The Effects of Liquidity on Financial Performance of Deposit Taking Microfinance Institutions in Kenya

Abstract

The research project seeks to determine the effect of liquidity on financial performance of deposit taking microfinance institutions (DTMs) in Kenya. Liquidity refers to a portfolio of assets which can be converted quickly to do this. Its high level of trade that allows buying and selling with minimal price disturbance. The MFI Act of of the year 2006 and the steady DTM Regulations of the year 2008 have both indeed brought an institutional change in Kenya. Descriptive study where the researcher gathered data from the published financial statements of Deposit Taking Microfinance institutions in Kenya was used. The target population is the 13 microfinance institutions which are involved in deposit-taking. The sampling technique that was employed in this study was a census with a clear preference on this based on the fact that the population sample is a bit small. Ratio analysis and various models was used to analyze the secondary data collected. The target data in this study was the working capital component of the financial statements and the profits made in each of the financial years from 2012-2016. The F- test was used to determine the significance of the regression while the coefficient of determination, R2, was used to determine how much variation in dependent variable is explained by independent variables. Research information was gathered from monetary explanations of Deposit Taking Microfinance Institutions in Kenya. From the discoveries of the relapse examination, the study found that there was insignificant relationship between liquidity and performance of deposit taking micro finance institutions in Kenya. The R2 was 18.1% while the F test conducted led the researcher to accept the null hypothesis. The findings showed that the macro-economic factors have little effects on the financial performance of DTMS