FIRM CHARACTERISTICS AND NON-PERFORMING LOANS OF MICROFINANCE BANKS IN KENYA

Abstract

Microfinance banks in Kenya provide services such as collection of deposits from depositors, payment transaction, insurance services, transfers and other financial services within their jurisdiction. Due to lack of sufficient funding like their counterparts which is the commercial banks, their major earnings have been through loan services in order to meet up with capital requirements. However, it was reported that there has been increasing level of nonperforming loans by the microfinance banks. Therefore, this study aimed at looking into how firm characteristics affect Kenyan microfinance banks' non-performing loans. It precisely assessed how capital adequacy, loan size, and bank size affect the Kenyan non-performing loans of microfinance banks. The investigation was anchored by agency, modern portfolio, and efficiency structure theories. Its intended audience was Kenya's 15 microfinance institutions, which would be active between 2015 and 2020. The investigators took a relaxed attitude to their work. The annual reports of microfinance institutions were audited in order to collect the secondary data used in this analysis. We used SPSS, a combination of descriptive statistics (mean and standard deviation), and a multiple regression method to analyze the data. The data was presented in tables. Normality, heteroscedasticity, stationarity, autocorrelation, and multicollinearity tests were run on the study variables before they were included in the analysis. Research ethics committees in both the United States and Kenya reviewed the project. The study found that at the 5% significance level, non-performing loans at Kenyan microfinance banks were not affected by loan size or bank size. However, capital adequacy was found to have a significant and inverse effect on non-performing loans. Microfinance banks in Kenya were urged to implement prudent capital adequacy procedures to curb the rising tide of bad debt by lowering the probability of loan default among their clientele. Key Words: Firm characteristics, Non-Performing Loans, Capital Adequacy CITATION : Boye, H. R., & Mithi, F. (2023). Firm characteristics and non-performing loans of microfinance banks in Kenya. The Strategic Journal of Business & Change Management, 10 (4), 368 – 381. http://dx.doi.org/10.61426/sjbcm.v10i4.2762.