INFLUENCE OF FINANCIAL MANAGEMENT PRACTICES ON PROFITABILITY OF MICRO FINANCE INSTITUTIONS IN HOMABAY COUNTY, KENYA
Abstract
The aim of this study was to investigate the influence of financial management practices on profitability of MFIs in Homabay County. The target population was 113 senior and middle level management staff of 8 registered MFIs in Homabay County; from where Yamame’s sampling formula was applied to get a sample size of 88 respondents who were selected using simple random sampling. Data was collected using structured questionnaires and computed using SPSS 23; where descriptive and inferential statistics were generated. Pilot study was done in an established MFI in Kisumu 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 81 out of 88 sampled respondents returned dully filled questionnaires indicating a response rate of 92.04% which was excellent for generalizability of research findings to a wider population. Results from descriptive and inferential analysis revealed that all predictor variables (credit risk management, credit standards, loan portfolio diversification, technical efficiency) significantly influenced profitability of MFIs in Homabay County. The study concluded that one; credit risk management is a significant predictor of MFI profitability, two; credit standards significantly influence MFIs profitability such that MFIs with feasible credit standards can realize an increase in profitability; and three; loan portfolio diversification is a viable measure by MFIs to help increase total loan ratio which can eventually boost MFIs profitability. The study recommended that one, MFIs should engage in credible credit risk management practices to minimize loan delinquency and improve MFIs profitability, two, MFIs should formulate feasible credit standards that attract more customers while at the same time minimizing loopholes arising from credit risks.
Key Words: Credit Risk Management, Credit Standards, Loan Portfolio, Technical Efficiency, Profitability
CITATION: Agong, F., & Otinga, H. N. (2020). Influence of financial management practices on profitability of micro finance institutions in Homabay County, Kenya. The Strategic Journal of Business & Change Management, 7(1), 749 – 764.
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DOI: http://dx.doi.org/10.61426/sjbcm.v7i1.1580
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