Operational Growth and Financial Performance of Deposit Taking Micro- Finance Institutions in Kenya
Maina, Paul Kigara
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In any microfinance institution, achieving operational growth is important for continuity and success of the organization. There is always a challenge on how to achieve this objective of ensuring there is operational growth and at the same time achieve better financial performance. Many deposit taking microfinance institutions have continued to attain operational growth but they have been struggling to improve their financial performance. The main purpose of this study therefore was to determine the effect of operational growth on financial performance of Deposit taking microfinance institutions in Kenya. To achieve the main objective, the study sought to fulfill the following specific objectives; to find out the effect of operational capital, branch network, number of customers served and operational self-sufficiency on financial performance of Deposit taking microfinance institutions in Kenya. In this study, performance was measured in terms of profit before tax. The study is anchored on the theory of Financial Stability as the theory that holds that the independent variables used have an impact on financial performance and sustainability of deposit taking microfinance institutions. The study adopted a descriptive study design. The target population of the study was the thirteen deposit taking microfinance institutions registered by the Central Bank of Kenya. The study employed use of secondary data which was sourced from the microfinance institutions’ annual financial statements. The study collected data from all the thirteen microfinance institutions registered by the Central Bank of Kenya since the number is small and thus a census was done. The researcher used descriptive analysis in this study. Further, quantitative techniques were used and the data was evaluated using descriptive methods and inferential analysis. Descriptive methods include mean, standard deviation, frequencies and percentages. Inferential statistics such as correlation analysis and linear regression were used. This analysis was carried out using the Statistical Package for Social Sciences version 20. The results were then presented using tables, graphs and charts. The study found that attributes of operational growth affects financial performance of deposit taking microfinance institutions. The study concluded that a positive change in operational capital, operational self-sufficiency, branch network and number of customers have a corresponding positive effect on financial performance of deposit taking microfinance institutions. The study established that the deposit taking microfinance institutions financial performance has been changing in tandem with change in operating capital; The study also established that the deposit taking microfinance institutions branches have changed from 91 branches in 2013 when there were only 9 licensed deposit taking microfinance institutions by the Central Bank of Kenya to 120 branches in 2017 with 13 registered DTMFIs. The study further established that borrower numbers have changed from 466,700 in 2013 to 264,000 in 2017. There was a positive annual average operational selfsufficiency throughout the study period. The study recommended that policy makers and regulatory authorities in the financial industry should put up frameworks that will ensure healthy levels of operational growth attributes are maintained as they do influence how deposit taking microfinance institutions perform financially. Also, deposit taking microfinance institutions should ensure they have an optimum number of customers and operational costs, increase branch network, maintain strong operational capital and operational self-sufficiency levels so as to sustain their financial performance.