The Relationship Between Financial Outreach and Financial Performance of Microfinance Institutions in Kenya

Abstract

This study examined the relationship between financial outreach and financial performance of micro finance institutions in Kenya. The best ways to help the poor access financial services have been the subject of intense debate between the welfarists and the institutionalists who hold divergent views. In this context, the paper delved into the relationship between financial outreach and financial performance of the MFIs in Kenya. To achieve this, a purposive sampling technique was employed on a population of 39 MFls registered with AMFI. Secondary data spanning five years from 2008 to 2012 was obtained from the MIX market, joint publication annual report - 2012 on microfinance sector in Kenya by AMFI and MICROFINANZA Rating Agency and extracts of data from financial statements of the respective MFls were used. Data analysis was done using ratios, charts, descriptive statistics and linear regression models obtained. The resultant econometric models had financial outreach as the dependent variable while independent variable was financial performance and the control variables were efficiency and productivity and portfolio quality. The results showed that, there was insignificant relationship between financial outreach and financial performance when the control variables were omitted from the model but significant when they were included in the model. This was evident when the R2 values were 0.994 and 0.979 when significant, and 0.058 and 0.248 when insignificant for both depth and breadth of outreach respectively. A strong negative correlation was also found between financial outreach and financial performance. Therefore relevant stakeholders should devise ways of improving on the overall financial performance, of the MFls so as to achieve the ultimate objective of poverty alleviation through greater financial outreach.