Relationship between commercialization and financial performance of microfinance institutions in Kenya
Abstract
This Research Project examines the relationship between commercialization and
financial performance of Microfinance institutions (MFIs) in Kenya. Recent trends
have emerged where MFIs aspire to embrace commercialization for a variety of
reasons more so to ensure sustainability and expand their reach. Although
sustainability has been viewed as a necessity for the existence of an organization, this
may have consequences on the initial purpose of the MFIs. Descriptive survey design
was used for this study whose population consisted of all the micro finance institutions
operating in Kenya that have already undergone commercialization. Data was analysed
through the Statistical Package for Social Sciences (SPSS) and presented using tables
and charts for easy understanding and analyses. Performance of an MFI can be gauged
from two perspectives; social and financial. The latter indicator being important for
commercialized MFI. This study used the analysis of financial ratios to determine the
relationship between financial performance of MFIs and commercialization. The
analysis revealed that there is significant relationship between commercialization and
financial performance. Debt/equity ratio and the size of the firm are the aspects of
commercialization. An increase in these variables is an indication of commercialization
in the firm. ROE is used as a measure of financial performance. The findings of the
study validated a negative relationship between Return on Equity (ROE) and Debt to
Equity ratio and dependence on MFI size. This is an indication of existing relationship
between commercialization and financial performance.
Publisher
University of Nairobi