Managing market risk for financial performance: experience from micro finance institution in Kenya
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Date
2021-05
Journal Title
Journal ISSN
Volume Title
Publisher
Journal of Financial Regulation and Compliance
Abstract
Abstract
Purpose – The purpose of this study was to investigate on managing market risk and financial
performance, experience frommicrofinance institutions (MFIs) in Kenya.
Design/methodology/approach – This study used positivism philosophy and used explanatory nonexperimental
research designs. The targeted population was all the 13 registered deposit-taking MFIs in
Kenya and a census approach was used. The study used secondary data which was collected and analyzed
from microfinance Institutions annual audited financial reports for the period between 2014 to 2018. This
study was anchored on two theories, namely, resource-based value theory and extreme value theory.
Findings – The results indicated that interest rate and financial leverage risk had a positive significant
effect on the financial performance of MFIs in Kenya. Foreign exchange risk was found to have a negative
significant effect on the financial performance of MFIs. However, inflation rate risk was found to have no
significant effect on the financial performance ofMFIs. Research limitations/implications – This study recommended that the chief executive officers of
MFIs should use the mechanism of identifying market risk variables, especially Interest rate, financial
leverage and foreign exchange risks to enable them to put the necessary measures to mitigate those risks and
enhance the financial performance ofMFIs in Kenya. Originality/value – This study is unique as it touches the microfinance industry which has a steady fast
growth in assisting accessibility of financial services to small and medium enterprises. Most of the previous
study concentrated on other industry in the financial sector.
Description
Journal Article
Keywords
Kenya, Foreign exchange risk, Financial performance, Interest rate, Inflation rate, Market risk, Financial leverage risk, Microfinance institutions, Interest rate risk, Inflation risk
Citation
Kahihu, Peter Karugu., Wachira, David Muturi., Muathe, Stephen Makau. (2012)., Managing market risk for financial performance: experience from micro finance institution in Kenya., Journal of Financial Regulation and Compliance., Vol. 29 No. 5, 2021.