Financial Management Practices and Financial Performance of Microfinance Banks in Kenya
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Date
2021-10
Authors
Gichobi, Christine
Omagwa, Job
Journal Title
Journal ISSN
Volume Title
Publisher
IOSR Journal of Economics and Finance (IOSR-JEF)
Abstract
The financial management of microfinance banks (MFBs) in Kenya remains one of the critical issues in the
sector, thus, making financial management practices essential in shaping the financial23 performance23of the
MFBs. In the recent past, the microfinance banks have continued to register an unstable financial23
performance, evidenced in their annual audited reports and other statistics even when they have been practicing
several financial management practices. Hence, the study sought to determine the effect of board
characteristics, financing mix, credit default management, and assets and liabilities management practices on
financial performance of microfinance banks in Kenya. The study tested hypotheses on a 0.05 significance level.
The theories and models adopted were: agency theory, pecking order theory, credit default model, shift-ability
theory, and financial outcome model. The study employed explanatory research design. The target population
was 13 microfinance banks in Kenya, hence a census survey. The study collected secondary data using a
document review guide. The data sources were: published financial statements of each microfinance bank and
bank supervision reports from CBK. The time scope was five years from year 2015 to year 2019. The data was
analyzed using descriptive statistics, Pearson’s correlation, and panel regression analysis. The data was
presented using tables, graphs and figures. Adherence to ethical standards and requirements was observed. The
results showed that board characteristics had a negative and significant54 effect on financial performance (β = -
0.827. p = 0.012); financing mix had a
12 positive12 and12 significant12 result on financial performance (β =
0.516. p = 0.014); credit default management had a positive but insignificant effect on financial performance (β
= 0.066. p = 0.009); while asset and liability management had2
a
12 positive12 and12 significant12 influence on
financial performance (β = 0.216, p = 0.004). The study recommends that firms must form a management team
with gender diversity features and they should strive to fund their investment operations using retained profits
first, with debt as a last resort, since this is compatible with the pecking order principle, which asserts that
funding sources are prioritized. To boost their performance, banks’ management must maintain high levels of
net income, thus, aim at increasing earnings before taxes and interests while keeping their loan interest rates on
check to ensure that credit default risk is minimized
Description
A Research Article in the IOSR Journal of Economics and Finance (IOSR-JEF)
Keywords
Asset and Liability Management, Board Characteristics, Credit Default Risk, Financial Management, Financial Management Practices, Financial Performance, Financing Mix
Citation
NYAWIRA, G. C. (2021). FINANCIAL MANAGEMENT PRACTICES AND FINANCIAL PERFORMANCE OF MICROFINANCE BANKS IN KENYA.