Effect of firm size on financial performance of microfinance institutions in Kenya; A case of Mombasa County.

Abstract

This study was carried out with the aim of examining the effects of firm size on financial performance of microfinance institutions in Kenya. The study was guided by four objectives that included: to determine the effect of customer deposits, capital base, loans and number of branches on financial performance of microfinance institutions in Mombasa. The study adopted a descriptive survey research design. The study targeted 91 respondents who included top management and middle management of selected MFIs in Mombasa County. The study adopted Yamane formula to choose a sample size of 74 respondents. Primary data was gathered by use of questionnaires which were semi structured to ensure that all areas were captured. The questionnaires were administered to respondents through drop and pick later method. The data collected was checked for completeness, uniformity, accuracy, errors elimination and consistency checks. A coding scheme was developed to classify responses into meaningful categories to enable the analysis of data. SPSS version 25.0 was used for quantitative analysis and presented in frequency tables. Results established that deposits in the MFIs are influenced by the customers’ occupation and that nature of deposits has a bearing on the MFIs performance. The account type opened by the customer and frequency of deposit activities in those accounts affect the financial performance of MFIs. The study concluded that capital base leads to improved financial performance of MFIs. The amount of capital controlled by the MFIs and liquidly ratio has a significant effect on financial performance of MFIs. The nature of capital and the source of capital as well as its relevance affects the MFIs financial performance. The study concluded that loans affects financial performance of MFIs. This can be explained by the regression results which denote a positive and statistical significant effect of loans on financial performance. The amount of money loaned and the nature of loans affect financial performance of MFIs. Also frequency of loans to customers and repayment frequency has a significant effect on MFIs financial performance. The study recommended that in order for microfinance banks to increase their performance (profitability) there is need from microfinance banks to increase size by increasing various aspects of customer base, net assets, deposit liabilities and market share