Relationship Between Financial Risk Management Systems and Financial Performance of Micro Finance Institutions in Kenya
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Date
2013Author
Kinuthia, Winfred N
Type
ThesisLanguage
enMetadata
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Micro Finance Institutions are defined as institutions whose major business is the
provision of microfinance services. Proactive risk management is essential to the long term
sustainability of micro finance institutions (MFIs), but many micro finance
stakeholders are unaware of the various components of a comprehensive risk
management regimen. Credit risks, especially weakness in credit risk management have
been identified one of the main reasons behind the failure of majority MFIs. If the
microfinance institution does not manage its risks well, it wi11likely fail to meet its social
and financial objectives. This study sought to establish the relationship between financial
risk management systems and financial performance of micro finance institutions in
Kenya. The research employed a survey research method as well as causal research
design to show the relationship between financial performance and financial risk
management systems. The study targeted 47 registered MFIs. The study used both
primary and secondary data sources. A Likert scale and the use of Statistical Package for
Social Sciences (SPSS version 17.0) were employed to aid in the coding, entry and
analysis of the data obtained through the questionnaires.
The regression analysis was also performed to determine relationship between dependent
and independent variables. From the findings of the study Mil's-should institutionalize a
risk management process. Management of micro finance institutions has often treated
internal control and internal audits as peripheral to operations, focusing only on their
ability to uncover past mistakes and wrongdoing. The risk management approach
suggests a more integrated approach to internal control, placing a greater emphasis on its
ability to proactively prevent loss and encourage efficiency. To be effective, MFIs must
institutionalize the concepts of risk management into their organizational culture and
environment. The board and management should play an active role in overcoming
negative perceptions of internal control and internal audit by emphasizing to employees
the positive results that can be achieved from their effective application. By developing
control mechanisms that act as incentives rather than disincentives, management can
create a positive control environment in which all employees have a stake in improving
the internal control system. The use of performance-based incentives, profit centers, and
a culture that focuses on solving problems rather than on placing blame are all measures
that can reinforce a positive control environment and help to overcome past negative
attitudes toward internal control.
Citation
Kinuthia,Winfred N.,October,2013.Relationship Between Financial Risk Management Systems And Financial Performance Of Micro Finance Institutions In Kenya.Publisher
University of Nairobi