Effect of Financial Accountability on Financial Sustainability of Microfinance Institutions in Kenya

Abstract

The study seeks to identify how financial accountability helps the MFIs in terms of financial sustainability in Kenya. As per 2002, the number of MFIs have increased to 14 form 10 while the number of accounts opened for deposit purposes are twenty thousand. This has been indicated to be a decrease, (GOK, 2020), due to the high cost of living. With this reduction, there has been an increase in the loan default according to the CRB. Microfinance has exhibited success as a bridge to poverty reduction, but the issue at hand is to make microfinance institutions sustainable and have fewer defaults from borrowers. By increasing the number of individuals reached, and the number of financial products, it can be made available not just to the moderate poor at whom it has traditionally been targeted, but also to the extremely poor and the vulnerable non-poor. Therefore, the main objective of this research study will be to find out the effect of financial accountability on financial sustainability of Microfinance Institution in Kenya. The specific objectives were to determine how financial control, financial monitoring, financial planning and transparency affect financial sustainability. On the theoretical review the study will be guided by three theories: principal-agent theory (agency theory), Resource mobilization theory and social strain theory. Descriptive research design will be used in the study. The target population includes managerial staffs which is a total of 145 head office heads, middle level officers and lower-level officers in the microfinance institution in Kenya. Stratified random sampling will be used to arrive at target group while simple random sampling will be done to get the sample size. The sample size is 73.1% of the target population which is 106 respondents. Data will be collected using Questionnaires. The study will use the quantitative and qualitative data analysis methods.