EFFECT OF MACROECONOMIC VARIABLES ON FINANCIAL PERFORMANCE OF MICROFINANCE BANKS IN KENYA

This study aimed at determining the macroeconomic variables' effect on financial performance of Kenya's microfinance banks. The study used longitudinal and descriptive research design for sevenyear panel data. Thirteen microfinance banks in Kenya made up the population. Therefore, it was a census study. Secondary data sourced from annual Central Bank of Kenya (CBK) reports on supervision of financial institutions, from 2012 to 2018 were used. Descriptive statistics were maximum and minimum values. In addition, correlation and regression analysis were used. From the analysis, the study found that adjusted R squared was 23.1%. Therefore, the model explained 23.1% of the Return on Assets (ROA) variation as independent variables (interest, market size, inflation and exchange rate) varied. Coefficient of correlation (R) was 53.7% and therefore, the model exhibited a moderate correlation between the independent variables and ROA. The model found that average lending rate had a significant and weak inverse influence on ROA. Inflation rate had an insignificant and a weak positive effect on ROA. Exchange rate effect was negative and weak on ROA, but significant. From the findings, it is recommended that the variability of macroeconomic variables be checked by the regulating authority as their overall effect on performance is 53.7% this would safeguard the Microfinance Banks' (MFBs') returns.