Firm Characteristics and Financial Stability of Selected Microfinance Banks in Kenya

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dc.contributor.advisorJob Omagwaen_US
dc.contributor.advisorFarida Abdulen_US
dc.contributor.authorKweyu, Robinson Changaya
dc.date.accessioned2022-09-26T09:17:41Z
dc.date.available2022-09-26T09:17:41Z
dc.date.issued2022
dc.descriptionA Thesis Submitted to the School of Business in Partial Fulfillment of the Requirements for the Award of Degree of Master of Science in Finance of Kenyatta University, March, 2022en_US
dc.description.abstractMicrofinance Banks are significant in their role of allocation of financial resources. Microfinance Banks in Kenya have been characterized by financial instability, as revealed by their various stability indicators. Both return on equity and return on assets decreased to 29% in January 2018, the two indicators have since been on a decreasing trend. This situation poses some concern due to the role performed by these institutions in providing financial services to the unbanked and underprivileged that are unable to receive credit from the formal banking sector. Previous studies largely centered on commercial banks and were carried out in other countries which have contextual differences with the Kenyan context. The study sought to assess the effect of firm characteristics on financial stability of microfinance banks in Kenya. Specifically, the study evaluated the effect of bank size, capital adequacy, management efficiency and earnings ability effect on financial stability of Microfinance banks in Kenya. Also, to examine the moderating effect of interest rate on the relationship between firm characteristics and financial stability of Microfinance Banks in Kenya. Market Power Theory, Buffer Capital Theory, Efficiency Structure Theory and Financial Intermediation Theory. The study adopted explanatory research design and positivism research philosophy. The target population comprised of thirteen licensed microfinance banks in Kenya hence a census. Secondary data was utilized: MFIs audited financial statements and Kenya’s Central Bank were the sources of the data used; a document review guide was the data collection instrument. Data analysis was done via descriptive statistics, correlation analysis and panel regression analysis. The study adhered to ethical standards accordingly. In view of the correlation analysis, all the firm characteristics had positive relationships with Kenya’s Microfinance Banks financial stability. With respect to the panel regression, the study found that: bank size had insignificant effect (β=167.712, p=0.084) on financial stability while capital adequacy had significant effect (β=146.387, p=0.006); management efficiency had significant effect (β=9.704, p=0.000) while earnings ability had insignificant effect (β=132.604, p=0.308) on financial stability of Microfinance Banks in Kenya. Furthermore, the study further discovered that interest rates had significant moderating effect (β=35.2692, p=0.000) on the relationship between firm characteristics and financial stability of Microfinance Banks in Kenya. The investigation advocates that: Microfinance Banks should strive towards holding additional capital levels which will serve as buffers, thereby, reducing the likelihood of breaching the minimum capital requirements; management should strive towards the improvement of scale efficiency and technical efficiency. This will in turn further strengthen the ability of banks to withstand shocks. The management should ensure maximum use of resources, while ensuring the maximization of income and reduction of costs of operation. This in turn will improve the financial stability of Microfinance Banks in Kenya. Given that this study was based on unbalanced data, additional study can be done using balanced data based on different time scopeen_US
dc.description.sponsorshipKenyatta Universityen_US
dc.identifier.urihttp://ir-library.ku.ac.ke/handle/123456789/24289
dc.language.isoenen_US
dc.publisherKenyatta Universityen_US
dc.subjectFirm Characteristicsen_US
dc.subjectFinancial Stabilityen_US
dc.subjectSelected Microfinance Banksen_US
dc.subjectKenyaen_US
dc.titleFirm Characteristics and Financial Stability of Selected Microfinance Banks in Kenyaen_US
dc.typeThesisen_US
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