Microfinance Bank Characteristics and Credit Risk of Microfinance Banks in Kenya
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Date
2023-11
Authors
Nyamai, Jonathan Sila
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Abstract
In Kenya, microfinance banks provide a key position in financial improvement. Micro credit, investments as well as other bank packages, capital inflows and transactions, payment systems, coverage, or any other finance products or commercial banks’ microfinance industry, credit risks are frequently magnified, owing to two key factors; one is lenders' absence of a security promise and two, disparity of knowledge amongst financial intermediaries. Studies have been conducted as regards this topic in different countries and mostly on commercial banks, especially without the Gross Domestic Product as the moderating effect. The evaluation of the investigation of the effect of bank characteristics on the credit risk of Kenyan microfinance banking institutions was done. Specifically, the capital level, liquidity, and bank size effect were ascertained on credit risk and examined the moderating effect of gross domestic product Bank characteristics and credit risk. The research was anchored by adverse selection, liquidity shiftability, agency and capital buffer theories. The adoption of a causal research design was eminent to analyze thirteen banks for the period 2015 to 2021 based on the census approach. The study outcomes were arrived at using secondary data obtained under the guidance of the secondary data collection schedule. The assessment of the investigation was evaluated premised on descriptive and panel approaches. Diagnostics testing was utilized. All ethical morals were duly followed. The output of the analyzed investigation demonstrated that capital levels had an inversely significant effect on credit risk; liquidity also significantly inversely affected credit risk with bank size positively affecting the credit risk of microfinance banks significantly. Gross domestic product moderated effectively significant in a manner that is positive on the nexus of microfinance characteristics with Kenya's microfinance banks' credit risk. The recommendation amongst which included that the microfinance banks' management in Kenya should strengthen banks' liquidity measures to allow for loans that are non-performing hence, lowering the risk associated with such intermediation function of the Kenyan microfinance banks.
Description
A Research Project Submitted to the School of Business, Economics and Tourism in Partial Fulfilment for the Award of Degree of Master of Business Administration (Finance Option) of Kenyatta University
Keywords
Microfinance bank, Credit risk, Kenya