Effect Of Macroeconomic Variables On Financial Performance Of Microfinance Banks In Kenya
Abstract
Macroeconomic variables cause variation in organisations’financial accomplishments.
This study aimed at determining the macroeconomic variables’ effect on financial
performance of Kenya’s microfinance banks. The study relied on two theories that
explained how equilibrium rates of interest and rate of growth can be determined,
which are macroeconomic variables. The study identified six determinants of
financial performance, i.e., the rates of interest, inflation and forex. Other
determinants were GDP, firm size (index of market size) and the level of
unemployment. Various local and international studies were reviewed, which assisted
in the construction of a conceptual framework. Four independent variables were
considered for this study to determine their effect on ROA. The study used
longitudinal and descriptive research design for seven-year panel data. Thirteen
microfinance banks in Kenya made up the population. Therefore, it was a census
study. Secondary data sourced from annual CBK reports on supervision of financial
institutions, from 2012 to 2018 were used. Three tests were duly executed on the data
to analyse its normality, autocorrelation and multicollinearity. Normality was
diagnosed used Shapiro Wilk test, while autocorrelation was determined using Durbin
Watson test. The VIF value determined the level of multicollinearity. Subsequently,
the data was subjected to further analysis to obtain descriptive statistics i.e., averages,
and variances. Other descriptive statistics were maximum and minimum values. In
addition, correlation matrix of all the variable associations, was generated.
Regression analysis model summary, ANOVA and model coefficient tables were
generated. From the analysis, the study found that adjusted R2 was 23.1%. Therefore,
the model explained 23.1% of the ROA variation as independent variables (interest,
market size, inflation and exchange rate) varied. R was 53.7% and therefore, the
model exhibited a moderate correlation between the independent variables and ROA.
The ANOVA indicated a significance of 0.002 which was less than alpha (0.05) used
in the test of significance. The model found that average lending rate had a significant
and weak inverse influence on ROA. One-unit variation in lending rate had an impact
of 0.012 units. Inflation rate had an insignificant and a weak positive effect on ROA.
One-unit variation in inflation resulted in 0.004 units change in ROA. Exchange rate
effect was negative and weak on ROA, but significant. ROA declined by 0.004 units
as exchange rate rose by one unit. Market size index had a significant, weak and
positive effect on ROA. ROA varied by 0.001 units due to one-unit change in market
size index. From the findings, it is recommended that the variability of
macroeconomic variables be checked by the regulating authority as their overall effect
on performance is 53.7%. this would safeguard the MFBs’ returns.
Publisher
University Of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
The following license files are associated with this item: