The effect of mortgage financing on profitability of microfinance institutions in Kenya
Mortgage financing helps in reducing poverty levels and the growth of informal settlements and at the same time offering high opportunity for profitability and growth for financial institutions that have decided to pursue such projects. The majority of microfinance institutions however have not expanded their credit lines and financial products to mortgage financing. Additionally, financial performance of microfinance institutions has not been encouraging despite the fact that international and national development programs have been giving high priority on sustainable microfinance to the poor for many years. Therefore, this study sought to determine the effect of mortgage financing on profitability of microfinance institutions in Kenya. The study adopted a descriptive research design using census approach. The population for the study was all the microfinance institutions in Kenya as at December 31st 2013. Secondary data from financial statements of micro finance institutions offering mortgage financing was collected for five years from 2009 to 2013, on the MFIs profitability and mortgage financing. Multiple regression analysis was used to determine whether the independent variable (mortgage financing) affects the dependent variable (MFIs profitability). The study found that mortgage financing has strong and significant positive effect on MFI profitability. MFIs Liquidity was also found to be a key determinant of MFI profitability and has positive and significant effect on profitability of microfinance institutions in Kenya. Loan portfolio to total assets has weak positive effect of profitability of MFIs. Mortgage financing, liquidity and loan portfolio combined were found to have strong positive relationship with MFI profitability and accounted for 99% of MFI profitability. The study also found that mortgage financing in Kenya is under developed among the MFIs with just a small portions of loans relating to mortgage financing. The study recommends that the MFI management to adopt mortgage financing as a way of increasing the profitability of their MFIs and that the Central Bank of Kenya to develop regulatory framework to assist MFIs in financing and venturing into mortgage financing business.