Abstract: This study was been motivated by some key facts, the first is that Kenya is in a new dispensation of government structures where there is a national and county governments. With progressive developments in devolved units, from the year 2013 there has been a vibrancy in rural economy, which in turn has led to most MFIs refocusing expansion to rural areas rather than concentrating their operations in urban localities. Secondly, there exists contradiction in past studies on significance of regulation requirements on financial performance MFIs. Thirdly there exist limited studies on comparative studies of regulated and self-regulated MfIs financial performance in developing countries. Finally the study endeavored to establish the compounded effect of regulatory requirement of corporate governance, credit risk management, liquidity management and capital requirement on financial performance of MFIs in Kenya. The main objective of the study was to assess the effects of central bank regulatory requirements on financial performance of microfinance institutions in Kenya. The specific objectives of the study was: To assess the effect of credit risk management on financial performance of Microfinance Institutions in Kenya, to establish the effect of Interest Capping on financial performance of Microfinance Institutions in Kenya, to ascertain the effect of liquidity management on financial performance of Microfinance Institutions in Kenya and finally to examine the effect of capital requirement on financial performance of Microfinance Institutions in Kenya. From the study, it can be concluded that credit risk regulation is positively correlated with financial performance of microfinance institutions in Kenya. The study further concluded that interest rate spread has a significant and a positive effect on the financial performance of the microfinance institutions in Kenya during the period before and after interest rate cap. The study also established that liquidity regulation positively affect the financial performance of the microfinance institutions in Kenya, thus the study concludes that liquidity positively affect the financial performance. The study finally concluded that capital requirement has a significant and a positive effect on the financial performance of the microfinance institutions in Kenya that higher capital adequacy ratios translated to higher financial performance. Since both effects were significant, it can be concluded that financial performance of the microfinance institutions in Kenya is influenced by capital requirement. The study recommends that big embarks on effective and regular monitoring of the credit from the time of disbursement till the final repayment as a means of minimizing on credit risk and its antecedent negative impact on financial performance. The study further recommends that a proper balance between capping on loans and deposits needs to be maintained so that microfinance institutions realize a good return on their assets. From the findings and conclusion, the study further recommends that there is need for microfinance institutions to increase their current assets so as to increase their liquidity as it was found that an increase in current ratio positively affect the financial performance.
Keywords: Credit Risk Regulation, Interest Rate Capping, Liquidity Regulation, Capital Requirement.
Title: EFFECT OF CENTRAL BANK REGULATORY REQUIREMENTS ON FINANCIAL PERFORMANCE OF MICROFINANCE INSTITUTIONS IN KENYA
Author: Mobagi Irene Magoma, Dr. Opuodho Gordon
International Journal of Social Science and Humanities Research
ISSN 2348-3156 (Print), ISSN 2348-3164 (online)
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