FINANCIAL MANAGEMENT PRACTICES AND LOAN PERFORMANCE OF MICRO FINANCE INSTITUTIONS IN STAREHE CONSTITUENCY, NAIROBI COUNTY, KENYA
Peter Maina Wangai - Master of Business Administration (Finance Option), Kenyatta University, Kenya
Dr. John N. Mungai - Lecturer, Department of Finance and Accounting, School of Business, Kenyatta University, Kenya
ABSTRACT
The Central Bank of Kenya annual supervision report, 2015 showed there has been low performance incidence of MFIs attributed to factors such as the rising levels of non-performing loans in the last 10 years, a situation that has adversely impacted on their profitability. This attracts further investigation in order to understand financial issues in the sector and therefore this study was seeking to examine the effects of financial management practices on loan performance in microfinance institutions in the Starehe constituency Nairobi County, Kenya. The study was guided by the following objectives: To examine effect of accounting information systems on loan performance among microfinance institutions in Starehe constituency, explore the effect of working capital management on loan performance among microfinance institutions in Starehe constituency, find out effect of financial reporting analysis on loan performance among microfinance institutions in Starehe constituency and to examine the effect of fixed asset management on loan performance among microfinance institutions in Starehe constituency. It utilized three theories: Agency theory, expectancy theory and trade-off theory of capital structure in explaining relationship between financial management practices and performance of loan among the selected MFIs in Nairobi. Descriptive research design was adopted in this study and this approach analyzed both quantitative and qualitative data. Stratified purposive sampling was used to select a sample of 86 out of the target population of 109. In collecting the data, this study utilized questionnaire which was administered by the researcher and a team of research assistants. Data analysis was conducted and Statistical Package for Social Sciences (SPSS) version 22.0 used to analyze data. Data was presented in descriptive and frequency tables and graphs, and the study adhered to ethical principles of research. The study findings revealed that, there is significance relationship between management practices and loan performance in microfinance institutions in Kenya. The study recommended for microfinance institutions to train their managers on importance of management practices on loan performance to improve their loan performance. The study further recommend for critical evaluation of potential borrowers concerning their credit worthiness before offering loans to them to minimize non-performing loans.
