FINANCIAL RISKS AND PERFORMANCE OF DEPOSIT-TAKING MICROFINANCE BANKS IN KENYA
FINANCIAL RISKS AND PERFORMANCE OF DEPOSIT-TAKING MICROFINANCE BANKS IN KENYA
James Njagi Ngunjiri - Masters Scholar (Finance), Jomo Kenyatta University of Agriculture and Technology, Kenya
Dr. Joshua Matanda (PhD) - Senior Lecturer, Jomo Kenyatta University of Agriculture and Technology, Kenya, Kenya
Dr. Cynthia Waga (PhD) - Senior Lecturer, Jomo Kenyatta University of Agriculture and Technology, Kenya, Kenya
ABSTRACT
This study examines the effect of financial risks on the performance of Deposit-Taking Microfinance Banks (DTMFBs) in Kenya from 2013 to 2022. The research focuses on four key financial risks credit risk, market risk, liquidity risk, and operational risk and their impact on financial performance, measured by Return on Investment (ROI). Using a descriptive research design and panel data analysis, the study analyzes secondary data from audited financial statements of all 13 licensed DTMFBs in Kenya. The findings reveal that all four financial risks have a statistically significant positive effect on financial performance, contrary to conventional expectations. The study concludes that proactive risk management strategies are essential for enhancing the financial stability and profitability of DTMFBs. Recommendations include adopting dynamic risk management frameworks, investing in modern risk assessment tools, and fostering collaboration with regulatory bodies. Future research should explore the long-term sustainability of these risk management practices and the impact of macroeconomic factors.
