Survey of the factors determining profitability of microfinance institutions in Kenya
a stable political environment and enabling macro economy, microfmance institutions are . important in providing savings, credit, funds transfer and other financial intermediation facilities to low income house holds and Small and micro enterprises. Effective longterm provision of these facilities occurs through microfinance institutions. In recognition that profitability is a necessary condition for micro finance institutions to scale up to a level that allows them to provide micro finance to a large client base independent of external subsidies over the long term, this paper investigates and documents the factors that determine the profitability of Microfinance Institutions in Kenya by analyzing unique firm level data set of the MFI's performance. The research applied ordinary least squares to an analysis of multiple correlation and regression consisting of cross sectional data that captured various features of selected micro finance institutions in Kenya to identify the factors that determine the profitability of MFIs in Kenya and the extent to which the identified factors explain the profitability From the findings of the study, all the independent variables studied i.e.; capital size, size of deposit liabilities, size of credit portfolio, composition of credit portfolio, labour productivity , Information Technology employed, risk level, size of the MFI ,ownership of the MFI, Ownership Concentration, Control Ownership Disparity and Structural Affiliation of the MFIs all affect the profitability of the MFIs. All the variables were found to have a positive correlation with the profitability of the MFIs. The degree of relationship between the independent variables and profitability varied among the variables with the size and composition of credit portfolio, capital size and size of deposit liabilities having the strongest positive relationship with profitability where as Control ownership disparity and size of the MFI were found to have the weakest positive relationship with profitability of the MFIs.