The Effect of fraud management strategies on the non-financial performance of microfinance banks in Nairobi County, Kenya

Abstract

Over the past decade, microfinance banks (MFBs) in Kenya have experienced a significant increase in the number and value of fraud cases, which has negatively impacted their performance. Despite various strategies and measures implemented to combat fraud, its incidence and effects continue to rise as fraudsters develop new methods. This study aims to assess the impact of fraud management strategies on the performance of MFBs in Kenya. Specifically, the study seeks to determine the effects of fraud risk deterrence, fraud risk prevention, fraud risk detection, and fraud risk mitigation on the non-financial performance of MFBs in Kenya. The study is grounded in the Fraud Triangle Theory, the Theory of Differential Association, the Fraud Diamond Theory, and Institutional Theory. A positivist approach was adopted, employing a descriptive research design. The population consisted of the 13 licensed microfinance banks in Kenya, targeting 316 permanent employees in senior and middle management positions within each MFB as the unit of observation. Data was collected using a questionnaire administered via a Google link sent to each respondent. Analysis was performed using SPSS software, employing both descriptive statistics, such as frequency distributions, and inferential statistics. The findings were presented in tables and graphical formats, such as bar graphs and pie charts, for ease of interpretation. The research revealed that non-financial performance was supported by the adoption of various effective fraud deterrence strategies by MFBs, including the use of fraud detection tools, preventive and control measures, and fraud investigation and detection practices. Additionally, fraud prevention strategies, such as frequent risk monitoring and employee training in fraud risk management, have been relatively successful. However, there is a need for greater clarity regarding whether these fraud risk prevention strategies are stringent enough to enhance non-financial performance. Many MFBs have not yet effectively institutionalized financial accountability through audit efficiency and fraud detection strategies. The study recommends that MFBs enhance fraud risk deterrence by instituting punitive penalties for employees caught engaging in fraud and identifying the appropriate tools for implementation. Furthermore, obtaining the cooperation of other departments is crucial for effective fraud risk deterrence.