Abstract:
This research paper explored the effects of regulation on financial performance of microfinance banks in Kenya. The study was guided by these research questions: what is the effect of capital adequacy regulation on the financial performance of Microfinance Banks in Kenya? To what extent has liquidity management regulation affected the financial performance of Microfinance Banks in Kenya? What is the effect of Asset quality on the financial performance of Microfinance Banks in Kenya? The research design e used in this study was descriptive which enabled the researcher to unearth the effect of financial regulation on financial performance of microfinance banks in Kenya. The target population in this study was 13 microfinance banks in Kenya. The researcher, with his team collect secondary data collected from the financial statements of the microfinance banks in Kenya, for the period 2011-2015. The data collected was analyzed using Statistical Package for Social Sciences (SPSS) program and presented in tables to enable the users of the research findings to understand the findings in an efficient and simple way. The study found out that capital adequacy had a positive effect on ROA, liquidity had a negative effect on ROA, asset quality had a negative effect on ROA and capital adequacy had a negative effect on ROE, liquidity had a negative effect on ROE and asset quality had a positive effect on ROE. The study concludes that there was a statistically significant relationship between the MFIs’ capital adequacy and their financial performance, MFIs in Kenya is highly dependent on the level of the institutions’ liquidity and here is a significant influence of asset quality of the MFIs and their financial performance. The study recommends that more investments should therefore be done through establishing more MFIs networks across the country which is associated positively with their financial performance, strategies to facilitate increased liquidity of MFIs should be adopted by the institutions for their efficiency in financial operations and MFIs should emphasize on asset quality as a stimulator of their financial performance and competitiveness.
