Effect of Liquidity on Financial Performance of Non Deposit Taking Financial Institutions in Kenya

Abstract

The study set out to determine how non-banking financial entities in Kenya fare financially in relation to liquidity. This study will mainly center on a bank that does not take deposits. This study set out to answer the research question by looking at how liquidity affects financial performance. Specifically, the study attempted to determine the function that liquidity plays in determining financial success. An approach known as descriptive research was used for the investigation. By using the census sampling approach, the sample size was determined to be 32 individuals who responded to the survey. Information on liquidity and financial performance was derived from secondary sources. Descriptive and inferential statistics were used in the analyses. Methods like as correlation and regression were part of inferential statistics, whereas descriptive statistics included tools such as percentages, averages, and standard deviation. Business size, capital adequacy, and liquidity were shown to have a significant and strong link with financial performance. Conversely, non-deposit MFIs' financial performance was significantly and negatively correlated with non-performing loans. An R-squared value of 0.452 indicates that non performing loans (NPL), bank size, liquidity, and capital adequacy explained 45.2% of the variation in financial performance (ROA). That leaves 54.8% to be explained by the error term and other factors that were left out of the study. According to the results of the ANOVA, this change was statistically significant. Another finding from the multiple regression study found that non-deposit taking financial institutions' liquidity, capital adequacy, non-performing loans, and bank size changed significantly. That the shift was substantial provided further evidence of this. The study's authors concluded that non-deposit accepting microfinance institutions in Kenya are affected by liquidity, capital adequacy, non-performing loans, and bank size. Corporate governance, capital structure, CSR, and the effect of devolution are additional aspects that the research suggests should be investigated further in order to understand how non-deposit taking MFIs work.