| dc.description.abstract | The concept of microfinance is not new in Kenya, it has been around for some time,
providing customers who were traditionally neglected by commercial banks a way to
obtain financial services through cooperatives and development finance institutions. The
Microfinance Act of 2006 operationalized the then microfinance institutions which were
purely focusing on micro lending activities to apply for licenses from Central Bank of
Kenya to allow them to take deposits from customers. Today these micro banking
businesses that receive saving deposits are known as microfinance banks . According to
Jensen (1986), the creation of a financial structure can influence the governance structure
of a firm which, in turn, may influence the ability of a firm to make strategic choices.
This study therefore sought to investigate the relationship between financial structure and
financial performance of microfinance banks in Kenya. This study used a descriptive
research design to describe the characteristics of the nine MFBs in Kenya as at 31 st
December, 2014 and the study covered a five year period from 2010-2014. Secondary
data was collected from the CBK, KNBS, and Association of Microfinance institutions of
Kenya (AMFI) and the annual reports from the microfinance banks . Financial structure
was measured as total debt to equity ratio whereas financial performance was measured
using return on assets (ROA) which is net income divided by total Assets. In addition, six
controlled variables were used; credit risk, liquidity risk, age of the microfinance banks ,
size of the MFBs and Gross Domestic Product (GDP). Data was then analyzed using a
regression analysis model with the help of a statistical software, Statistical Package for
Social Sciences (SPSS) version 21 and advanced Microsoft Excel 2010. Multiple
regression analysis was used to determine the relationship between the variables under
study. The data findings were presented using tables and graphs to show the
relationships. The findings indicated that financial structure (total debt to equity ratio)
positively affects the financial performance of the micro finance banks but the
relationship was not significant. This study concludes by drawing some policy
implications geared towards financial structure to enhance financial performance of the
microfinance banks in Kenya. From the findings, the study recommends that strategies to
ensure a financial structure that is suitable for achieving a good financial health and
performance should be adopted by microfinance banks and the entire finance sector
institutions as a whole. The study also recommends that the management of MFBs should
pay special attention to Credit risk because the performance and success of micro
banking business depends on accurate measurement and efficient management of this
risk. | en_US |
