Working Capital Management and Financial Performance of Deposit-Taking Microfinance Institutions in Mombasa County, Kenya

Abstract

This study dealt with Working Capital Management and Financial Performance of Deposit Taking Microfinance Institutions in Mombasa County, Kenya. The statement of the problem addressed the recurrent liquidity problems that Deposit Taking Microfinance Institutions experienced in their normal operations; that exposed them to multiple financial risks and poor performance. The general objective was to investigate the relationship between Working Capital Management and Financial Performance of Deposit Taking Microfinance Institutions in Mombasa County, Kenya. The specific objectives were to investigate the relationship between Cash Management and Financial Performance of Deposit Taking Microfinance Institutions in Mombasa County, Kenya; to find out the relationship between Accounts Receivable Management and Financial Performance of Deposit Taking Microfinance Institutions in Mombasa County, Kenya; and to determine the relationship between Accounts Payable Management and Financial Performance of Deposit Taking Microfinance Institutions in Mombasa County, Kenya. Theoretical framework entailed review of Liquidity Preference, Capital Market Imperfections, Cash Conversion Cycle and Transaction Cost Economics theories. Descriptive research design was adopted by the study in which the researcher studied all the five Deposit Taking Microfinance Institutions in Mombasa County, Kenya. A multiple conceptual model gave a mathematical representation of the relationship between the three independent variables and one dependent variable; all measured as rates and ratios. Mombasa County was the location of the study while the target population comprised of the five Deposit Taking Microfinance Institutions from which a sample size of forty-eight respondents was picked through purposive sampling technique. Primary data was collected from structured questionnaires that were administered to respondents to obtain primary data while secondary data was obtained from audited annual financial reports of Deposit Taking Microfinance Institutions. Analysis procedure categorized data into quantitative and qualitative types. Descriptive statistics was applied in the analysis of qualitative data. It organized data into common topics and themes that were followed with individual explanations. The findings were summarized into tables that showed frequency distributions and percentages. Inferential statistics of Pearson product-moment Correlation, Regression and Chi square were obtained on quantitative data at ninety-five percent degree of confidence. Testing of hypotheses was done using t-test at 95% confidence level. From the findings of the study, the Pearson Correlation test revealed a correlation of 0.516, 0.391 and -0.325 for Cash Turnover, Accounts Receivable Turnover and Accounts Payable Turnover respectively against Return on Assets. The regression model gave R Square=0.504 at a p=0.049<0.05 that resulted from a Pearson Chi-Square test suggesting the existence of a significant relationship between the dependent and the independent variables. The researcher rejected the three null hypotheses of the study. The researcher concluded on a number issues based on findings of the study and made recommendations for policy development, practice as well as suggestions for further studies. The findings of the study, interpretations, discussions, study conclusions and recommendations were summarized into report format and submitted to the Department of Accounting and Finance, School of Business, Kenyatta University.