Impact Of Macroeconomic Factors On Financial Performance Of Deposit-Taking Micro Finance Institutions In Kenya

ABSTRACT

The study focused on the impact of macroeconomic variables on financial

performance of deposit taking microfinance institutions in Kenya. The specific

objectives were to assess the impact of inflation on the financial performance of

deposit taking microfinance institutions in Kenya, to ascertain the influence of gross

domestic product growth rate on the financial performance of deposit taking MFIs in

Kenya, to examine the relationship between exchange rate and financial performance

of deposit taking MFIs in Kenya, to determine the impact of national saving rate on

the financial performance of deposit taking MFIs and to find out the impact of

employment rate on the financial performance of deposit taking MFIs in Kenya. The

target population of the study was all the nine (9) deposit taking microfinance

institutions in Kenya registered with the central bank of Kenya (2014). Secondary

data was collected on all the microfinance institutions financial data from the Central

Bank of Kenya periodicals, macroeconomic data was collected from the National

bureau of statistics and the central bank of Kenya for a period of ten years between

2005 and 2014. Data was analyzed using a multiple regression analysis model using

SPSS version 20.0 as the data analysis tool. The findings of this study are; there is a

negative relationship between inflation rate and financial performance of deposittaking

micro finance institutions in all the years studied. This means that an increase

in inflation coursed a decrease in financial performance of deposit-taking micro

finance institutions in all the years studied. There was a positive relationship between

gross domestic product and financial performance of deposit-taking micro finance

institutions in all the years studied. This means that an increase in gross domestic

product coursed an increase in financial performance of deposit-taking micro finance

institutions in all the years studied. There was a positive relationship between

exchange rate and financial performance of deposit-taking micro finance institutions

in all the years studied. This means that an increase in exchange rate coursed an

increase in financial performance of deposit-taking micro finance institutions in all

the years studied, there was a positive relationship between national savings rate and

financial performance of deposit-taking micro finance institutions in all the years

studied. This means that an increase in inflation coursed an increase in financial

performance of deposit-taking micro finance institutions in all the years considered.

There was a positive relationship between employment rate and financial performance

of deposit-taking micro finance institutions in all the years studied. This means that an

increase in employment rate coursed an increase in financial performance of deposittaking

micro finance institutions in all the years studied. The recommendations of the

study are; The Government should closely monitor and prudently manage the

macroeconomic variable in order to spur greater financial performance as they explain

a higher variation in financial performance of the deposit taking microfinance

institutions in Kenya. The government should also control Inflation since it has an

adverse impact on the financial performance of deposit taking microfinance

institutions in Kenya. Lastly the government should strive to improve the country’s

GDP, National savings and employment rate as they positively affect the financial

performance.