Liquidity Risk Management Practices in Micro-finance Institutions in Kenya

Abstract

The study is set to explore the liquidity risk management practices by MFIs in Kenya. Emphasis was on the following; understanding the process of liquidity risk identification by MFIs, the extent to which MFIs are classified, monitor liquidity risks, liquidity risk exposure of MFIs and to identify the various practices that the MFIs adopt in managing the liquidity risks. Primary data was collected through questionnaires distributed to MFIs operating in Nairobi City. Data collected was analyzed by use of descriptive statistics and SPSS (version 17) was used for the purpose of the analysis. Results indicated that MFIs have in place liquidity risk management practices. This is the case when it involves understanding the liquidity risk, identification, analysis/assessment and monitoring. Much of the information was from Risk departments and finance departments for some MFIs who are mainly involved in management of liquidity risks. Majority of the MFIs are liquid with high exposure. The population of interest in this study consisted of all 41 MFIs listed by the CBK 2002 to which the questionnaires were sent. A total of 30 questionnaires; representing 71% were administered and analyzed. The study’s major limitation was the unwillingness by some MFIs to give out information pertaining to the subject matter.