The Relationship Between Profitability and Outreach of Microfinance Institutions in Kenya

Abstract

The purpose of this study was to establish the relationship between profitability and outreach of microfinance institutions in Kenya. The study adopted a survey research design of the institutions in Nairobi. The data collected for the purpose of establishing the above relationship was of secondary nature and it was obtained partly from the published financial statement of microfinance institutions and some of the data was obtained through a formal request from the microfinance institutions. The researcher managed to obtain complete data for 19 microfinance institutions out of the total of 26 that were the target of this study. Regression analysis was used to establish the relationship. The findings revealed that microfinance outreach through its three variables of number of clients who opened accounts with the institutions from 2008 to 2012, the deposits made every year and the outstanding loan portfolio explains a significant percentage of the variable on the profitability of microfinance institutions in Kenya. The largest portion of the variance explained by these three variables it accounted for by the number of clients and the outstanding loan portfolio. However, the three variables;number of clients with accounts opened by the MFIs, amount of deposits or savings held each year and amount of outstanding loan portfolio still leave a large portion of unexplained variance that is accounted for by other variables outside the scope of this study.