Board Characteristics and Financial Performance of Selected Microfinance Banks in Kenya
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Date
2024-06
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Kenyatta University
Abstract
Reports on supervision of microfinance banks in Kenya highlighted a steady decline in industry's financial performances as seen by average return on equity, which fell from 26.5 percent in 2009 to 20.8 percent in 2018. Microfinance banks (MFBs) inadequate board governance was revealed when some underperformed and others folded. This resulted from directors' inability to put in place effective and productive oversight, authority, and surveillance measures that may have discouraged top management from engaging in misconduct. Unveiling the intricate web of board characteristics and financial performance, this survey meticulously analyzed the effect of board characteristics on the financial well-being of selected MFBs in Kenya. It delves into the effect of board size, gender representation, and board independence on the financial standing of these institutions. Theoretical framework comprises of agency, resource dependency, institutional and stewardship theories respectively. Explanatory research design was employed, and target population consisted of fourteen (14) Kenyan microfinance banks. Census method of sampling was utilized based on the selection of the fourteen (14) MFBs. Research data was collected over time frame 2015-2022. To illuminate the hidden patterns and relationships within the data, a panel of secondary data extracted from audited financial reports and records was subjected to rigorous scrutiny. Leveraging the statistical prowess of STATA software, panel multiple regression analysis was employed to unravel the intricate connections. Furthermore, correlation and descriptive techniques, encompassing mean, standard deviation, and frequency, were utilized to paint a holistic picture of the data. A significance level of 0.05 was established as the threshold for hypothesis testing. Testing for stationarity, heteroscedasticity, autocorrelation, multicollinearity, and normality is going to be done. Ethical guidelines were followed in course of this study. The outcome unveiled a positive but statistically insignificant effect of board size on financial performance. With such outcome, board size does not affect financial performance of the banks. Board composition of the selected banks affected the selected microfinance banks’ financial performance negatively with such effect being significant in Kenya. Bard composition as concluded is a key driver of financial performance of the banks. Board independence inversely but insignificantly affected these selected microfinance banks’ financial performance in Kenya. The survey concluded that board independence is not a potential driver of financial performance of the banks in Kenya. The survey suggests that the management of selected microfinance banks in Kenya should contemplate reducing the size of the board to enhance financial performance.
Description
A Research Project Submitted To the School of Business, Economics and Tourism for Partial Fulfillment of the Requirement for the Award of Masters Degree of Business Administration (Finance Option) of Kenyatta University, June 2024.
Supervisor
Caroline Kimutai