Firm Characteristics, Interest Rate And Financial Performance Of Microfinance Banks In Kenya

Microfinance Banks gives the forte to improve the economic activity of low-income individuals and eliminate poverty, resulting in economic progress. However, microfinance's Banks financial performance in Kenya has declined over time. The objective of this study is to investigate firm characteristics, interest rate and financial performance of microfinance banks in Kenya. The study was grounded on buffer capital, efficiency structure and interest rate parity theories. The study research methodology rested on positivism research philosophy. Research design was explanatory non-experimental design. Secondary panel data was utilized. 13 microfinance banks in Kenya were target. Information was gathered using secondary data sources from microfinance banks accounting report from 2016 to 2022. Data was analysed using descriptive and inferential statistics. The study used multiple regressions and Pearson’s Product Moment Correlation analysis. All ethical considerations were appropriately observed. Findings indicated that adequacy of capital exerts a notable and direct effect on financial performance, underscoring the importance for microfinance banks in Kenya to prioritize maintaining sufficient capital levels to support their overall stability and financial outcomes. Conversely, quality of asset demonstrates a significant and adverse influence on performance financially, highlighting the need for microfinance banks to enhance their credit assessment processes to ensure the quality of their loan portfolios. The research revealed that efficiency of management has an insignificant direct influence on financial performance of Microfinance banks. To address this, microfinance banks are advised to invest in comprehensive management training programs and capacitybuilding initiatives to improve operational effectiveness and decision-making processes. Earning ability, on the other hand, exhibits a considerable and direct influence on financial performance. Microfinance banks should thus focus on continuous innovation of their products and services to enhance their earning potential and overall financial outcomes. Liquidity levels exhibit an insignificant and inverse effect on the financial performance outcomes. To mitigate potential risks, microfinance banks should establish comprehensive policies and procedures to monitor and manage liquidity effectively. Interestingly, the study reveals that the connection concerning firm-level attributes and financial outcomes for microfinance institutions in Kenya does not appear to be subject to a substantial moderating influence from interest rate movements. Therefore, the survey recommends that microfinance banks concentrate on improving governance structures, operational efficiency, risk management practices, and asset quality. This can be achieved through capacity-building programs, training initiatives, and adopting best practices from successful microfinance institutions. Strengthening these firm characteristics will enable microfinance banks to enhance their financial performance, irrespective of interest rate fluctuations