Internal Environment and Financial Performance of Deposit Taking Microfinance Institutions in Nairobi City County, Kenya

Abstract

The internal regulation environment remains a precondition for deposit mobilization in many countries thus more DTMIs seek to transform into regulated entities to access cheap and local currency deposits. Reports indicate that only five percent of the total DTMIs have grown to a full banking institution for the past ten years. This is a worrying trend as one would expect that the DTMIs should grow to the next level given the large market base and many sources of funds they are exposed to in the market. The failure to compete and to grow from one level of operation to another has been linked to organizations internal environment. It is for this reason that the study examined the influence of internal environment on the financial performance of deposit-taking microfinance institutions in Nairobi City County, Kenya. The specific objective of the study includes to examine the effect of organization structure on the financial performance of deposit-taking microfinance institutions in Nairobi City county, Kenya. Secondly to find out the influence of organizational culture on the financial performance of deposit-taking microfinance institutions in Nairobi City county, Kenya. Third, to establish the effect of resource capability on the financial performance of deposit-taking microfinance institutions in Nairobi City county, Kenya and lastly to find out the influence of information system adoption on the financial performance of deposit-taking microfinance institutions in Nairobi City County, Kenya. The study was premised on a descriptive research design. The study targeted management of the licensed deposit taking microfinance institutions. The data collection instruments were semi-structured questionnaires and the data collected was analyzed using SPSS. The research utilized both descriptive and inferential analysis. The descriptive results were presented using percentages and frequency tables. The research further utilized multiple regression model to estimate the effect of the independent variable on the dependent variable. For the qualitative data the study adopted content analysis. From the study I concluded that the type of organization structure, organization culture, information system adoption and resource capability affects the flow of information and work coordination in an organization and this has direct effect on financial performance of deposit taking microfinance institutions. One of the major areas which should be considered for further research is the relationship between employee motivation and financial performance of microfinance taking deposits. This area lacks enough literature and kept on coming throughout research process.