Effects of Selected Internal Factors on Growth of Micro Finance Institutions in Kenya

Abstract

MFIs are financial firms which offer saving and credit services to lower income earners. Although the role of the micro finance bodies is to serve those who the formal banking system have left out, a growing concern that there is still lack of credit facilities to many Kenyans exists. The Association of Microfinance Institutions statistics show that there is lack of access to formal financial services to more than 60% of Kenyans. The reason for this is that the concentration of most micro-credit firms is in towns and cities. Majority of the individuals that lack credit are in rural areas. The objective of the study was to determine the effects of selected internal factors on growth of Micro Finance Institutions in Kenya. The study used descriptive research design. All the companies listed by the Directory-of-Licensed-Microfinance-Banks were employed for this research's purpose. This study adopted census approach and thus all the listed firms formed the study sample frame. The study findings revealed that asset quality have a negative and significant effect on growth of MFIs. The study findings also revealed that capital adequacy, liquidity and operational cost efficiency have a positive and significant effect on growth of MFIs. The study concluded that asset quality have a negative but significant impact on growth of MFIs. The study concluded that capital adequacy have a positive and significant impact on growth of MFIs. The study concluded that capital adequacy, liquidity and operational cost efficiency have a positive and significant impact on growth of MFIs. The study recommend that the management of MFIs should improving their investment assets levels and improve their assets quality by reducing the rate of nonperforming loans through credit risk identification, measurement, monitoring and controlling. This will improve the growth of the MFIs. The study also recommends that the management of the MFIs should ensure there is a wide capital base in the MFIs to strengthen confidence of depositors. The study also recommends that to facilitate favorable growth of these institutions, strategies to facilitate increased liquidity of MFIs should be adopted by the institutions for their efficiency in financial operations. The study also recommends that improvements in operational efficiency should be facilitated through application of modern technology and innovative operational strategies to effectively bring about growth in the MFIs.