FINANCIAL MANAGEMENT PRACTICES AND FINANCIAL PERFORMANCE OF MICROFINANCE INSTITUTIONS IN BUNGOMA COUNTY, KENYA
Martin Wekesa Mabonga - Master of Science in Finance and Accounting, Jomo Kenyatta University of Agriculture and Technology, Kenya
Kimani E. Maina - Lecturer, Jomo Kenyatta University of Agriculture and Technology, Kenya
ABSTRACT
Financial management practices are crucial determinants of financial performance of microfinance institutions (MFIs). The financial performance of microfinance institutions has received a general global displeasure despite the fact that international and national development programs have been giving high priority on sustainable microfinance for many years. This study was conducted in order to determine the effect of financial management practices on performance of microfinance institutions in Bungoma County, Kenya. The effect of credit risk management on financial performance of MFIs was assessed. This study was founded on credit risk theory. Descriptive survey research design was used. A total of 23 registered MFIs in Bungoma County comprised the study population. The study involved a census survey of 115 employees of the 23 MFIs. A pilot study was conducted in order to test the reliability of the research questionnaire. The university supervisor was consulted in order to ensure content validity of the research instrument. Cronbach’s alpha coefficient was used to test for reliability of the research questionnaire. Data was collected using self-administered questionnaires. Both descriptive and inferential statistics were used for data analysis. Descriptive statistical tools included frequencies, percentages, means and standard deviations. Inferential statistics included Pearson’s Product Moment Correlation and multiple regression analysis. SPSS 20.0 was used for data analysis. This study established that credit risk management (β_2 = 0.163; p < 0.05) positively and significantly influence financial performance of MFIs. It was concluded that proper financial management practices could enable MFIs to enhance their financial performance. The study recommended that principles of credit risk management should be incorporated in financial management practices. The government and development partners should emphasize on adherence to proper financial management practices in MFIs. Such initiative is expected to enhance MFIs growth and community empowerment.
