FACTORS AFFECTING THE GROWTH OF MICRO FINANCE INSTITUTIONS IN KENYA: A CASE OF SELECTED MICRO FINANCE BANKS IN NAIROBI CITY COUNTY, KENYA
Abstract
Growth of Microfinance in most countries especially Kenya has been a challenge which is contrary to their vision on creation and more so their goals and that of the firm which is profit maximization that only comes true through various aspects of growth. The study basically examined the factors affecting the growth of the Microfinance institutions operating in Kenya, with the main focus on Micro finances within Nairobi County. The main objective of the study was to fill this gap. It was only limited to the two objectives that the study intended to explore. These include leverage and financial literacy. Various theories done by other researchers in regard to this topic have been highlighted here and include; trade-off theory and theory of financial literacy. The study used a descriptive design where data was collected by questionnaires which were distributed to the respondents in return of responses. The study population was the microfinance institutions in Nairobi County. The study used sample size of 20% from 180 target population of the microfinance institutions. The study comprised of 36 staff from top, middle and lower level of microfinance institutions were the representative of the due population of the microfinance institutions in Nairobi County. The study used stratified random sampling technique. The study used both primary and secondary data for easy data collection, analysis, presentations and discussion of the research findings. The primary data and financial and income statements panel data covering five-year period were summarized and ratios calculated and analyzed using SPSS version 21 to produce inferential statistics using multiple regression analysis so as to determine the relationships between dependent and independent variables. The findings of this study showed that there was a positive and significant relationship between leverage, financial literacy and growth of micro financial institutions in Kenya. The study concluded that expansion of these micro finance institutions can positively impact on the welfare of the clients they serve. But this can only happen if they can achieve good financial growth and stability. The study recommended that microfinance institutions should develop a strategy that sets the objectives of ensuring that it has adequate levels of leverage to meet its operational needs and adopt the necessary policies and procedures to achieve this objective.
Key words: leverage, financial literacy, efficiency, liquidity, microfinance institutions
Full Text:
PDFReferences
Ahmad A. U. F, Ahmad A. B. R. (2009), “Humanomics” Vol. 25, No. 3, 2009 pp. 217-235 # Emerald Group Publishing Limited.
Alex A. K. (2014); Causes and Control of Loan Default/Delinquency in Microfinance Institutions inGhana; American International Journal of Contemporary Research; Vol. 4, No.12.
Annamaria L. and Mitchell O. S. (2013). The Economic Importance of Financial Literacy: Theory and Evidence DP 04/2013-009.
Anthony Kimathi, R.M. Doreen Njeje, Kennedy Otieno; (2015) Factors Affecting Liquidity Risk Management Practices in Microfinance Institutions in Kenya unpublished
Arko, S. K. (2012). Determining the Causes and Impact of Non Performing Loans on the Operations of Microfinance Institutions: A Case of Sinapi Aba Trust (Doctoral dissertation, Institute of Distance Learning, Kwame Nkrumah University of Science and Technology).
Bayeh A. K. (2012). Financial Sustainability of Microfinance Institutions (MFIs) in Ethiopia; European Journal of Business and Management; ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online) Vol 4, No.15.
Beatrice N. W. (2012); Factors Affecting Loan Delinquency In Microfinance Institutions In Kenya; International Journal Of Management Sciences And Business Research; Vol. 1, Issue 12. (Issn: 2226-8235)
Campello, M., Giambona, E., Graham, J. R., & Harvey, C. R. (2012). Access to liquidity and corporate investment in Europe during the financial crisis. Review of Finance, 16(2), 323-346.
Center for Evaluation and Research Survey (2011).
Charnes, A., Cooper, W.W., Lewin, A.Y., AndSeiford, L.M. (Editors), (1994), Data Envelopment Analysis: Theory, Methodology And Applications (Dordrecht, Holland: Kluwer).
Christen, P., Rhyne, E., Vogel, R. and McKean, C. (1995), “Maximizing the outreach of microenterprise finance”, [Online] Available: http://www.microfinancegateway. org/files/ 150701507/ pdf (October 25, 2011).
Cooper, W.W., Thompson, R.G., And Thrall, R.M., (1996), Extensions And New Developments In Dea. Annals Of Operations Research, 66, 3-45.
Diamond, W. &Rajan, R.G. (2005). Liquidity shortages and banking crises, The Journal of Finance, 60(2):615‐47.
Ellis, A., Cutura, J. N., Dione, I. Gillson, C., Manuel and Thongori, J. (2007).Gender and Economic Growth in Kenya, Unleashing the Power of Women, The International Bank for Reconstruction and Development/World Bank, Washington DC.
Florence A. Daniel N. W. (2014).Factors Influencing Loan Repayment in Micro-Finance Institutions in Kenya; IOSR Journal of Business and Management; e-ISSN: 2278-487X, p-ISSN: 2319-7668. Volume 16, Issue 9.Ver. III (Sep. 2014), PP 66-72.
