FIRM CHARACTERISTICS AND FINANCIAL PERFORMANCE OF MICROFINANCE BANKS IN KENYA
FIRM CHARACTERISTICS AND FINANCIAL PERFORMANCE OF MICROFINANCE BANKS IN KENYA
Cavine Onyango Ouma - Master of Science Finance Student, Department of Accounting and Finance, School of Business, Economics and Tourism, Kenyatta University, Kenya
Dr. Daniel Makori (PhD) - Department of Accounting and Finance, School of Business, Economics and Tourism, Kenyatta University, Kenya
Dr. Moses Odhiambo Aluoch (PhD) - Department of Accounting and Finance, School of Business, Economics and Tourism, Kenyatta University, Kenya
ABSTRACT
Kenya has one of Sub-Saharan Africa's most active microfinance marketplaces. Microfinance gives the forte to improve the economic activity of low-income individuals and eliminate poverty, resulting in economic progress. However, microfinance's financial performance in the country has declined over time. With this view, this investigation aims to explore how firm characteristics (capital adequacy, assets quality, managerial efficiency, earning ability and liquidity) performance of microfinance banks in Kenya. The study was grounded on stakeholders, liquidity preference, financial intermediation, buffer capital, efficiency structure and interest rate parity theories. The study research methodology rested on positivism research philosophy. Research Design was explanatory non-experimental design. Secondary panel data was utilized. 13 microfinance banks in Kenya were target. Information was gathered using secondary data sources from microfinance banks accounting report from 2016 to 2022. Data was descriptively and inferentially analyzed. The investigation employed panel multiple regressions and Pearson’s Product Moment Correlation analysis. Diagnostics test such as multicollinearity, normality, autocorrelation, heteroscedasticity and stationary tests were carried out. All ethical considerations were appropriately observed. Findings uncovered that adequacy of capital exerts a notable and direct effect on financial performance, underscoring the importance for microfinance banks in Kenya to prioritize maintaining sufficient capital levels to support their overall stability and financial outcomes. Conversely, quality of asset demonstrates a significant and adverse influence on performance financially, highlighting the need for microfinance banks to enhance their credit assessment processes to ensure the quality of their loan portfolios. The research reveals that efficiency of management has an insignificant direct influence on performed banks financially. To address this, microfinance banks are advised to invest in comprehensive management training programs and capacity-building initiatives to improve operational effectiveness and decision-making processes. Earning ability, on the other hand, exhibits a considerable and direct influence on performance financially. Microfinance banks should thus focus on continuous innovation of their products and services to enhance their earning potential and overall financial outcomes. Liquidity levels exhibit an insignificant and inverse effect on the financial performance outcomes. To mitigate potential risks, microfinance banks should establish comprehensive policies and procedures to monitor and manage liquidity effectively. Interestingly, the study reveals that the connection concerning firm-level attributes. Therefore, the study recommends that microfinance banks concentrate on improving governance structures, operational efficiency, risk management practices, and asset quality. This can be achieved through capacity-building programs, training initiatives, and adopting best practices from successful microfinance institutions. Strengthening these firm characteristics will enable microfinance banks to enhance their financial performance, irrespective of interest rate fluctuations.
