The moderating effect of firm size on the relationship between current assets management and financial performance of licensed microfinance institutions in Kenya

Abstract

The ability of a Microfinance Institutions (MFI) to grow in terms of capacity and resources has to do with how it managed its current assets. This is because, its relevance dictates a lot on how it would continue thriving in a highly competitive business environment. That notwithstanding, the total assets of Kenyan MFIs have experienced a decline of 8.8% from Kshs 70.4 billion to Kshs.64.2 billion in 2022 and 2023 respectively. This has been attributed to increased non-performing loans and customer deposits. The study determined the moderating effect of firm size on current assets management and financial performance of licensed Kenyan MFIs. The study was guided by resource-based view theory. Descriptive survey was used to ascertain the predicaments facing the MFIs’ deteriorating performance of its assets. The target population included 13 MFIs whose 134 participants were sampled through simple random methods to have a sample size of 100 participants. They were managers from departments such as compliance, investment, operations, credit, finance and accounting. Quantitative data inform of questionnaires and secondary data from reports was collected. Descriptive statistics such as frequencies and mean were analyzed whereas inferential statistics like model summary, ANOVA and regression coefficients were also analyzed. The study established that the value of assets was irregularly growing with the exception of three MFIs that registered consistency in growth of assets. These were Caritas, Sumac, and U & I MFIs. The irregularity led to low cash conversion cycle signifying that the growth of the MFIs was somehow stagnant. MFI managers should develop long-term financing strategies to incorporate more products and services in their MFIs that would attract more clients. The nature of the products and service should be inclined to more customization of the client’s needs. Additionally, the MFIs should hire more staff to market their banks so that the public gets to understand how their products and services are different from Saccos and mainstream banks. The management should seek to incorporate more stakeholders such as shareholders into the MFIs. The premiums paid through different shares, would be used in diversifying into long-term assets that generate consistent income to the MFIs. The policy implications of the results are that long-term financing strategies to incorporate more products and services in MFIs will attract more clients through customizing hence a difference from other financial institutions such as the Saccos and mainstream banks.