Firm Characteristics and Financial Performance of Microfinance Banks in Kenya
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Date
2024-10
Journal Title
Journal ISSN
Volume Title
Publisher
International Academic Journal of Economics and Finance (IAJEF)
Abstract
Kenya has one of Sub-Saharan Africa's most
active microfinance marketplaces.
Microfinance gives the forte to improve the
economic activity of low-income individuals
and eliminate poverty, resulting in economic
progress. However, microfinance's financial
performance in the country has declined over
time. With this view, this investigation aims
to explore how firm characteristics (capital
adequacy, assets quality, managerial
efficiency, earning ability and liquidity)
performance of microfinance banks in Kenya.
The study was grounded on stakeholders,
liquidity preference, financial intermediation,
buffer capital, efficiency structure and interest
rate parity theories. The study research
methodology rested on positivism research
philosophy. Research Design was explanatory
non-experimental design. Secondary panel
data was utilized. 13 microfinance banks in
Kenya were target. Information was gathered
using secondary data sources from
microfinance banks accounting report from
2016 to 2022. Data was descriptively and
inferentially analyzed. The investigation
employed panel multiple regressions and
Pearson’s Product Moment Correlation
analysis. Diagnostics test such as
multicollinearity, normality, autocorrelation,
heteroscedasticity and stationary tests were
carried out. All ethical considerations were
appropriately observed. Findings uncovered
that adequacy of capital exerts a notable and
direct effect on financial performance,
underscoring the importance for microfinance
banks in Kenya to prioritize maintaining
sufficient capital levels to support their
overall stability and financial outcomes.
Conversely, quality of asset demonstrates a
significant and adverse influence on
performance financially, highlighting the
need for microfinance banks to enhance their
credit assessment processes to ensure the
quality of their loan portfolios. The research
reveals that efficiency of management has an
insignificant direct influence on performed
banks financially. To address this,
microfinance banks are advised to invest in
comprehensive management training
programs and capacity-building initiatives to
improve operational effectiveness and
decision-making processes. Earning ability,
on the other hand, exhibits a considerable and
direct influence on performance financially.
Microfinance banks should thus focus on
continuous innovation of their products and
services to enhance their earning potential and
overall financial outcomes. Liquidity levels
exhibit an insignificant and inverse effect on
the financial performance outcomes. To
mitigate potential risks, microfinance banks
should establish comprehensive policies and
procedures to monitor and manage liquidity
effectively. Interestingly, the study reveals
that the connection concerning firm-level
attributes. Therefore, the study recommends
that microfinance banks concentrate on
improving governance structures, operational
efficiency, risk management practices, and
asset quality. This can be achieved through
capacity-building programs, training
initiatives, and adopting best practices from
successful microfinance institutions.
Strengthening these firm characteristics will
enable microfinance banks to enhance their
financial performance, irrespective of interest
rate fluctuations
Description
Article
Keywords
Citation
Ouma, C. O., Makori, D., Aluoch, M. O. Firm characteristics and financial performance of microfinance banks in Kenya. International Academic Journal of Economics and Finance, 4(3), 164-193.