LIQUIDITY MANAGEMENT AND FINANCIAL PERFORMANCE OF MICROFINANCE BANKS IN NAIROBI CITY COUNTY, KENYA
Maureen Wayua Mwambui - Masters of Business Administration, Kenyatta University, Kenya
Dr. Jeremiah Koori - Department of Business Administration, School of Business, Kenyatta University, Kenya
ABSTRACT
Microfinance banks offer both credit and deposit facilities to its clients thus liquidity management is important as it evaluates the ability of a firm to be able to convert its assets to cash easily making the organization to have ready funds to facilitate its operations in a perpertual basis. In general there is a decline in the percentage of return on asset from 2% in 2014, 1% in 2015 and 0.5% in 2016 which portrays that the microfinance banks are not efficient in utilizing their resources and at the end of the year 2016 out of thirteen microfinance banks five made profits while eight made losses. The study investigated the effect of liquidity management and financial performance of microfinance banks in Nairobi City County for the period 2011 to 2017. The study dependent variable is financial performance and the independent variables; capital adequacy, loan repayment, cash management and moderator inflation. The target population was all thirteen microfinance banks in Nairobi City County. The study used descriptive survey research design on both primary data and secondary through issuing structured questionnaires on independent variables and audited statements for the dependent variable. The data collected was steadily prepared, edited to achieve accuracy, and then inputed to SPSS Version 22.0 for analysis. The findings for capital adequacy on financial performance of MFBs indicated a weak positive relationship that was not significant while loan repayments and cash management had a significant positive relationship with financial performance of MFBs. The study recommended that MFBs should maintain quality capital base that can safeguard them against future risk exposures. Secondly, adoption of efficient loan management policies to safeguard MFBs against credit risks that can have negative financial performance results. Lastly, MFBs should adopt efficient cash management policies for improved financial performance.
