Moderating Effect of Top Management Expertise on Internal Factors Affecting Financial Performance of Licensed Microfinance Banks in Kenya

Microfinance Banks in Kenya continued to report varied results for a long period. Some microfinance banks have continued to post impressive results while others are performing poorly and facing imminent collapse. It’s against this backdrop that research was conducted to analyze the moderating effect of top management expertise on the internal factors affecting the financial performance of licensed microfinance banks in Kenya. The study analyzed the effects of cash management, credit risk, operational efficiency and operating costs as independent variables while financial performance was a dependent variable. The study adopted both explanatory and longitudinal designs. The study used secondary data from 14 licensed microfinance banks for 2018-2023. Regression analysis on a balanced panel data set of 84 observations was used. Four theories; free cash flow, agency, efficiency and upper echelon theories were used. Return on assets was used to identify the financial performance. The study followed a quantitative method by employing panel data analysis. The relationship between variables was established using inferential statistics and regression analysis while STATA version 13 and Excel sheets were used to analyze the data. Pearson correlation matrix was used for predicting and describing the variables in terms of directions and magnitude while regression analysis was conducted. The findings revealed that cash management and credit risk positively and significantly influence financial performance, β=0.348; p<0.0001 and β=0.284; p<0.048 respectively. Operating efficiency, though significant, has a moderate effect, β=0.207; p<0.013 while Operating Costs, when managed, also contribute positively, β=0.28; p<0.0007. The inclusion of Top Management expertise enhances the relationships between these variables, cash management (β = 1.849, ρ>.0001), credit risk (β = 1.465, ρ>.0007), operation efficiency (β = 1.235, ρ>.0339) and operating cost (β2 = 1.421, ρ>.0087). Recommendations include prioritizing cash and risk management strategies, investing in operational efficiency, and reducing operational costs. Further research on technological innovation and external economic factors