INFLUENCE OF WORKING CAPITAL MANAGEMENT AND LOAN PORTFOLIO MANAGEMENT ON PROFITABILITY OF MICRO FINANCE INSTITUTIONS IN BUSIA COUNTY, KENYA
Abstract
The aim of this study was to investigate the influence of working capital management and loan portfolio management on profitability of MFIs in Busia County. The target population was 125 senior and middle level management staff of 12 registered MFIs in Busia County; from where Yamame’s sampling formula was applied to get a sample size of 95 respondents who were selected using simple random sampling. Data was collected using structured questionnaires and computed using SPSS 24; where descriptive and inferential statistics were generated. Pilot study was done in an established MFI in Bungoma County where content validity was applied to check instrument validity while cronbachs alpha that test internal consistency was used to check reliability of research instruments. A total of 82 out of 95 respondents returned completely filled questionnaires depicting a response rate of 86.3% which is good for generalizability of research findings to a wider population. From the values of unstandardized regression coefficients with standard errors in parenthesis, all the independent variables (working capital management and loan portfolio management were significant predictors of profitability of MFIs in Busia County (dependent variable). The study concluded that one; working capital management significantly influence profitability of MFIs, thus MFIs managers with sound working capital management can realize an improvement in MFIs profitability; two; good loan portfolio management positively influences MFIs profitability; therefore, MFIs with low Gross Non-Performing Loan Ratio will definitely experience an increase in profits. The study recommended that one; managers of MFIs should ensure net loan ratios simulate with net assets growth so as to make MFIs realize an improvement in profitability and two; managers of MFIs should ensure Gross Non-Performing Loan Ratio is minimized to reduce loan delinquencies which can negatively affect MFIs profitability.
Key words: Working Capital, Loan Portfolio, profitability, Micro Finance Institutions
CITATION: Mulongo, C. K., & Otinga, H. N. (2019). Influence of working capital management and loan portfolio management on profitability of micro finance institutions in Busia County, Kenya. The Strategic Journal of Business & Change Management, 6 (2), 1046 –1060.
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DOI: http://dx.doi.org/10.61426/sjbcm.v6i2.1170
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