NEXUS BETWEEN LIQUIDITY MANAGEMENT AND LOAN REPAYMENT AMONG MICROFINANCE BANKS IN EMERGING MARKETS: A PANEL ANALYSIS

Loan repayment remains the chief source of internally-generated liquidity reserves in the microfinance banks operating in the emerging markets in developing countries. Globally, reports indicate that of the loans disbursed in the United States of America, 45% of borrowers default on repayment, 60% of whom eventually end up as non-performing. A similar trend is reported in Nigeria with statistics indicating growth in overall default rate from USD1.612B in 2017 to USD 2.694B in 2021. Uganda recorded about USD.1.215B worth of non-performing loans in its MFI sector in 2018, from USD 324M in 2017. Microfinance banks (MFBs), as one of the institutions at the center of financial inclusion in Africa target to serve low-end borrowers who are prone to fall in default of honouring their arising loan repayment obligations. In Kenya, MFBs have recorded a steady rise in non-performing loans from Kshs.328M in 2018 to Kshs.1.9B in 2021. The loan repayment trend among MFBs reflects a trajectory that calls for urgent invention measures to secure steady operations to the extent of meeting their arising financial obligations. Previous studies on loan repayment have focused on conventional banking institutions, whose operational lending dynamics are significantly distinct from those of MFB. Existing literature is skewed in favour of investigating parameters associated to profitability. The main objective of this study was to establish the relationship between liquidity management and loan repayment among MFBs in Kenya. The anticipated incometheory underpinned the study objective. Secondary balanced panel data sourced from the annual reports of 12 regulated MFBs in Kenya were used. The study covered an eight-year period from 2015 to 2022, yielding 96 data points. Moderated multiple regression was applied to realize the study objective. Regression results showed that a unit change in liquidity management results in 2.01% significant change in loan repayment (β=0.020110, p=0.0085) with R2=82.7%. From the results, the nexus between liquidity management and loan repayment is positive and significant but weak. It is recommended that reliance on strict management of internally generated funds ought to be complemented with moderate external funding.