Friedman, Milton. 1957. A Theory of the Consumption Function. Princeton: Princeton University Press.
Ganka, D. (2010), “Financial sustainability of rural microfinance institutions in Tanzania”, PhD thesis, University of Greenwich, Australia.
Gashaw T. A. (2014); Microfinance Institutionsin Ethiopia, Kenya, And Uganda; The Horn Economic And Social Policy Institute; Policy Paper No. 02/14.
Gatimu, E. M.; Frederick M. K. (2014);Assessing Institutional Factors Contributing To Loan Defaulting In Microfinance Institutions in Kenya; IOSR Journal Of Humanities And Social Science; Volume 19, Issue 5, Ver. II (May. 2014), PP 105-123E-ISSN: 2279-0837, p-ISSN: 2279-0845.
Goddard, J. Molyneux, P. & Wilson, O. (2009).The financial crisis in Europe: evolution,policy responses and lessons for the future, Journal of Financial Regulation andCompliance, 17( 4): 362‐80.
Harker, McKenzie.M. (2006), The Microfinance Movement: An Analysis of the Reach and Scope of Microfinance Institutions in the Developing WorldEconomics Senior Thesis University of Puget Sound May 10.
Haron O. M. Justo S. M. Nebat G. M. Mary N. S. (2012); Effectiveness of Credit Management System on Loan Performance: EmpiricalEvidence from Micro Finance Sector in Kenya; International Journal of Business, Humanities and Technology; Vol. 2 No. 6.
Hoque et al (2011), “Managerial Finance”, Vol. 37 No. 5, 2011 pp. 414-425 q Emerald Group Publishing Limited 0307-4358,. Institute of Open Learning.
Ishmail & Sira (2012) Social Accounting practices among Kenyan Firms: An empirical study of Companies quoted at Nairobi Securities Exchange
James N. Rosyln G. Anthony W. Paul K. (2013); Effects of financial risk management on the growth ofmicrofinance sector in Kenya; Prime Journal of Business Administration and Management; ISSN: 2251-1261. Vol. 3(6), pp. 1064-1069
John K.N. (2010); Factors Affecting Institutional Transformation: A case for a microfinance regulatory framework in Kenya.
Kenya Annual Report (2013)
Kenya, C.B. (2014), Bank supervision annual report
Kimando, L. (2012). Factors Influencing the Sustainability of Microfinance Institutions in Murang’a Municipality; International Journal of Business Statistics, 21-45
Kimathi, R.M.(2015), Factors Affecting Risk Management Practices in M microfinance Institutions in Kenya; Journal of Economics and Sustainabable Development, 1.
Kumar T. S. A., (2007), Newport J.K.,“Disaster Prevention and Management” Emerald Group Publishing Limited. Vol. 16 No. 1, 2007 pp. 21-32 q
Kyereboah – Coleman A. (2007), “The Journal of Risk Finance”, Vol. 8 No. 1, 2007 pp. 56-71 q Emerald Group Publishing Limited
Labie M., (2001) “Management Decision” 39/4 [2001] 296±301 # MCB University Press,
Lilian A. (2013); Causes of Loan Default within Micro Finance Institutions In Kenya;Interdisciplinary Journal Of Contemporary Research In Business; Vol 4, No 12
Lukwago J. (2012); Corporate Governance and Financial Performance/Growth Of microfinance Institutions In The Case Of Microfinance institutions. The Association Of Microfinance Institutions uganda (Amfiu).
Lusardi, A., & Mitchell, O. S. (2011). Financial literacy around the world: an overview (No. w17107). National Bureau of Economic Research.
Manyumbu P. (2014), Factors Affecting the Sustainability of Growth of Micro-Finance Institutions in ZimbaweISSN : 2230-9519 (Online) | ISSN : 2231-2463 (Print) IJMBS Vol. 4, Issue 4, Oct - Dec 2014.
Mbwesa, K J (2006).Introduction to management research, a student hand book.Jomo Kenyatta Foundation, Nairobi, Kenya.
Mercy A. Wanjiru M. (2013); Effect Of Competition On The Loan Performance Of Deposit taking Microfinance Institutions In Kenya: A Case Of Nairobi region; International Journal Of Economics And Finance; Vol.1, Issue 2.
Miles M. B., &Huberman, M. A. (1994).“Qualitative Data Analysis: An Expanded Sourcebook” (2nd edition).Beverley Hills, Sage.
Modigliani F.,& Miller M.H. (1963). Corporate income taxes and the cost of capital: A correction. American Economic Review, 53(2):433-443.
Modigliani, Franco, and Richard Brumberg. 1954. Utility Analysis and the Consumption Function: An Interpretation of Cross-section Data. In Post-Keynesian Economics. Ed. K. Kurihara. New Brunswick, NJ: Rutgers University Press: 388–436.
