EARNINGS ABILITY AND FINANCIAL PERFORMANCE OF DEPOSIT TAKING MICRO FINANCE BANKS IN KENYA
Abstract
Earnings ability is a vital evaluation metric of micro finance banks’ financial health in order to maintain feasible high-quality asset portfolio. The study aimed at establishing the effect of earnings ability on financial performance of DTMFBs through the GMM approach for all 13 registered DTMFBs in Kenya for the 2018-2022 financial years. The study established that earnings ability has a positive and significant effect on the financial performance of DTMFBs. The R-squared value was 0.6326 for ROA and 0.7437 for ROE at the 0.05 significance level. The positive relationship between the two variables implies that deposit taking micro finance banks in Kenya had a sound earning capability in the study period. We recommend that deposit taking micro finance banks employ quality assets for sustained profitability and ensure that their earnings are generated through ethical and sustainable practices, and that the benefits are shared appropriately among all stakeholders to further promote financial inclusion in Kenya.
Key word: Earnings ability; Financial Performance; CAMEL ratings model; Returns on Assets, Return on Assets.
CITATION: Sungwacha, S. M., Simiyu, G. N., Makokha, E. N., (2024). Earnings ability and financial performance of deposit taking micro finance banks in Kenya. The Strategic Journal of Business & Change Management, 11 (3), 163 – 177. http://dx.doi.org/10.61426/sjbcm.v11i3.3010
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DOI: http://dx.doi.org/10.61426/sjbcm.v11i3.3010
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