Effect of Credit Risk on Profitability of Deposit Taking Microfinance Institutions in Kenya
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Date
2022Author
Chepngetich, Nelly
Type
ThesisLanguage
enMetadata
Show full item recordAbstract
The Micro-Finance Institutions spearhead the lending, savings and investment to promote
their performance. Therefore, their performance is cushioned by the operational
efficiency of loans. Nevertheless, lending is the integral part of microfinance. It aims to
boost savings, investment while encouraging circulation of cash between those with
surplus and deficits. Moreover, credit is both integral and indispensable phenomenon.
Subsequently, it has been part of business transformation as well as the area of concern.
Empirically, the credit risk arises whenever the business is stuck and cannot meet the
obligations. On the other side, Profitability is a crucial engine towards attainment of
objectives. In addition, it is the facet of performance and illustrate the supreme role of
matching up income earned according to firm’s policies. The objective of study was to
explore the effects of credit risk on profitability of deposit taking microfinance
institutions in Kenya. Moreover, the research utilized quantitative descriptive design
while targeting 14 Deposit Taking Microfinance Institution in Kenya from 2017-2021 but
managed to get 13. The data was sourced from CBK and DTMFIs. The researcher
promoted the quality of data by reviewing, classifying, summarizing, editing, coding then
analysis through SPSS. Hence, regression analysis and ANOVA among others reinforced
in-depth understanding. Similarly, multicollinearity test was undertaken using Variance
Inflation Factor. Furthermore, the autocorrelation was done via Kolmogorov-Smirnova to
adequately post association between explanatory and explained variable. The normality
was enhanced by gauging the normal distribution state of data. Furthermore, correlation
analysis posited that adequacy and liquidity management had negative correlation
towards the profitability while asset quality showed a strong positive correlation towards
profitability. In summary, the autonomous value was 0.154 hence concluding the
profitability stood at 15.4%. Further, an increase in a single unit of capital adequacy
triggered a negative adjustment on the profitability by 3.5% whenever other enabling
factors are held unchanged. Additionally, an increase in a single unit of asset quality
translated to drastic increment on the profitability by 52.2% all factors unchanged.
Finally, in cases where other variables are held constant, the increase of a singular unit of
liquidity portrayed a significant decrease in the profitability by 5%. This investigation
recommends for the prudential and maximum engagement resources to increase
profitability. The policy makers should analyze the international study and advise the
most appropriate plans for enhancing the accountability and wealth creation. The study of
financial risk, capital structure, leverage risk and financial stress verse the profitability
can give comprehensive knowledge on their pattern and behavior.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
- School of Business [1432]
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