Relationship Between Financial Management Practices And Financial Performance Of The Microfinance Institutions In Kenya

Abstract

This study sought to establish the relationship between Financial Management practices and financial performance of Microfinance Institutions in Kenya. The major objectives of these study were to establish various financial practices adopted by various Microfinance organizations in Kenya and to determine the relationship between financial management practices and financial performance of various microfinance organizations in Kenya. This was anchored on the three theories which included; the contingency Theory, The residual equity theory and the proprietorship theory. The determinants of financial perfomamance included, working capital management, Return on Investments, Return on Assets, Returns on Capital Employed, Cost Benefit Analysis. The study relied on the descriptive survey design as its research design, data was collected using the data collection sheet, the target population were the 13 microfinance organizations in Kenya, data was analyzed using SPSS and other descriptive statistsics.Among the findings of this study includes, There exists a negative relationship between financial management practices and financial performance of the microfinance organization, also the study established that there is a significant relationship between liquidity levels,assests quality and management quality of the MFIs and the financial perfomamance of the MFIs.Finally the study revealed an insignificant positive relationship between earnings quality, and MFIs perfomance.The study therefore recommended that MFIs should have an optimal financing mix so as to ensure that their ongoing concerns are assured all the times, That MFIs should maintain higher levels of capital cover for its costs and losses, proper management of the MFIs earnings, MFIs should have sufficient liquidity all the times, effective management of the loans as well as ensure there is efficient operations of the MFIs.all these recommendations were aimed at helping the MFIs to boost on their performance.