Liquidity Management Practices and Financial Performance of Microfinance Banks in Nairobi City County, Kenya
| dc.contributor.author | Aluodo, Francis Oduor | |
| dc.date.accessioned | 2025-08-01T09:27:24Z | |
| dc.date.available | 2025-08-01T09:27:24Z | |
| dc.date.issued | 2024-09 | |
| dc.description | A Project Submitted to the School of Business, Economics and Tourism in Partial Fulfilment of Requirements for the Award of the Degree of Master of Business Administration (Finance) of Kenyatta University, September 2024 Supervisor: 1.Salome Musau | |
| dc.description.abstract | Microfinance banks are financial institutions that provide loans, insurance, saving platforms and other financial products to various individuals. Thus, these institutions require sufficient liquid assets to enable them to meet their routine financial obligations. However, in Kenya, microfinance banks have been recording a declining trend regarding their financial performance over time, leading to grave concerns. Thus, this study aimed to assess liquidity management practices and their effect on Nairobi City County’s Microfinance Banks’ financial performance. The main goal was to evaluate how the management strategies regarding their liquidity impact Nairobi City County's microfinance banks' financial performance. Emphasizing the impact of cash, operational cash flows, and operational effectiveness on Microfinance Banks’ financial performance in Nairobi City County is one of the specific goals. The analysis and elucidation of the literature was facilitated by the examination of the Cash Conversion Cycle theory, Transactional Cost Theory, Keynesian Liquidity theory, and Miller-Orr model. Moreover, the theories guided the empirical model to be applied in this study. Moreover, a descriptive research design with a regression analysis model was embraced in determining the predictor variables’ impact on the explained variable. A census study was done since all the microfinance banks were involved, and the necessary secondary data was sought from each organization. A data review guide was utilized to gather secondary data, which was obtained from the Central Bank of Kenya and covered the years 2017 to 2022. The data was analyzed using Statistical Package for the Social Sciences software. Graphs and tables were utilized to display the results. According to the study, operational cash flow management and cash management significantly and favourably impacted the financial performance of Kenyan microfinance institutions. Nonetheless, the financial performance of Kenya's microfinance institutions was significantly impacted negatively by operational efficiency management. As per the study's findings, microfinance banks in Kenya carry out cash budget preparation, bank reconciliation, cash inflow and outflow recording, cash expense payment, and cash surplus investment. As a result, they manage their funds carefully. Furthermore, the stability and functioning of the financial system depend heavily on efficient cash flow management. It entails keeping an eye on money coming in from investments, sales, and outside funding sources as well as tracking money going out to pay for bills, obligations, and loan repayments. Microfinance banks are able to balance inflows and outflows, lower the risk of liquidity crises, and take advantage of growth possibilities by managing cash flow well. This allows microfinance institutions to make well-informed choices regarding debt management, expansion strategies, and investments—all of which are essential for overall financial success. The study found that the financial performance of microfinance institutions in Nairobi County, Kenya, was negatively impacted by operational efficiency management. The financial performance of Kenya's microfinance institutions would, therefore, be negatively impacted by a high percentage of non-performing loans. To maximize the beneficial effects on financial performance, the study suggests adhering to the statutory minimum liquidity ratio. Since excessive liquidity and illiquidity reduce the institutions' profitability, microfinance banks should implement effective cash management procedures. In order to maintain an ideal level and control cash for the efficient operation of day-to-day operations, the study also suggests that microfinance banks develop a policy on cash management. | |
| dc.description.sponsorship | Kenyatta University | |
| dc.identifier.uri | https://ir-library.ku.ac.ke/handle/123456789/31012 | |
| dc.language.iso | en | |
| dc.publisher | Kenyatta University | |
| dc.title | Liquidity Management Practices and Financial Performance of Microfinance Banks in Nairobi City County, Kenya | |
| dc.type | Thesis |