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dc.contributor.authorKaranja, Winnie Njeri
dc.date.accessioned2022-02-08T14:09:47Z
dc.date.available2022-02-08T14:09:47Z
dc.date.issued2021
dc.identifier.urihttp://hdl.handle.net/11071/12636
dc.descriptionA dissertation submitted to Strathmore Business School in Partial fulfillment of the requirements for the award of Master of Science in Development Finance Degree of Strathmore Universityen_US
dc.description.abstractEmpirical evidence has shown that the growth of the microfinance sector in Kenya has been constrained by increasing competition in the microfinance industry from other emerging models such as digital lending institutions, short-term unsecured lenders as well as micro-lending activities from commercial banks. These constraints have also resulted in shrinking lending capacity and declining profitability due to attrition of high-quality borrowers to competing lenders. However, there is limited research on the factors that affect credit extension by Kenyan microfinance banks, which is vital in understanding the dynamics of the sector. This study examined how firm-level financial characteristics influence credit extension by microfinance banks. The study sought to find out the effect of firm size, liquidity, NPLs, deposits, and interest rates on credit extension by microfinance banks. A descriptive research design was applied, focusing on the 13 licensed microfinance banks as at December 2019. Panel data was collected for the period between 2011 to 2018 from financial submissions by these microfinance banks, which are published by the Central Bank of Kenya. Data analysis involved descriptive, correlation testing, and panel regression analysis. The study found that firm size and interest rates had a positive relationship with microfinance banks credit extension, while non-performing loan, liquidity and deposits were found to have a negative relationship with credit extension by licensed MFBs in Kenya. In the Panel estimation model, only Firm size and Liquidity were found to be good estimators of Credit Extension. The main recommendations from the study were that, as firm size supports the growth ambitions of a microfinance institution and the microfinance sector in general, microfinance banks should aim to maintain high asset quality of their loan book as it has an implication on the institution’s ability to absorb the impact of risk, and hence affects the institution’s ability to target credit extension growth. The study also recommends that, given the findings that deposit mobilisation is not a good predictor of credit extension, Microfinance banks should focus on mobilising capital from diversified sources, including low-cost funding from microfinance developmental funding institutions, as they are not able to rely on deposits as a cheap source of funding. On interest rates, while findings indicate that interest rates are not a good estimator of credit extension, care should be taken to avoid overly expensive loans so as to observe fair lending practices and support welfare of borrowers. To the regulator, the recommendation is that the sector should be watched closely to ensure liquidity levels remain above the minimum statutory level of 20% which was found to have a negative relationship with credit extension. Study limitations included the exclusion of external factors such as macroeconomic factors and competition, and the exclusion of primary data – both qualitative and quantitative.en_US
dc.language.isoenen_US
dc.publisherStrathmore Universityen_US
dc.titleInfluence of firm-level financial characteristics on credit extension by microfinance institutions: a case of Kenyan licensed microfinance banksen_US
dc.typeThesisen_US


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