The Determinants of Financial Performance of Microfinance Institutions in Kenya

Abstract

Microfinance is a term often applied in reference to small-scale financial services- primarily credit, savings and insurance. It is a tool that has been acceptable overtime to offer poor people access to basic financial services, such as loans, savings, money transfer services and micro insurance. In Kenya, Microfinance as a concept has been applied exclusively in attaining financial inclusion of parties earlier excluded from the formal financial system. The industry has various players that range from formal and regulated enterprises to non formal MFIs. This study attempted to investigate the factors that determine the financial performance of the 41 MFIs that are registered and regulated by the AMFI. From the findings, the various factors identified to influence this performance are either firm specific or market specific. The factors include; inflation rates, corporate governance practices. Distribution networks, Sustainability, Profitability, Outreach, Growth of informal sector, Leverage levels of the institution, Donor Subsidies, Access to capital, Capitalization requirements, Management Information systems, External Intervention. Product diversity. Real Interest rates. Levels of Citizen Income, Donor Support. Education levels of Citizen. Liquidity of the Institution, Communication costs, Transition to service based economy. Operational costs, Existence of Micro - finance market. Risk Management Practices, Information costs, Transaction costs, Education levels of staff and Human expertise.