Relationship Between Corporate Social Responsibility And Financial Performance Of Micro Finance Institutions In Kenya

Abstract

In the contemporary globally competitive market companies must portray themselves as socially responsible companies. The moral case for why businesses should be actively involved in promoting the betterment of the society and acting so as to benefit all the company’s stakeholders rather than their shareholders only boils down to the fact that, it’s the right thing to do ( Garriga and Mele 2004). This study sought to determine the relationship between corporate social responsibility (CSR) and the financial performance (FP) of microfinance institutions in Kenya. The study will aid the management in enhancing their CSR activities so as to improve their financial performance. In this study descriptive research design was used. Descriptive statistics are ways of summarizing large sets of quantitative (numerical) information using as mean scores and standard deviation etc. CSR activities and financial performance of 28 MFI’s in Kenya was studied between the year 2008 and 2012. CSR was measured by the amount spent on CSR activities while financial performance was measured using ROA. Regression model was used to analyze the data. CSR was the independent variable while the dependent variable was financial performance proxied by ROA. The study found that there is a positive relationship between CSR and Financial performance of MFI’s but which is statistically insignificant (weak). The positive sign which is not significant is consistent with the theory that investing in CSR improves ROA. In this regard, a one unit increase in CSR expenditure will increase ROA by 0.0004 units. However, since the relationship is insignificant, we conclude that investing in CSR does not improve financial performance as measured by ROA.