Effect of Capital Structure on Financial Performance of Deposit Taking Microfinance Institutions in Mombasa County, Kenya

Abstract

The objective of the study was to determine effect of capital structure on financial performance of Deposit Taking Microfinance Institutions in Mombasa County. Study population comprised of four DTMIs operating in the County of Mombasa with the study period being ten years from 2009 to 2018 using correlation research design. Data used was secondary collected in form of yearly reports issued by Central bank of Kenya and also financial statements from respective DTMIs. The study findings established an insignificant weak positive relationship between financial performance and variables considered. Proportion of debt, proportion of core capital and proportion of total capital had an insignificant weak negative correlation. Firm size had weak positive association which was also insignificant. The study recommends the importance of balancing merits of debt and bankruptcy costs because use of leverage beyond an optimal point has adverse effects on performance. Further CBK should consider reviewing the stringent capital requirements as this has been seen to be hurting the performance of DTMIs. Since this study used Return on assets for a ten year period, further studies can be done based on other measures of performance like Return On Equity of Net Interest margin covering a longer period like twenty years.