Does Portfolio Quality Influence Financial Sustainability? A Case of Microfinance Institutions in Kenya

Stephen Kosgei Bitok, Josephat Cheboi and Ambrose Kemboi ()
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Ambrose Kemboi: Moi University

Journal of Economics and Financial Analysis, 2019, vol. 3, issue 2, 23-39

Abstract: This article studies the relationship between portfolio quality and the financial sustainability of microfinance institutions in Kenya. The analysis is based on a panel dataset of 30 microfinance institutions in the period 2010 to 2018. The study is guided by institutional theory which is built on conformance and continuity. The study adopts an explanatory research design where a panel approach is used under positivist paradigm. The study finds that portfolio quality has a positive significant effect on the financial sustainability at 1% statistical significance level. Based on this finding, the study concludes that portfolio quality is an essential element of MFIs financial sustainability. The study recommends that MFIs managers should devise good collection policies to improve portfolio quality while lessening loan default rate. The portfolio quality may improve the overall profitability and enhance investor confidence in their strategic decision-making on refinancing. It is important to note in order to ensure financial inclusion; the stakeholders must be involved.

Keywords: Portfolio Quality; Financial Sustainability; Microfinance Institutions; Institutional Theory. (search for similar items in EconPapers)
JEL-codes: D23 G21 G23 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:trp:01jefa:jefa0031

DOI: 10.1991/jefa.v3i2.a27

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