Financial Determinants Of Microfinance Institutions’ Outreach In Kenya

Abstract

Micro Finance Institutions in Kenya have had increasing recognition since the 1990’s for the role they play in providing financial services within the communities, through their participation on poverty mitigation. However, the inconsistency of large number of MFIs in providing financial help to alleviate the high poverty levels has been a major concern. The increase in number of poor people within the society, has contributed negatively to the main idea of MFIs in eradicating poverty. In addition, MFIs should ensure that they have the financial capacity to offer their services to the poor people, families and communities. Therefore, this study purposes to examine the financial determinants of MFIs outreach in Kenya. The objectives of the research are to evaluate the effects of microfinance institution size, liquidity, capital adequacy and operating efficiency on the outreach performance of MFIs in Kenya. The research was directed by transaction cost theory, passive theory, capital adequacy theory and liquidity preference theory. This study implemented a descriptive research design. The target population for this study was 12 Micro Finance Institutions listed with the Association of Micro Finance Institutions (AMFI), and are licensed by CBK and running in Kenya as Deposit Takings Microfinance institutions. The panel data collected was analysed through descriptive and inferable statistics such as multiple regression to determine the influence of dependent variable and independent variables. The panel data analysis was done using STATA software. Diagnostic tests were done and the results were as follows: The research established that the operating efficiency affected outreach negatively and had no significant influence on the MFIs’ outreach in Kenya. The study also found that capital adequacy influence was positive however, had no significant outcome on the MFIs’ outreach in Kenya. The research also showed that MFIs size had a significant effect on MFIs’ outreach in Kenya. MFIs size affected outreach positively. Finally, findings discovered that the effect of liquidity was negative and was significant on MFIs’ outreach in Kenya. The study recommended that smaller MFIs should consider merging to bigger MFIs. This is to help the institutions earn from the economies of scale. The microfinance institutions should keep low their debts and maximize their equity. The MFIs should ensure that the equity is maximized to enhance financial capacity to enhance the reaching of the poor efficiently. Lastly, MFIs should consider matching between reducing the transaction costs involved with the outreach goal