Mombo, C. A. (2013). The Effects of Nonperforming Loans on the Financial Performance of Deposit Taking Microfinance Institutions in Kenya
Mugenda, M. and Mugenda, G. (1999).Research Methods.Quantitative and Qualitative Approaches.Nairobi, Kenya.
Mukama, J. 2005. Problems affecting the growth of microfinance institutions in Tanzania. Thesis: South Africa, University of Stellenbosch.
Mulunga, A. M. (2010); Factors affecting the growth of microfinance institutions in Namibia Maina, W. W. (2011); Factors influencing the growth of micro finance institutions in Nyeri Central Disstrict, Nyeri County Kenya , unpublished.
Munene, H. N. Guyo, S. H. (2013). Factors Influencing Loan Repayment Default in Micro- Finance Institutions: The Experience of Imenti North District, Kenya; International Journal of Applied Science and Technology; Vol. 3 No. 3; 1
Myers, S. C. (2001). Capital Structure. Journal of Economic Perspectives, 15(2), 81-102.
Njeri, M. M. (2014). The Effects of Liquidity on Financial Performance of Deposit Taking Microfinance Institutions in Kenya
Njeri, Mwangi Mary (2013) ; The effects of liquidity on financial performance of deposit taking microfinance institutions in Kenya.
Olaleken, A. (2013). Capital Adequacy and Banks’ Profitability. American International Journal of Contemporary Research, 1
Omino G. (2005). Regulation and supervision of Microfinance Institutions in Kenya. Central bank of Kenya.
Orodho, (2003).Essentials of educational and Social Sciences Research Methods. Nairobi.
Orodho, A.J and Kombo, D.K. (2002).Research Methods. Nairobi: Kenyatta University
Pass, C. L., Lowes, B., & Davies, L. (2005). Collins dictionary of economics. HarperCollins.
Paul M. M. (2014); the Role of Micro-Finance Institutions to the Growth of Micro andSmallEnterprises (MSE) in Thika, Kenya (Empirical Review of Non-Financial Factors); International Journal of Academic Research in Accounting, Finance and Management Sciences; ol. 4, No.4, pp. 249–262E-ISSN: 2225-8329, P-ISSN: 2308-0337
Reille S. (2010) Growth and Vulnerabilities in microfinance. CGAP Focus Note No. 61.February.
Rosaly W.N. Fred M.M. Nicholas M.M. (2013). Determinants of Growth of Microfinance Organization in Kenya; European Journal of Accounting, Auditing and Finance Research, Vol. 1, PP. 43-65
SBP (2010).The State of Pakistan's Economy, Central Board of State Bank of Pakistan. State Bank of Pakistan, Islamabad
Seed, M.S.(2014). Microfinance Activities and Factors Affecting the Growth of Microfinance Institutions in the Developed and Developing Countries; International Finance and Banking, 1.
Sengupta, J.K., (1995), Dynamics of Data Envelopment Analysis: Theory of Systems Efficiency (Dordrecht, Holland: Kluwer).
Sengupta, J.K., (2012), New efficiency theory: extensions and new applications of data envelopment analysis Department of Economics, University of California, Santa Barbara, CA 93106 USA,
Shankar S.,“ (2007), Management Decision”,Vol. 45 No. 8, 2007 pp. 1331-1342 q Emerald Group Publishing Limited.
Shankar, S. (2007). Transaction costs in group microcredit in India. Management decision, 45(8), 1331-1342.
Stewart, T.J., (1996), Relationships Between Data Envelopment Analysis And Multicriteria Decision Analysis. Journal Of The Operational Research Society, 47, 654-665.
Tianwei, Z. & Paul, E. (2006). Credit Risk and Financial Performance Assessment of Agricultural firms, Published PhD Thesis, University of Illinois, US.
Veronica W. N. Dr F. K. (2014); Effects of Micro-Financing on Growth of Small and Micro Enterprises in Mombasa County; International Journal of Scientific Engineering and Research; ISSN (Online): 2347-3878 Volume 2 Issue 4.
Welch, I. (2011). Two common problems in capital structure research: The financial‐debt‐to‐asset ratio and issuing activity versus leverage changes. International Review of Finance, 11(1), 1-17.
Woller, G. (2000), “Reassessing the financial viability of village banking: Past performance and future prospects”, Micro Banking Bulletin, Microfinance Information Exchange (MIX).
Woller, G. and Schreiner, M. (2002), “Poverty lending, financial self-sufficiency, and the six aspects of outreach”, working paper, Washington, DC, USA.
Ya Wu (2011). A Comparative Analysis of the Operating and Economic Efficiency of China’s Microfinance Institutions, Traditional Chinese Agricultural Lenders, and Counterpart Indian Microfinance Institutions, 1.
DOI: http://dx.doi.org/10.61426/sjbcm.v4i1.408
Refbacks
- There are currently no refbacks.
This work is licensed under a Creative Commons Attribution 3.0 License.
PAST ISSUES:
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.