FINANCIAL MANAGEMENT PRACTICES AND FINANCIAL PERFORMANCE OF MICRO FINANCE INSTITUTIONS IN NAIROBI COUNTY KENYA

Abstract

This study sought to unveil the effect of financial management practices on financial performance of MFIs in Kenya. Specifically, the study sought to analyse the effect of working capital management, financial reporting, dividend pay-out and assets management on financial performance of Micro Finance Institutions in Kenya. The study was informed by residual effect theory, the transaction cost theory, contingency theory and Capital Asset Pricing Model (CAPM). Descriptive research design was used in analysing and collecting the data. The target population was 48 MFIs in Kenya and census was employed whereby all the 48 MFIs were included in the study. Both secondary data and primary data were used in the study. A secondary data collection sheet was employed in collecting the secondary data while the primary data was collected using structured questionnaire. The collected data was analysed through mixed method analysis while qualitative data was analysed using content analysis. Quantitative data was analysed using SPSS to generate mean, standard deviation and frequencies. The data was presented in form of table. Findings inferential analysis revealed that working capital management, financial reporting, dividend payout and assets management had a significant and positive influence on the financial performance of the Micro-Finance Institutions in Kenya. The study therefore, concluded that financial management practices have positive effect on financial performance of Micro Finance institutions in Kenya. The study recommended that the management ensures proper management of assets by upholding the effective management of cash and fixed assets through which they are able to maintain liquidity and steer performance. This would ensure that the MFIs are able to meet their financial obligations any time and effectively. Further, the study recommended that the management of the Micro-Finance Institutions in Kenya ought to enhance their effectiveness and financial performance through adopting the effectiveness means of working capital management.