Financial Management Tools and Loan Performance of Micro Finance Institutions in Starehe Constituency, Nairobi City County, Kenya
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Date
2020-03
Authors
Wangai, Peter Maina
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
The Central Bank of Kenya annual supervision report, 2018 showed there has been low
performance incidence of MFIs attributed to factors such as the rising levels of nonperforming
loans measured as a percentage of gross non-performing loan divided by net
advances to customers from 7% in 2011 to 16% in 2016, a situation that has adversely
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impacted on their profitability which as per the CBK year 2018 supervisory report indicated a
447 percent increase in reported loss of Kes 935.1million for period ending June 2018 . There
has been an increased rate of defaults, coupled with diminished number of borrowers.
Microfinance institutions in Starehe Sub County that serve retail customers encounter specific
challenges like financial vetting of their clientele to risk exposure which cannot be solved
with bank solutions; the performance has not met the expectations. This attracts further
investigation in order to understand financial issues in the sector and therefore this study
seeks to examine the effects of financial management tools on loan performance in
microfinance institutions in the Starehe constituency Nairobi City County, Kenya. The study
was guided by the following objectives: To examine effect of accounting information systems
on loan performance among microfinance institutions in Starehe constituency, Identify the
effect of working capital management on loan performance among microfinance institutions
in Starehe constituency, find out effect of financial reporting analysis on loan performance
among microfinance institutions in Starehe constituency and to examine the effect of fixed
asset management on loan performance among microfinance institutions in Starehe
constituency. It utilized three theories: Agency theory, expectancy theory and trade-off theory
of capital structure in explaining relationship between financial management tools and
performance of loan among the selected MFIs in Nairobi. Descriptive research design was
adopted in this study and this approach analyzed both quantitative and qualitative data from
interviewing the respondents. Stratified purposive sampling was used to select a sample of 86
out of the target population of 109. In collecting the data, this study utilized questionnaire
which was administered by the researcher and a team of research assistants. Data analysis was
conducted and Statistical Package for Social Sciences (SPSS) version 23.0 used to analyze
data. Data was presented in descriptive and frequency tables and graphs, and the study
adhered to ethical principles of research. The study findings revealed that, there is
significance relationship between financial management tools and loan performance in
microfinance institutions in Kenya. The study recommended for microfinance institutions to
train their managers on importance of financial management tools on loan performance to
improve their loan performance. The study further recommend for critical evaluation of
potential borrowers concerning their credit worthiness before offering loans to them to
minimize non-performing loans.
Description
A Research Project Submitted to the School of Business in Partial Fulfilment of the Requirement for the Award of Degree in Master of Business Administration (Finance Option) of Kenyatta University March, 2020
Keywords
Financial Management, Loan Performance, Micro Finance Institutions, Starehe Constituency, Nairobi City County, Kenya