EFFECT OF CASH MANAGEMENT ON FINANCIAL PERFORMANCE OF REGISTERED MICROFINANCE INSTITUTIONS IN KENYA

Abstract

Cash management process in MFIs provide avenues for adequate planning and control of money so that they are able to forecast any monetary expenses hence adequately financing their operations in bid of improving performance. That notwithstanding, MFIs in Kenya have been undergoing a series of losses due to declined customer deposits and non-performing loans. The purpose of the study was to examine the effect of current asset management on financial performance of registered microfinance Institutions in Kenya. The study adopted descriptive survey and causal research design. The sample size of 100 was selected from a population of 134 respondents in 13 registered microfinance Institutions (MFIs), using stratified random sampling. Both primary and secondary data were collected by use of questionnaires and document analysis of financial reports after piloting was done in an MFI outside the study area. A Cronbach Alpha of 0.895 was obtained after testing for reliability. Face and content validity was tested by factor analysis which indicated a rotation value of 0.766. The study’s findings revealed that only two MFIs U&I and Sumac had positive Return on Asset (ROA) of 2% and 1% respectively. However, the rest of the MFIs registered negative ROA ratios. Notably, the worst performing MFIs were Choice which had -41%, Daraja which had -25%, Maisha which had -22% and Salaam which had -20%. In addition, Faulu, SMEP, Maisha and Branch recorded low cash to deposit ratio with a mean of 0.02. Further, the studyfound out that current asset management had a moderate positive relationship with financial performance (r = 0.431). The regression results revealed that without current asset management financial performance would be 22.123, whereas if MFIs introduce Current asset management by one-unit, financial performance would increase by 0.057 holding all other factors constant.  The study concluded that though the MFIs had adequate assets, they did not have adequate cash at hand to support banking operations like withdrawals and lending. This was partially attributed to inefficient expense tracking systems such that the available funds were poorly accounted for. The study recommends that the management of MFIs should restructure their products and services to a more reliable customer experience perspective, in order to improve cash at hand to support its operations.

Keywords: Cash Management, Financial Performance, Registered Microfinance Institutions, Kenya

CITATION: Nyangeri, O. S., Tibbs, C. Y., & Ngala, C. (2024). Effect of cash management on financial performance of registered microfinance institutions in Kenya. The Strategic Journal of Business & Change Management, 11 (3), 151 – 162. http://dx.doi.org/10.61426/sjbcm.v11i3.3015