Effect of Firm Characteristics on Performance of the Microfinance Sector in Nakuru, Kenya

Microfinances are set up to finance small enterprises but still they do meet the capital needs of the entrepreneurs. Therefore in spite of the importance of this sector, the provision and delivery of financial services by these firms has been below expectation. Literature suggests that firm characteristics determine performance of microfinances but it is not clear to what extent. The objective of study was to examine the effect of firm characteristics on the performance of the microfinance sector in Kenya. The study adopted correlational research design. A census was done on the 48 institutions registered with AMFI and operating in Nakuru. Primary data was collected using questionnaires. This was supplemented with secondary data. Data on firm characteristics and organizational performance was summarized using descriptive statistics. The relationship between firm characteristics and performance of MFIs was examined using correlation. The effect of firm characteristics on performance of microfinances was determined by regression analysis. Findings revealed that firm characteristics have a significant positive effect on performance of MFIs. Structure related characteristics had the greatest while capital related had the least effect on performance of microfinances. It is recommended that practitioners address and nurture firm characteristics to improve on performance of the sector.