Cash Management and Financial Performance of Microfinance Banks in Kenya

Belinda Buluma, Dr. Tumaini Mwikamba

Abstract


Microfinance banks play a significant role in promoting inclusion in finance and addressing financial needs of low-income individuals and small businesses. To maintain their financial stability, microfinance banks ensure regulatory compliance and ensure their ability to meet their financial obligations, microfinance banks have adopted various cash management practices. However, in spite of adoption of these practices, the financial performance of Kenyan microfinance banks still remains poor. The study therefore sought to investigate the effect of cash management on financial performance of microfinance banks in Kenya. The study was anchored on Keynesian liquidity preference theory. This research employed explanatory research design. The target population of this study was all the 13 microfinance banks in Kenya and spanned a period of eight years between 2016 and 2023. In addition, the secondary data used in this study was obtained from the Central Bank of Kenya, and from the financial statements of individual micro finance banks from Kenya. Secondary data was collected by using a data extraction checklist. The data obtained was quantitative and hence was analyzed using descriptive and inferential statistics with the help of STATA version 14. Descriptive statistics include mean and standard deviation, variances, frequency distributions and percentages. Diagnostic tests included autocorrelation test, heteroscedasticity test, normality test, linearity test, stationarity test and Hausman test. Panel regression model was used in testing the hypothesized relationships between the independent variables and the dependent variable. Thestudy found thatcash management positively and significantly affects the financial performance of microfinance banks in Kenya. The study recommends that microfinance banks in Kenya prioritize robust cash management strategies to maintain liquidity, meet short-term obligations, and capitalize on growth opportunities.

Keywords: Cash Management, Financial Performance, Liquidity, Microfinance


Full Text:

PDF

References


Al-Smirat, B. (2019). Cash management practices and financial performance of small and medium enterprises (SMEs) in Jordan. Research Journal of Finance and Accounting, 7(2), 98–119.

Alqemzi, A. T. (2022). The impact of liquidity risk management on financial performance through profitability in the UAE Islamic banks: A review. Journal of Positive School Psychology, 6(3), 46360–46345.

Amira, E. A., Alala, B. O., & Musiega, M. (2023). Influence of liquidity risk management on financial performance of commercial banks in Kenya. African Journal of Empirical Research, 4(2), 7–13.

Central Bank of Kenya. (2023). Bank Supervision Annual Report 2021. Retrieved from https://www.centralbank.go.ke/uploads/399346751_2015%20Annual%20Report.pdf

Chindengwike, J., & Mnyampanda, A. M. (2021). Relationship between asset quality and financial performance of commercial banks before and after shifting capital city located to Dodoma Region, Tanzania. Tribhuvan University Journal, 36(1), 96–105.

Geteri, G. M., & Nyang’au, A. (2019). Effect of cash management practices on performance of public secondary schools in Kisii County. International Journal of Recent Research in Commerce Economics and Management, 4(4), 1–12.

Gitari, M. S., & Musau, S. (2023). Liquidity management policy and financial performance of commercial banks in Kenya. The Strategic Journal of Business & Change Management, 10(2), 560–570.

Issack, A. I., & Mutswenje, V. S. (2022). Financial risks and financial performance of micro financial institutions in Kenya. International Academic Journal of Economics and Finance, 3(8), 186–202.

Kamasa, K., & Bentum-Ennin, I. (2023). Impact of monetary policy rate on commercial banks' lending rate: Empirical evidence from Ghana. Journal of Economic and Administrative Sciences, 12(9), 101–132.

King’ori, S. N. (2019). Determinants of financial performance of microfinance banks in Kenya. Research Journal of Finance and Accounting, 8(16), 1–14.

Mwashi, T. S., & Miroga, J. (2019). Influence of liquidity management practices on profitability of deposit taking SACCOs in Kakamega County. International Journal of Management and Commerce Innovations, 6(2), 167–175.

Navin, N., & Sinha, P. (2021). Social and financial performance of MFIs: Complementary or compromise? Journal of Management, 18(1), 42–61.

Njue, A. M. (2020). Liquidity management and financial performance of microfinance institutions in Kenya. Retrieved from http://repository.embuni.ac.ke/

Nyamador, Y. (2021). Effect of liquidity management on the financial performance of banks listed on the Ghana Stock Exchange. Retrieved from http://hdl.handle.net/123456789/7329

Onyekwelu, U. L. (2019). Effect of liquidity on financial performance of deposit money banks in Nigeria. Journal of Economics and Sustainable Development, 9(4), 19–34.

Onyemaechi, J. O., Udodi, N., & Hkay, H. (2022). Influence of cash management on financial performance of selected manufacturing companies in Nigeria. Contemporary Journal of Banking and Finance, 3(6), 26–39.

Osoro, E. M., & Muturi, W. (2020). Effects of liquidity risk management practices on the financial performance of savings and credit co-operative societies in Kisii County, Kenya. International Academic Journal of Information Sciences and Project Management, 1(4), 68–85.

Otieno, J. (2021). The impact of cash management practices on performance of SMEs: A survey of SMEs in Eldoret Central Business District. Journal of Finance, 12, 900–912.

Sadath, A. C., & Acharya, R. H. (2021). The macroeconomic effects of increase and decrease in oil prices: Evidences of asymmetric effects from India. International Journal of Energy Sector Management, 15(3), 647–664.

Sathyamoorthi, C., & Mashoko, D. (2022). Liquidity management and financial performance: Evidence from commercial banks in Botswana. International Journal of Financial Research, 11(5), 399–423.

Waiganjo, P. D., & Theuri, J. M. (2019). Cash management practices and the financial performance of private universities in Kenya. International Journal of Management and Commerce Innovations, 6(2), 1495–1504.

Wajid, A., & Rauf, M. (2021). The effect of liquidity risk management on financial performance of commercial banks in Pakistan. International Review of Management and Business Research, 2(1), 223–234.


Refbacks

  • There are currently no refbacks.