Operational Growth and Financial Performance of Deposit Taking Micro- Finance Institutions in Kenya
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Date
2021
Authors
Maina, Paul Kigara
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
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.
Description
A Research Project Submitted to the School of Business in Partial Fulfilment for the Award of Degree in Master of Business Administration (Finance Option) of Kenyatta University, February, 2021
Keywords
Operational Growth, Financial Performance, Deposit Taking, Micro- Finance Institutions, Kenya