The Relationship Between Firm Size and Financial Performance of Microfinance Banks in Kenya

Abstract

The banking industry has had stiff competition over the last few years. This kind of competition has forced microfinance banks to adjust themselves in order to cope with this kind of environment to meet customer expectations. The sought to determine the relationship between firm size and financial performance of microfinance banks in Kenya. The study used a descriptive survey. The study carried out a census survey of nine (9) microfinance banks that had been in operation for five years (2010-2014). The study used secondary sources of data that was obtained from central bank of Kenya audited reports of the nine microfinance banks. Data analysis involved descriptive statistics, correlation analysis and regression analysis. The study found that most microfinance banks are small in size and however most of them have experienced high growth over the years in terms of customer deposits and operating efficiency. This could be attributable to improved financial performance and growth in asset base in the period of study. Pearson’s correlation results found that there was no correlation between asset quality, log of assets and customer deposits with financial performance of microfinance banks in Kenya apart from operating efficiency and financial performance which was found to have a strong correlation. The regression analysis concluded that operating efficiency and logarithm of assets had a statistically significant relationship with financial performance of microfinance banks in Kenya. The limitation of this study is that the study faced significant funding and costs constraints which limited the scope of the study to microfinance banks. A comparative study should be conducted in other sectors like manufacturing firms, insurance companies or investment firms to find out which kind of relationship that exists between firm size and financial performance then findings can be compared and plausible conclusions drawn.