INFLUENCE OF FINANCIAL MANAGEMENT DYNAMICS ON THE PERFORMANCE OF DEPOSIT TAKING MICRO FINANCE INSTITUTIONS IN KENYA
Abstract
There was little empirical evidence on the relationship between economic capital, reputation asset, capitalization, deposit mobilization and MFI overall performance, a gap that was filled by this study. The study was informed by the signaling theory, agency cost theory, efficiency theory and the economic model of firm performance. The study used descriptive research survey design and targeted 104 respondents in managerial positions from 13 deposit taking microfinance institutions in Kenya from where Yamame’s stratified sampling formula was used to get a sample size of 83 respondents. Primary data was collected using structured questionnaire while secondary data was collected by a secondary data collection sheet. Collected data was coded for accuracy of information at the end of every field data collection day and stored both manually and electronically. Computer software- Statistical Package for Social Sciences (SPSS) version 24 was used in data analysis. Both descriptive and inferential statistics showed that all independent variables (economic capital, reputation asset, capitalization, deposit mobilization) significantly influenced MFIs performance (dependent variable). The study concluded that one; efficient use of economic capital as an effective loan loss provisioning strategy can significantly boost performance of deposit taking MFIs. Secondly, deposit taking MFIs that invest in reputation asset and jealously guard their corporate image to key stakeholders and its customers can realize a significant and sustained increase in their performance. Thirdly, effective use of deposit mobilization initiatives can assist deposit taking MFIs to attract and retain more customers, boost their deposit to loan ratio, and consequently have a steady firm performance. The study recommended that one; deposit taking MFIs should have adequate economic capital reserves through effective loan loss provisioning to act as buffers against loan delinquencies. Two, deposit taking MFIs should jealously guard their corporate image so as avoid incurring high reputation costs associated with brand erosion arising from poor public image; and lastly, deposit taking MFIs should craft viable deposit mobilization initiatives that can assist them to attract and retain more customers, boost their deposit to loan ratio, and consequently have stable firm performance.
Key Words: Economic Capital, Reputation Asset, Capitalization, Deposit Mobilization
CITATION: Mogaka, J. O., & Miroga, J. (2020). Influence of financial management dynamics on the performance of deposit taking Micro Finance institutions in Kenya. The Strategic Journal of Business & Change Management, 7 (4), 878 – 894.
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DOI: http://dx.doi.org/10.61426/sjbcm.v7i4.1830
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