Mbaya, Phineas Koome2025-09-012025-09-012024-04https://ir-library.ku.ac.ke/handle/123456789/31346A Research Project Submitted to the School Of Business, Economics and Tourism in Partial Fulfilment for the Award of Degree in Master of Science in Finance of Kenyatta University, April 2024 Supervisors; 1.Ambrose Jagongo 2.Gerald AtheruMicrofinance institutions are globally seen as instruments for achieving sustainable growth in developing countries. This function can only be ensured if the institutions are able to expand their reach and become financially sustainable. Financial instability entails high expenses for a particular economy since it increases financial risks that might bankrupt commercial banks due to changing pricing factors in the money market. Financial markets are more effective when financial imbalances caused by market shocks are eliminated. Regulation of the microfinance sector is essential for safeguarding depositors, fostering investor trust, and guaranteeing microfinance banks’ strong financial position. This study aimed to investigate how board characteristics (board activity, size, and independence) affect the financial stability of Microfinance banks in Kenya. The study also evaluated the influence of interest rates on the relationship between board characteristics and financial stability. The study was guided by the agency, stewardship, and financial intermediation theories. This study utilized an explanatory research design and the positivism philosophy. Fourteen microfinance banks in Kenya constituted the target population and sample size was based on a census approach. Data was analyzed utilizing quantitative methods, descriptive statistics, and panel data regression analysis at a 5% significant level. Prior to conducting inferential analysis, diagnostics assessment was performed. All research ethics were adhered to. The study shed light on the directional effect of board characteristics on financial stability. The findings revealed that board size had a negative and insignificant effect on financial stability (β =-0.0634, p = 0.576). Board independence had a negative and significant effect on financial stability (β =-0.1813, p = 0.039). Board activity had a positive and insignificant effect on financial stability (β = 0.7989, p = 0.386). Interest rates had an inverse and insignificant (-0.1699, 0.935) moderation effect on the relationship between board characteristics and financial stability of Microfinance banks in Kenya. The study recommended the reduction of board size, minimum level of board independence, and an increase in the activities of the board, which would positively affect the financial stability of the Microfinance banks. Policy guidelines should clarify the board's responsibilities in setting the strategic direction of the MFBs, formulating policies, and monitoring the implementation of risk management frameworksenThesis