment their financial performance
Firm Characteristics and Financial Performance of Selected Micro Finance Banks in Kenya
(International Academic Journal of Economics and Finance, 2023-06-14) Nyamasege, Brenda Moraa; Mutswenje, Vincent Shiundu
Microfinance banks are key financial intermediaries due to their ability of providing credit facilities to the unbanked population. The Kenyan Microfinance banking institutions have been undergoing declining run on their financial performances. One of the stable microfinance banks which is Faulu Microfinance was acquired in the year 2013 by Old Mutual holdings. The ROA, NIM and ROE of these banks have been characterized by decreasing figures from the year 2016. Consequently of this poor trend in the financial performance of these banks, this inquiry sought to evaluate firm characteristics effect on microfinance banking institutions finance performance in Kenya. The achievement of this objective is specifically achieved on the basis of; liquidity, management efficiency, credit size and bank age influence on Kenyan microfinance banking establishments finance performance. The theoretical underpinning of the study was Efficiency Structure Theory, Financial Intermediation and Liquidity Management Theory. Descriptively, the study design was applied to thirteen microfinance banks reached through a census sampling approach for the period of 2013 to 2019. Secondary data on the banks operational activities was obtained through secondary data collection pan. The evaluation of the study was made possible through panel and descriptive techniques of analysis where various diagnostic tests were applied. Due ethical standards were adequately followed. The outcome of the investigation noted that with significantly effect, liquidity negatively affected financial performance; management efficiency affected financial performance positively in a manner that is insignificant; credit size possessed inversely affected financial performance but in an insignificant way; and bank age affected the microfinance banks’ financial performance in an insignificant but positive way in Kenya. The inquiry suggested that to improve the financial performance of Kenyan banks, the management of microfinance banks should strengthen the management of their liquidity to avoid funds that would be retrieved to the banking circle.

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