LOAN RISK DIVERSIFICATION AND FINANCIAL PERFORMANCE OF MICROFINANCE INSTITUTIONS IN WESTERN REGION KENYA

Abstract

A microfinance institution-driving goal is to gain profits so that they can uphold sustainable and stable growth. The internal and external economic environs are both regarded as critical drivers for the performance of the Microfinance. The study sought to assess the effect of loan risk diversification on financial performance of microfinance Institutions in Western region Kenya. This study was based on modern portfolio theory and balance scorecard theory. The study embraced descriptive research design. This study employed purposive sampling approach to pick a sample size of fifty-six respondents from the fifteen microfinance institutions. Questionnaires were used and they targeted the credit managers, accountants and the finance managers of the microfinance institutions since they were the ones who were better placed to offer the information required for the investigation.  A pilot test was conducted to check the reliability of the instrument in data collection. For purposes of validity, the questionnaires were divided into several sections to confirm that every evaluated data achieved the objectives. The research intended to analyze the microfinance institutions in western region Kenya. The discoveries from the investigation were principally advantageous in providing additional knowledge to existing as well as future establishments on loan portfolio management that will be embraced to prevent further losses and closure of microfinance institutions. Inferential as well as descriptive statistics was used in analyzing data. This was done using multiple regression model and frequency distribution using mean, standard deviation and percentages. Results indicated that the Loan Risk Diversification Practices had a significant influence in predicting the Financial Performance of Micro-Finance Institutions in Western Region Kenya. This was indicated by significant unstandardized beta coefficients of b = 0.214. The study findings will be beneficial to MFIs that seek to improve on loan portfolio management that significantly improves their financial performance. Legitimate knowledge would give them an additional favorable position in dealing with their loans. The study findings revealed that loan risk diversification has a significant influence on financial performance of MFIs in western region Kenya; therefore the study recommended that the management of MFIs should consider the three variables in loan portfolio management practices

Keywords: Loan Risk Diversification, Loan Portfolio Management, Financial Performance

CITATION: Osinde, C., Singoro, B., & Fwamba, R. (2021). Loan risk diversification and financial performance of microfinance institutions in Western region Kenya. The Strategic Journal of Business & Change Management, 8 (2), 201 – 212.