The Effect of Size on the Financial Performance of Deposit Taking Micro Finance Institutions and Commercial Banks in Kenya

Abstract

Microfinance is the provision of financial services to the poor people with very small business or business projects (Marzys, 2006). Only a small fraction of the world population has access to financial instruments, essentially because commercial banks consider the poor people as unbankable due to their lack of collateral and information asymmetries. According to Ledgerwood, micro-finance is the provision of financial services (generally saving and credit) to low income clients. Since the Microfinance Act 2006 became operational in 2008 nine Micro-finance institutions (MFIs) have transformed to Deposit Taking Microfinance Institutions (DTMs). The purpose of this study is to assess the factors that are affecting the financial performance of these DTMs since they transformed. There are nine DTMs and forty four Commercial banks licensed in Kenya and which are regulated by Central bank of Kenya. The period under consideration for this research project is 2008 to 2012. During this period secondary data will be obtained from academic sources and financial statements submitted to Central Bank of Kenya(CBK). Regression analysis using Statistical Program for Social Scientists (SPSS) computer software will be applied to show the relationship between the independent variables and the dependent variables under consideration.