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, t o examine the relationship between exchange rate and financial performance of deposit taking MFI s 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 ; t here is a negative relationship between inflation rate and financial performance of deposit - taking 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, t here 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. T here 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 deposit - taking 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.