Financial Sourcing and Financial Sustainability of Licensed Microfinance Institutions in Kenya

THESIS TITLE: Financial Sourcing and Financial Sustainability of Licensed Microfinance Institutions in Kenya

STUDENT’S NAME: CHESORI CHEPKWEMOI VICKIE

SUPERVISORS

1. RASHID FWAMBA
2. KADIAN WANYAMA

ABSTRACT

Microfinance Institutions in Kenya has emerged as one of the effective sources of finance for socio-economic development and as an essential tool of financial inclusion. However, the positive impacts of Microfinance Institutions on the poor can only be achieved if the Institutions are financially sustainable. The purpose of this study, therefore was to examine the effects of financial sourcing and financial sustainability of Licensed Microfinance Institutions in Kenya mainly focusing on asset-based lending, debt financing, equity financing with firm size as the moderating variable. The theories used in this study were: Stakeholder Theory, Resource Based View and Capital structure Theory. This study adopted correlational research design. The target population comprised of 13 LMFIs. Purposive sampling techniques was used to sample out. Data was obtained directly from respondents using a closed and open-ended questionnaire. This data was then analyzed using descriptive and inferential statistics (Pearson correlations and regression analyses). Reliability was measured by Cronbach’s alpha test at a minimum threshold of 0.7. This data was analyzed using multiple regression models. SPSS 30 was used in analyzing correlations amongst the variables. Based on the findings, the study concludes that Asset-based lending is an important contributor to the financial sustainability of LMFIs in Kenya, suggesting that LMFIs can enhance their sustainability by effectively managing and leveraging their assets. Debt financing is the most significant predictor of financial sustainability among the financial sourcing strategies studied. This implies that LMFIs in Kenya are effectively using debt to enhance their financial performance. While equity financing contributes to financial sustainability, its effect is less pronounced when considered alongside other financial sourcing strategies. The size of the LMFI plays a crucial role in determining the effectiveness of financial sourcing strategies, particularly for asset-based lending and debt financing. Larger LMFIs appear to be better positioned to benefit from these strategies. Overall, a comprehensive approach to financial sourcing, considering multiple strategies and the size of the institution, is likely to be most effective in enhancing the financial sustainability of LMFIs in Kenya.