Citation:

Racheal Bahati Mashalaghu, Dr. Onesmus Mutunga. "Effect of Firm Characteristics on Financial Stability of MicroFinance Institutions in Kilifi County, Kenya" International Research Journal of Economics and Management Studies, Vol. 2, No. 2, pp. 258-268, 2023.

Abstract:

The objective of this study was to investigate the effect of firm characteristics on the sustainability of MFIs in Kilifi County, Kenya. Multiple theoretical foundations provided the groundwork for this study. These included agency theory, efficiency structure theory, institutional theory, and contingency theory. This research utilized a descriptive research method as its methodology. This study looked into each of the 36 different microfinance organizations that are located in Kilifi County. This study was a census in nature because to the fact that there are not too many MFIs. All of the information used in this analysis was found in other sources. Both descriptive and inferential statistics were used to illustrate the relationship between the variables. Kilifi County, Kenya MFIs were analyzed using a regression model to learn more about how firm characteristics affect their financial security. When controlling for other characteristics (liquidity, leverage, credit score, and tangibility), the study found that each rise in the age of the company increased the financial stability of MFIs in Kilifi County by 0.782 (p = 0.003). Assuming all other variables to be equal, this result was discovered. Additionally, the financial stability of MFIs in Kilifi County rises by 0.463% for every unit increase in liquidity (p 0.001), The financial stability of MFIs in Kilifi County will improve by 0.463 (p = 0.001) if all other indicators (firm age, leverage, credit score, and tangibility) remain unchanged. In addition, the financial security of MFIs in Kilifi County improves by 0.532 percentage points for every unit of leverage that is raised, provided that other characteristics (age of the company, liquidity, credit score, and tangibility) are held constant. When all other parameters, including the age of the company, liquidity, leverage, and tangibility, are held constant, a one point rise in credit score would lead to a 0.473% increase in the financial stability of MFIs in Kilifi County (p = 0.023). When all other parameters, including the age of the company, liquidity, leverage, and credit score, increases the financial security of MFIs in Kilifi County by 0.549 (p = 0.005) points for every unit increase in tangibility (all other variables maintained constant). According to the findings of the study, microfinance institutions (MFIs) should adopt more sophisticated forms of digitalization. This will enable the smooth and effective operation of MFIs' activities, and as a result, MFIs should shorten their client engagement by simplifying the process. Findings from the study suggest that Kenyan MFIs may benefit from implementing internal economies if they for scale methods to cut down on the excess expenses that contribute to inefficiency. According to the findings of the study, microfinance institutions (MFIs) should undertake in-depth analyses on the profitability of client projects, as well as the riskiness of the projects and the likelihood of returns from the projects.

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Keywords:

Firm Characteristics, Sustainability, Tangibility, Microfinance.