Relationship between commercialization and financial performance of microfinance institutions in Kenya

Abstract

This Research Project examines the relationship between commercialization and financial performance of Microfinance institutions (MFIs) in Kenya. Recent trends have emerged where MFIs aspire to embrace commercialization for a variety of reasons more so to ensure sustainability and expand their reach. Although sustainability has been viewed as a necessity for the existence of an organization, this may have consequences on the initial purpose of the MFIs. Descriptive survey design was used for this study whose population consisted of all the micro finance institutions operating in Kenya that have already undergone commercialization. Data was analysed through the Statistical Package for Social Sciences (SPSS) and presented using tables and charts for easy understanding and analyses. Performance of an MFI can be gauged from two perspectives; social and financial. The latter indicator being important for commercialized MFI. This study used the analysis of financial ratios to determine the relationship between financial performance of MFIs and commercialization. The analysis revealed that there is significant relationship between commercialization and financial performance. Debt/equity ratio and the size of the firm are the aspects of commercialization. An increase in these variables is an indication of commercialization in the firm. ROE is used as a measure of financial performance. The findings of the study validated a negative relationship between Return on Equity (ROE) and Debt to Equity ratio and dependence on MFI size. This is an indication of existing relationship between commercialization and financial performance.